With government subsidies fade out half of China's LED chip factory facing bankruptcy crisis

With the decline in TV prices, China's large number of Samsung and SHARP LED chip companies face difficulties. Insiders pointed out that this oversupply problem will lead to half of the enterprises to go bankrupt, but only the larger, government supported companies can continue to survive.

Small companies or bankruptcy

The decline in global TV and computer sales is likely to further affect the price of LED chips, which will reduce the price of up to 20%. For China's small LED chip companies, integration or bankruptcy will be the only choice.

However, insiders pointed out that the market value of $2 billion 800 million and Guangdong Elec-Tech Sanan optoelectronics will be a handful of companies can continue to survive, because these companies received government subsidies or incentives China. Nomura Securities analyst Li Anne (AnnELee) said: "this is China strategy. They want the biggest companies to survive in the restructuring of the industry. "

For most of China's LED chip companies, the government's support is gradually withdraw. These include tax breaks, free land use, and more than $1 billion 600 million in funding for LED chip production facilities. These initiatives over the past 3 years to support the development of the industry in china.

Also by LED chip prices and apple trademark dispute over the right of Shenzhen Proview, influence of the increasingly fierce competition in the market. Other companies affected include Hangzhou Silan and Foshan nationstar etc.. Silan and country star power in the past 1 years shares fell more than 30%.

Industry observers pointed out that many LED chip company's operating rate of only 50%. From 2009 to 2010, about 700 of the production line through government subsidies, about half of the current idle state. It is understood that over the past year, the problem of overcapacity led to the collapse of hundreds of small LED manufacturing enterprises in china.

Bao Enzhong, Deputy Secretary General of the Federation of Shenzhen LED industry, said: China's financial policy did not give adequate support to small and medium enterprises. We will see more business failures. "

Large enterprises receive high subsidies

As a result of government support, in 2011 the Chinese manufacturers in the global market share of packaged LED components reached 6%, higher than in 2010 of 2%. Sanan optoelectronics said that in 2011 the company's net profit doubled, reaching 936 million yuan, in 2011 the company received about 1 billion 900 million yuan of government subsidies. The net profit in 2011 was also significantly increased to 392 million 300 thousand yuan.

These large LED companies hold a total of nearly 2 billion yuan in cash, so you can continue to expand production capacity in the case of market growth, so as to gain a greater share of government supported LED projects.

UBS said in a report, Elec-Tech has added 50 for the production of metal organic chemical vapor phase deposition LED chip (MOVCD) devices, and this year will increase 100. Sanan optoelectronics also plans to increase the number of this kind of equipment.

China's Ministry of science and technology has said it plans to expand the scale of China's LED industry to 500 billion yuan by 2015. Stakeholders said that in 2011, the scale of China's industry is 31 billion yuan, and industry consolidation has become a priority.

The collapse of weaker companies will be conducive to the development of large scale, government supported LED companies, so that these companies have a certain advantage in international competition. Other major LED companies in Asia include Taiwan chip optoelectronics and Korea LGInnotek.

Next year, the trend is still not optimistic

Market demand for LED chip cyclical decline, as well as significant overcapacity has affected the price of LED chips and related corporate profit margins. Although earlier this year, the market demand for LED chips seasonal growth, but the market fundamentals are still weak.

According to UBS's report, the company's revenue growth in Taiwan in April LED fell to 3%, lower than in March when the number of 12%. These companies in the global packaging LED chip market share of about 19%.

HSBC analyst Jerry CAI (JerryTsai), said: with the improvement of backlight technology, TV and monitor the use of LED will be reduced, we will see the real demand problem. If this year's product prices fell by 20%, then the industry will face greater difficulties next year. "