Three crystal electric into a balance of terror situation but good chip end?

The second half of 2014, three for 2 times respectively to AIXTRON and VEECO each ordered 50 new machines, total 100 units, but the capacity is equivalent to more than 200. AIXTRON R6 and VEECO EPIK700, you can simultaneously produce 31 pieces of 4 inches epitaxial film, single machine capacity equivalent to the previous generation 54/56 tablet machine more than 2 times.

MOCVD new machine production capacity comparison

Source: LEDinside gold member report

The progress of the project in Xiamen than the market expected three greatly accelerated, according to three of the announcement, the market had expected an 200 MOCVD Xiamen project will be ordered, may share in 2017 before a few years. This capacity step by step to enhance the annual growth in the LED market demand, coupled with a wide band gap semiconductor gradually into the growth period, it can effectively absorb this part of the production capacity.

However, three not to around half the time for the release of two piece of equipment purchase orders, expected capacity compared with the existing production capacity increased by more than doubled. After the production capacity is expected to exceed three, crystal electric, emerged as the world's first LED chip production enterprises. But also because such a radical expansion of production capacity, the market is worried about the chip industry supply and demand may again be a serious imbalance, entering the fourth quarter since 2014, the main producing areas of the global LED chip MOCVD machine's rate fell significantly, including the majority of the industry in 2015 the chip industry outlook to hold a deeply pessimistic view.

Analysis of capacity utilization of LED manufacturers in different regions of the world

Source: LEDinside gold member report

However, with the market outlook on the prospects of the chip industry is different, the author believes that the prospects for the LED chip industry is not so bad, there are three major support logic, welcome to discuss:

The first point: 2014~2015 chip production capacity in the state of asymmetric expansion, which is conducive to improving industrial concentration.

With the 2009~2011 chip project such as around the country like bamboo shoots after a spring rain flowering is different, after 2012 the entire chip industry into the bottom of the baptism of the new chip project has been greatly reduced, part of the project has begun to withdraw, but after a few years of brutal competition, most game player also chip gradually on the market have a more in-depth understanding. The lack of competitiveness of enterprises in the expansion of production capacity is more cautious, but also the actual ability of local government subsidies have a clearer cognition. As a result, the two years of capacity expansion is a relatively dominant market position of enterprises.

This asymmetric capacity expansion although increased the total supply of the market, but at the same time enhance market concentration. Especially with the HHI index (the "LED Chinese faced four major challenges in the industry" has been introduced, will not repeat them) to measure it, 2014~2015 chip market industry concentration is significantly improved in the state. In other words, if the same is the production capacity of 200 units, respectively, by the 10 companies, the market competition intensity is far greater than one of the installation. This three 200 units of capacity expansion, in fact also deter the expansion plan, some competitors in the market, making the overall chip supply expansion appears more cautious.

Second: three crystal electric two kingdoms, the formation of a balance of terror situation.

During the cold war, the United States and the Soviet Union, both sides have a number of nuclear weapons, enough to destroy the earth countless times. However, because of this, there is no side dared to launch a nuclear war. Even in the Korean War and the Vietnam War two camps in the cold war, also try to avoid confrontation, let alone to start a nuclear war.

This logic is used in the LED chip industry, we can see three and electricity (including forepi) the effective capacity added more than the sum of all other chip companies effective capacity, both in any one if the launch price war, have the capacity to destroy the industry. However, three and electricity are listed companies, so we can assume that they are rational people, not to grab market share in self destructive form. Especially when the scale of production capacity has become a reality, the focus of competition from production to price. The logic of capacity competition is the bigger the better, and the lower the price competition is not the better. Compared to small and medium chip companies, they will be more concerned about maintaining the maximum profit price. And because their production capacity is large enough to affect the industry, the market price will be a function of their output, and profit maximization is determined by their optimal production. It can be determined that the optimal output may be a point between 200 ~370 units, but it will not be fully open to 370. This logic applies equally to the crystal.

Therefore, the 370 capacity can not three as great scourges, on the contrary, the surplus exists, is quite effective entry deterrence strategies, promote the whole chip industry barriers to entry.

As for other followers of the chip business, as long as it does not attempt to challenge the big two an oligopoly, do not easily trigger a price war in the individual customers to compete for "local wars", it can be said is a conventional war, will not cause "nuclear weapons" level of cut price war.

Third points: asymmetric expansion of chip and packaging capacity

Although China's chip capacity expansion in 2015 amazing, is still the largest proportion of the world's largest expansion of the region, but China's chip production capacity after years of accumulation, has been the world's largest production capacity, so