The LED chip market to maintain balance of the future will fight against danger

[LED] Chinese network compared to packaging Aihong, LED chip manufacturers competition is much more control, this is mainly due to the expansion of the chip production capacity in the past two years relatively much control. In 2014 Chinese added MOCVD machines 223 Taiwan (multi cavity and high machine are translated into 54 pieces of 2 inch machine capacity), although the number is still small, but YoY was only 21%, taking into account the old machine exit, the actual capacity of the new range is quite limited, and now the market scale is smooth enough to digest this part the expansion of production capacity. And the new capacity mainly concentrated in the market competitiveness of its products and medium-sized chip companies, to avoid the emergence of low quality and low price chip outflow and the impact of market situation.

But back in 2010, 2011 China MOCVD capacity expansion in 2010, up to several times, 2011 YOY as high as 153%, while the market demand can not be completely the same proportion of growth, and therefore appears to be a serious excess capacity in 2012 chip, prices continued to collapse of the situation.

According to LEDinside statistics and observation, the price of the LED chip in the 4Q14 before the emergence of a large area of systematic price cuts. In the 2 quarter of this year, although there are still some varieties with high price decline range, but lower the prices of varieties have shown some resilience, the overall market price spatial distribution tends to converge, but still not crash.

In 2014 the chip market is the largest Chinese local chip companies market share rise, before Wu Dazhong scored 4 seats, crystal electric for the first five large and medium-sized non local chip companies There remained but a single one. Three China LED chip market in revenue over crystal electric for the first time.

But given the layout of the international market and later patent restrictions, Chinese chip companies in the home court outside the market share is still very small, ranging from the global market, the output value into the top 5 largest chip companies only three a. As a result, to enter the international market, into the international packaging brand supplier's supply chain, a place in the global market is still China's LED chip companies in the future opportunities and challenges.

But, on chip market, there is still a high Damour Felix sword, that is three is the construction of two projects, up to 200 units of production capacity once on the market, now the fragile balance of the entire chip market will collapse at any time.

However, if we consider three is a rational management of the listed company, assuming that the pursuit of the goal is to maximize profits, we have established a formula:

R=Q*P-Qc-F

Consider the three market share has Chinese is first, the yield is large enough to affect the market price of the chip, so the three after a certain stage of the production yield and market price is negatively related with formula established in two:

P=-aQ

The formula two into formula one, there is a relationship between profit and production, such as formula three:

R=-aQ - -Qc-F

The extreme value of equation three using linear programming for profit R, because the formula two coefficient is negative, the profit function curve is a parabola with downward opening, the profit maximizing yield is less than a maximum yield.

A reasonable assumption is that the new capacity will be gradually released in order to avoid the impact of the current market price of the existing business, and to increase the profit margin of adequate coverage of new fixed assets depreciation.

But above all three goal is based on profit maximization, if three market share or absolute stable oligopoly as the goal, to launch Jianbiqingye price war, this delicate balance can maintain live is to be seen. Especially when Huacan in reorganization, Elec-Tech in SEO latticepower in Jinsha River, as well as planning, integration of Lumileds resources to compete for Chinese chip market the third goal this new road completely bared there and then, forces is likely to break the power to maintain and three double oligopoly equilibrium pattern, will not have a fight hard to predict.

In addition, at three capacity expansion with at least three One divides into two., heavy positive significance to the industry:

First of all, this is a deterrent strategy of the three production capacity expansion plan, effectively deter competitors, reduce the intensity of competition in the industry. In recent years, three each high-profile expansion plan, all rivals are very uneasy, not only Chinese enterprises, including South Korea and Taiwan enterprises in the chip chip capacity expansion has become more cautious, so the slowdown in the industry this year, LED chip companies are relatively much more comfortably.

Secondly, it is also an entry deterrence strategy, to prevent new competitors to join the industry. This strategy TSMC has been used in the early years, through the construction of a large number of excess capacity, reduce the new entrants to enter the industry after the earnings expectations, thereby eliminating the potential competitors to enter the program. Through the observation of the past few years, we have found that there is a willingness to enter the new LED chip industry companies, more through mergers and acquisitions within the industry re integration of resources.

Again, an anti cycle operation capacity expansion and enterprise value. LED chip industry as a result of fluctuations in the downstream demand is quite unstable, thus showing a strong cyclical. This cyclical fluctuations affect the stability of the company's earnings expectations, reducing the value of assets in this business model, when the market is in short supply, demand