China LED Industry Development Report (2010-2011)
【English edition introduction】
Between May and October in 2009, with the support and help from China Solid State Lighting Association (CSA), Coordination Office of National SSL Engineering Projects, and the National R&D and Industry Development Alliance for Solid State Lighting, Beijing Materials Consulting Co., Ltd (hereinafter referred to as "BMC") has carried on one extensive survey on domestic LED industry. The major covered areas are the Pearl River Delta, Yangtze River Delta, the Bohai Sea (mainly Beijing, Tianjin, Dalian, and Shijiazhuang), Fujian and Jiangxi, and Midwest Wuhan and Chongqing as well. Many representative large enterprises are involved. They have multiple enterprise types which cover epitaxial material, chip, packaging, and all types of applications for the domestic LED industry.
That various methods are used in this investigation and research ensures the richness and accuracy of the information (data). The main methods used include: large-scale questionnaire survey, site visit and interview of the sample enterprises, entrepreneur workshops, industry experts interview. Relevant literature and the industrial data accumulated by BMC and CSA and the National R&D and Industry Development Alliance for Solid State Lighting for years are used in the study for ensuring the quality of study and report. A panel of top Chinese LED experts’ suggestive comments on the report also contributes significantly to the quality improvement of the report.
This LED development report covers the recent development of the industry regional distribution, technology and product, market competition and investment, human resources, government policies until the end of 2009. A detail investigation and interpretation for the basic information, existing problems and so on for the above aspects have been conducted. What’s more, based on the complete analysis for the industry development, forecast for the future industry development trend has also been made. The report can be used for multiple purposes. As one of the major aims for the report development, it can serve the needs for the Chinese central government to make her long-term (5 years) strategic development plan for the industry. Besides, the report also provides accurate intelligence information and scientific basis for the local governments to develop their detailed industry development plan, for strategic investors , interested in the LED industry in China，to make informed and wise investment decisions, and also for LED-related enterprise management to make strategic and management decisions.
A summary of the major findings and conclusions from the report, which focus on six aspects, i.e., the current overall situation of LED industry in China, technology, market, capital, human resource, and government policy, is presented as following. （I）Current situation of the industry in China
From the regional distribution of the industry, now there are four major areas formed in China's LED industry, which are the Pearl River Delta, Yangtze River Delta, Northern part(along the Baohai Gulf), Jiangxi and Fujian areas. Seven national LED Industrial bases were established separately in Shanghai, Xiamen, Dalian, Nanchang, Shenzhen, Yangzhou and Shijiazhuang; In addition, local industry organizations, such as promotion center, chamber of commerce, and local LED associations, were also built in Ningbo, Guangzhou, Wuhan, Chongqing, Harbin, Xi'an and other cities.
At present, there are more than 3,000 LED industry-related enterprises in China, of which about 2000 are in LED applications, more than 1000 in LED packaging, and more than 40 are in LED wafer epitaxial and chip manufacturing. One obvious existing challenging issue, in terms of the distribution of the segments of the industry chain, is the uneven distribution of the Chinese LED industry chain. For instance, there are only small number of enterprises, around 40 at present, capable of and focused on the upstream epitaxial material and chip production, as a higher technology and capital requirement. The key equipment R&D is also relatively weak area, for instance, the national-made MOCVD is still in the prototype development stage.
However, the development of the packaging and applications aspects in China's LED industry is fast. It’s better than the upstream epitaxial material and chip production not only in the output but also in technology aspects. Particularly in the applications segment, there are more than 2,000 enterprises, about 70% of the total industry enterprises.
The uneven distribution of industry chain directly leads to a hard competition and disordered in the packaging and application market of Chinese. Meanwhile, due to lack of industry standards and large-scale and big brand dominant enterprises, the current chaotic situation may still last for a period of time.
In this report, we have analyzed the above-mentioned problems in detail, and the suggestions for attacking the current problems are also made. （II）Technology
At present, a gap exists in LED technology between China and world leading technology powers such as United States, Japan, and Germany. Many R&D in material epitaxial technology and equipments in our country still remain in the laboratory stage, and it’s a long way for us to go into the real industrialization. Relatively speaking, the technology gap, in packaging materials, process technology and equipments, system integration technology and application, between ours and the international leading counterparts is not so big. Particularly in application area, our system integration technology and application is developed very rapidly. Currently, some technologies such as system integration, control system and so on, can compete with the international best one. The successful application of LED products in 2008 Beijing Olympic Games provides some evidences for this point well.
