In regard to the upstream portion of the industry, a recently-released report from the highly-respected Chinese market research firm Gaogong LED (to be published in English by Strategies Unlimited) has identified 46 companies that announced investments in epiwafer and chip production in 2009-2010. The total of the announced investments during this period was RMB113 billion (US$16.7 billion), for an average of RMB2.46 billion (US$367 million) per company. Approximately 62 percent of this investment is for epiwafer production (i.e. MOCVD reactors).
It is important to realize that the investments described above do not all take place at once, but rather are planned for the period 2010-2015. If all of these announced plans are carried out, approximately 2,000 multi-wafer MOCVD machines will be installed in China in 2011-2015, compared to a total of 130 in operation at the end of 2009, and 327 in operation at the end of 2010.
In addition to the announced plans, Gaogong LED estimates that another 1,400 MOVCD reactors could be brought on line in 2011-2015 by companies that have not formally announced their plans. Clearly these plans, if realized, represent an enormous growth in the capacity of the Chinese LED industry, as well as the worldwide LED industry.
This tremendous ramp-up in capacity is being fuelled in part by investment subsidies, mainly at the local level. Local subsidies are typically RMB10 million (US$1.5 million) per MOCVD reactor, but they can vary somewhat with reactor capacity and chip material (InGaN or InGaAlP). More than 30 cities in China are offering subsidies for the installation of MOCVD equipment. Cities in China compete fiercely with one another for industry and jobs, and those offering subsidies do not seem likely to withdraw them while other cities are still offering them.
However, some cities have reached the limit of the number of projects they had planned to subsidize, so have capped them at the current level. At the same time, other cities have entered the arena with new subsidies. There appears to be little coordination or attempt to restrict the subsidies at the national level, resulting in a “free for all” among cities competing for new LED production.
A variety of players are involved in the subsidy-fuelled frenzy. These include existing Chinese epiwafer and chip companies that are expanding their capacities (such as Xiamen Sanan, Hangzhou Silan Azure, Shandong Inspur Huaguang, Xiamen Changelight and Shanghai Epilight), joint ventures with offshore companies (mainly Taiwanese chip suppliers such as Epistar, ForEpi, Genesis and Arima), and completely new entrants to the LED industry. The latter category includes electrical appliance, automobile and battery companies.
It is highly likely that not all of the announced and unannounced investments will materialize in the 2011-2015 time frame. Under Chinese law, 60% of the funding that qualifies for subsidies must be “committed” – that is, actually spent on the announced projects. Even at this lower level, another 1,200-2,000 multiwafer reactors will be added to China’s HB-LED epiwafer capacity over the next five years.
This ramp-up in capacity poses many issues for both the Chinese LED industry as well as the worldwide HB-LED market, as Chinese companies begin to enter the export market to fully utilize their added capacity. These issues will be explored by several speakers at the Strategies in Light China conference, to be held in Kowloon, Hong Kong on May 10-12.
Speakers addressing these issues will include: Ella Shum, Director of LED Research, Strategies Unlimited; Xiao Fei (Jack) Zhang, CEO, Gaogong LED Institute: Yuk-Tsan (Richard) Sy, VP and General Manager, China, Cree Hong Kong Ltd.; and Schieu Sche, Chairman of the Board of Directors, Micro Sensing Technologies, Inc.
For more detailed information on the upstream LED industry and market in China, check the Strategies Unlimited website in the coming weeks for the English version of Gaogong LED’s report China LED Industry Upstream Research Report – 2010.