China LED Sector in Shakeout Amid Bright Prospects

China’s LED makers are facing a shakeout of weaker players due to severe over-investment leading to cutthroat competition exacerbated by slowing growth in export orders.

Shenzhen alone has seen the bankruptcies or asset sales of more than 80 LED enterprises, said Wang Dianpu, honorary chairman of the Shenzhen Semiconductor Lighting Industry Development Association. Many more in the Pearl Delta and Yangtze Delta regions will meet the same fate in the coming months, say industry analysts. In Dongguan and Zhongshan about 10% of LED firms have gone out of business this year alone. Many of their owners have gone into hiding to escape debt collectors.

The LED sector was identified by the central government several years ago as a major emerging industry sector, prompting many Shenzhen electronics makers to switch to LED manufacturing. The number of registered LED firms across China has grown to 3,600.

A recent influx of Taiwanese LED makers has added to the competition, said Zhang Haibin, vice general manager at Wenrun Optoelectronic Corp of Jiangsu province, the sector’s 48th biggest firm. Many of these firms have their own proprietary core technologies, making competition even more difficult for the many firms that had switched from other electronic sectors without any core technologies.

Taiwanese-invested LED firms have learned the dangers of oversupply fromTaiwan’s flat panel and DRAM chip industries and have taken a more cautious approach by targeting basic components and becoming suppliers to other firms higher on the industry food chain.

Despite the shakeout of weaker players during the third quarter of this year, as a whole the LED sector enjoys bright growth prospects, estimated at 25 – 30% in 2012, according to the Shenzhen Light Emitting Diode Industry Association’s press conference on Nov. 14. Share prices of listed LED firms have soared recently, mostly due to the government’s continuing push to adopt environmentally friendly LED lighting.