In technology research and development (R&D) aspect, Chinese central government (MIST) launched the "China solid state lighting program” as an 863 national R&D funding project during the Eleventh Five-Year Plan (2005-2010), this project was listed as the key and crucial project in advanced material field with 350 million funding the R&D of core technology, key equipments and application integration. So far, this plan has gained important achievements in the core technology aspect, such as 100lm / W high-power chip. The plan supports the development of domestic LED industry strongly, and has gained some important results in application integration aspect as well.
Our investigation finds that the technological competition is still one key focal point for the LED-related enterprises at both home and abroad. The enterprises with patent technology gain higher profits, and the others without parent protecting have to seek ways to get through the existing patent barrier and/or to gain their own technology advantage through different technology routes as well. Our investigation shows that the patent barrier has severely constrained the development of the entire LED industry in China, particularly for the upstream segment. According to the statistics, most of the LED-related patents in our country are in the packaging and application segments (middle and lower segments of the industry chain), and there are only a few patents existing for the upstream material epitaxial technology and equipments aspect. Most of the important technologies in our country are imported at present, so that the technology difference among local enterprises is not so large. Product positioning is similar, and the market is highly concentrated.
In this report, after a scan-analysis for LED patent structure at home and abroad, we found that our country has certain technology competitiveness in the LED packaging and application, although the patent network of the international giants had already extended from epitaxial material and equipment in the upstream segment, to the packaging and applications in the middle and lower segments of the industry chain. Strategically, we should make the patent layout actively and effectively, in order to avoid relapsing into the patent network of the international giants, and to prevent 337 investigation and similar cases from happening.
（III）Market
The potential of Chinese LED market is huge and the growth of the market is fast as well. As the China LED market grows rapidly, the development of LED industry shows an interesting symbiotic phenomenon between technology and market, which is quite different from a lot of industries. That means the growth of industry and market are synchronous, that is, the LED products in certain volume start to appear and sell in the market even when the industry is still in her infants.
It is found that LED has very wide application areas via survey. Niche markets exist for almost different type of LED products. In 2008, the output value of domestic LED applications is around 45 billion RMB and 60 billion RMB in 2009. The mature application areas include architectural lighting, large-size screen display, traffic lights, indicators, mobile phone, special lighting and military, digital camera, and other small size backlight. While the luminous efficiency is improved and its performance is upgraded, LED application area also expands. Since the white LED created, its luminous efficiency has been increasing year by year, the color rendering and color temperature performance becomes better and better, meanwhile, the price has been declining gradually, as a result, the LED lighting application area is getting even larger. In contrast, currently the underripe areas with rapid development are: middle and large size LCD backlighting, road (street) lighting, indoor lighting, automotive lighting, etc. These areas may also become the direction for future development of LED.
In this report, we not only introduce the detailed composition of LED application market and distribution, but also analyze the potential application market for LED industry. Forecast the application market development trend for LED industry and the market share change for various application products in the next few years.
（IV）Competition and investment
While the global financial crisis is still not finished yet, the reason for LED industry to have strong development momentum in China is because of its huge development potential and prospect. The LED has been attracting more eye-ball and more capital attention in China. As more and more “hot” money entering into the LED industry, one investment boom grows in domestic LED industry.
The hot investment on LED implies risk as well. The LED industry has a longer chain, which consists of several segments. From epitaxial material, chip to packaging and application, the technical features and capital characteristics of every segment are totally different; this means a difficulty for the investors to avoid investment risk easily. Therefore, without good understanding of the industry from a perspective of capital and competition, the investments towards LED industry may hardly gain immediate market success.
Generally speaking, the entrance threshold to the LED industry becomes lower and lower from the upstream to middle stream and then to down stream of LED industry. The features for upstream epitaxial material and chip are "double high", i.e., high-tech and high-capital; it requires higher technical capability (equipment) and relatively bigger sum of capital to operate in the segment. However the competition inside the segment is not so intensive as that in the other segments of the LED industry chain in China.
The packaging segment has a lower requirement about technology and capital, and furthermore the lowest comes from LED application segment. Meanwhile competition situation for different industry segments is different, as well as the investment risk and return. The weaker competition happens inside the epitaxial material and chip segment, the moderate inside the packaging business, and the business within the LED application segment faces comparatively the strongest competition situation. In contrast, the return from the epitaxial material and chip companies are the highest, then the packaging, and the lowest return comes from the LED application business.
