To talk about the industry in 2014, we must first look at the biggest variable that will affect the LED industry in 2014. The editor believes that it is actually the release of packaging production capacity.
Where does this production capacity come from? It is mainly the packaging expansion that started in the second quarter of 2013. Overcapacity, price wars, and bankruptcies since 2012 have caused negative emotions throughout the industry. However, in the second quarter of 2013, the lighting market, which had been suppressed for a long time, suddenly exploded. The packaging shortage in the entire market was very serious. Many packaging factories unanimously viewed the market situation positively and began to rapidly expand production. Many of them doubled their production capacity at once.
For example, Mulinsen has been making rapid progress since then, expanding its packaging production capacity by 3000KK every year. What is the concept of 3000KK? This is approximately equivalent to 4-5 times the production capacity of Hongli Optoelectronics, a listed company in 2013, and far exceeds Ruifeng Optoelectronics and Jufei Optoelectronics.
Production capacity scale of China’s major packaging plants (KK/M)
However, the expanded production capacity cannot be put into use immediately. Throughout 2013, the overall packaging production capacity is still in short supply. Therefore, the price of packaging has only decreased slightly throughout 2013. Because this strong demand is limited by the lack of packaging production capacity, it is not effectively transmitted to the upstream chip side.
Even compared with 2012, the demand for chips has increased significantly, but for chip manufacturers, it is just releasing the existing production capacity, and the chip shortage is far from being in short supply. Therefore, overall, 2013 is probably the best time for packaging plants in recent years. The market is very tight, but the supply of chips is endless.
This is very different from the past. In the past, shortages were often due to chip shortages. The inability of packaging factories to deliver goods was not due to insufficient production capacity, but to the inability to obtain chips. This time, it is completely different. There are enough chips and enough orders. If there is any bottleneck, it is mainly due to insufficient production capacity. Mulinsen, Ruifeng, and Zhaochi, which have fully prepared their production capacity, all saw significant growth in their packaging business in 2013. The most important thing is that the price of chips has hardly increased, but the packaging end is in short supply, which very effectively keeps industry profits in the packaging link.
This returns to our original topic - the release of packaging capacity. "The best times always go fastest" is a perfect way to describe packaging factories. The wave of production expansion that started in the second quarter of 2013 began to gradually be released between the fourth quarter of 2013 and the first quarter of 2014. In the fourth quarter of 2013, the newly added production capacity was mainly to meet the demand gap. However, by the first quarter of 2014, the release of doubled production capacity was an almost catastrophic blow to the market, and packaging prices began an endless downward cycle. The packaging price, taking the most typical 0.2W 2835, was still 0.1~0.12RMB at the beginning of 2014. However, by the fourth quarter of this year, the mainstream price in the market has reached 0.04~0.06RMB. In less than a year, the price has almost halved.
However, for the chip factory, it is a belated happy time. The doubled demand in the first quarter of 2014 was concentrated and released, causing the chip market to be in shortage throughout the first half of the year. Huacan Optoelectronics (SZ300323) released its production capacity at this time because of the Zhangjiagang project started in 2012, and Dehao Runda (SZ002005) also opened its existing production capacity at this time. The revenue of chips increased by several hundred percent year-on-year. Sanan Optoelectronics (SH600703) has also officially become the price leader in this market. Other competitors are watching Sanan's every move to adjust their price strategies. At this time, packaging plants also realized that chips were entering a shortage cycle, and signed supply agreements with Sanan to ensure priority in obtaining the supply of chips.
Therefore, it can be safely said that the first half of 2014 is the best time for chip factories.
Looking at it this way, the capital market is very smart, and most expectations are reflected in the stock price. The biggest increases of the major packaging factories (Jufei, Ruifeng, and Hongli) all occurred in the first half of 2013, while the main increases of the chip factories were mainly reflected in the second half of 2013. Compared with the actual improvement of this industry chain link, it was reflected in the stock price at least half a year in advance.
As for the inhibitory factors to the stock price, there is no doubt that the future profit prospects of packaging factories are really not optimistic. At least it is difficult to see a situation like the second half of 2013 again. However, as the industry reshuffle intensifies, uncompetitive companies in the packaging industry will gradually withdraw. For example, with the sudden collapse of Juliang, customers and suppliers will begin to actively tilt their resources towards listed companies. More and more practitioners will gradually realize that in the mature stage of the industry when the industry growth rate is slowing down, opportunistic and extensive operations cannot continue. Enterprises with clear strategies, standardized management and good reputation will receive more support resources. The entire packaging industry has the opportunity to return to normal economic profits during this process, and excellent companies will gain greater room for development.
From the chip side, it seems that the biggest Achilles heel at present is that the exit cost is too high. On the one hand, a large expenditure for epitaxial chips is equipment investment, which raises the sunk cost. On the other hand, because many projects are highly involved by local governments, because they are tied to political performance, they are often allowed to succeed and not fail. Even for projects that are destined to fail when it is clear that they have no long-term competitiveness, relevant stakeholders are unwilling or afraid to admit losses and stop losses.
Under this form, even companies like Sanan will find it difficult to escape the Red Sea competition, especially the market shortage like the first half of 2014, which actually resurrected many zombie chip companies. By the second half of 2014, there was strong market supply pressure, and the chip side began to be forced to lower prices.
Therefore, Sanan purchased 50 units of R6 and 50 units of EPIK700 at one time, which is equivalent to the production capacity of more than 200 units of 54-chip machines, which is equivalent to a 1.2 times increase in Sanan's current production capacity. Sanan's purpose of doing this is also obvious. After all production capacity is released, with the power of efficiency of the new machines, Sanan's average cost is expected to be more than 30% lower than the industry average cost. This is actually to establish a high entry barrier through economies of scale.
If Sanan's prices are lowered by another 20%, most competitors' prices will be lower than the average cost, and Sanan can still guarantee profits. Through such competitive prospects, forcing competitors to give up additional investment or even withdraw from the industry, the entire chip industry has a chance to restore normal competition order.
You must know that many second-tier manufacturers currently have a small number of machines and have no substantial impact on Sanan's market share. However, they have always affected the chip industry in terms of price, thus threatening Sanan's profitability. Only by gaining an absolute advantage can Sanan hope to make the promoters behind these small chip projects quit.
ANNA