Hence, in order to avoid investment risk and achieve maximum investment return, it’s very important to know well of the competition situation in China's LED industry, to grasp the direction of investment correctly, and to develop detailed and feasible investment program. As one new focal point for LED application investment in China, street lighting investment and market development mechanism has be investigated and analyzed. As the EMC (Energy Management Contracting) mode is introduced and promoted for LED Street Lighting program by Chinese government, it is found in the research that it’s a promising field for the investors, local government, LED enterprises and energy-saving service company as well.
In this report, a detailed analysis of the competition situation for every segments of LED industry has been conducted, and also a specific research about the investment feasibility for different segments. Several promising directions on investing to Chinese LED industry are proposing which should worth the investors’ attention. The discussion would also benefit both the new investors in LED industry and the operators in the LED industry who want to expand their business.
（V）Human resource
The rapid development of LED industry not only depends on the technological progress, market development and capital investment, but also on the human resource.
It’s found in the survey that different LED industrial clustering regions, Pearl River Delta, the Yangtze River Delta, the Northern part, Jiangxi and Fujian area, have their own characteristics in terms of human resources, which could be summarized as following:
The LED industry in The Pearl River Delta region is mainly distributed in Shenzhen, Guangzhou, Foshan, and Dongguan. Focusing mainly on LED packaging and applications, the region has the largest clustering of LED packaging and application enterprises. It’s also the most focal LED investment area in China. Generally speaking, there exist rich and quality of packaging and application personnel in the region, which are enough to support the local LED industry development. Almost half of the whole packaging and application talents are distributed in this region.
Yangtze River Delta LED industry is mainly located in Shanghai, Jiangsu and Zhejiang. One of the advantages of Yangtze River Delta LED industry is to have a large number of technical and commercial personnel; it has more industrialization experience, and stronger capital strength. In general, LED personnel in the Yangtze River Delta region is relatively enough.
The Northern LED business clustering with Beijing and Dalian as its representatives dominated by research institutions with strongest R&D power. The best LED chip technology in China could be found here. In terms of HR, the clustering has most chip talents.
The manufacturing of epitaxial material and chip, and also packaging in Jiangxi province have achieved large-scale production in recent years. In Xiamen Fujian, there are a lot of enterprises engaged in chip manufacturing, packaging, the research and production of the application products. They have concentration advantage, talent advantage and regional advantage as well.
In this report, along with an extensive survey about the supply and management of human resources of China LED industry, existing problems, confusion and challenge in the human resource has been explored. Solutions and recommendations are made as the reference for the LED enterprise to improve its human resource management, and for the central and local governments to formulate industrial policies.
（VI）Policies
The development of LED industry has close relationship with positive policies of governments. While LED luminous efficiency is improved and its cost is declined, the popularity of LED in the future will be increased dramatically. The Chinese Governments have promulgated a series of promoting policies to pave the way for the large-scale application of LED in the future.
According to an analysis of the existing policies and their effects, we have drawn some conclusions about the important functions of the governments mainly in three aspects: First of all, the government could play an important role in maintaining the LED industry order. At present, the domestic LED market is nearly out of order, such as pervasion of poor quality and cheap products and vicious competition, due to the lack of industry standards and strictly testing rules, which may result in crowding out quality firms from the LED industry. The disorderly market condition has become one major hindrance for the development of the domestic LED industry. These problems can only be solved under the monitoring of central and local governments and other agencies.
Secondly, it will not be possible to sell LED lighting into millions of households only by the help of market power at current stage. In order to achieve "energy-saving emission reduction", the government would issue some feasible and compelling policies similar to the incandescent lamp phase-out plan in the other countries, which will promote LED lighting to replace the traditional lighting faster than expected.
Lastly, many of the current LED market opportunities are in fact related with the governments sponsoring projects, such as urban reconstruction projects, large-scale exhibitions, science and technology programs, etc. And many special LED luminaires, including tunnel lighting, industrial and mining lighting, traffic lighting indication, etc are purchased under the guide of relevant government agencies.
As a result, we recommend strongly the Chinese LED enterprises to grasp and make good use of the various policies of the central and local governments, and gain kinds of valuable resources (i.e., supports for the research and development projects, financing and lending, government procurement and market resources, etc.) to promote the growth of business rapidly; at the same time, pay attention to maintain good relations with governments and participate actively in government-related activities, which will bring into not only immediate economic benefit, but also intangible asset in the future maketization.
What’s more, in the appendix of this report, we also discuss the global macro-economic situation, the development characteristics and trend of global LED industry, the OLED, and EPC investment patterns which gain much more attention currently in some details. Meanwhile, a briefly introduction of the well-known LED enterprises in North America, Europe, Japan, Korea, Taiwan, and mainland China are include for your reference.
