In order to help accelerate the development of the LED industry, Chinese manufacturers are increasing investment in product development and related activities, and the average input level will account for about 5% of operating income.
Most suppliers are stepping up production to meet growing domestic demand, and manufacturers are expected to invest in increased capacity. Guangdong Province may issue large orders for the 1,500km LED streetlight project, which covers Dongguan, Foshan, Guangzhou and Shantou.
R&D plan to deal with expired LED patents
Some R&D programs are designed to cope with the expiration of several LED patent technologies. Exposing these solutions will allow vendors to develop new lighting concepts and enhance competition in this market.
For example, in 2008 Chinese companies applied for nearly 26,000 patents, most of which belonged to LED packaging technology and applications.
For diode-based products and other light sources, increasing energy efficiency and reducing costs will be the focus of research and development. The focus will also be on improving durability and product life.
Currently, the life of LED bulbs is usually around 10,000 hours, but some designs are above this average. At the same time, most CFLs have a lifespan of more than 5,000 hours. More than 8,000 or even 10,000 hours of products are also available.
The price depends on the power, size, materials of manufacture and the technology used. Most of the raw materials are purchased from domestic companies, but some are purchased from overseas as needed. For example, ABS is usually imported from South Korea. Several thermoplastics produced in Taiwan can also be used.
LED product manufacturers typically buy diodes and chips, the latter mainly from the US or Taiwan. Other lighting solutions are usually purchased from well-known companies such as Cree, Philips, Osram and Nichia.
The cost of most raw materials is expected to remain stable in the coming months. As the main packaging technology patents will expire in the year, the price of LED chips is expected to drop by 5-10%. The patent expiration may reduce the license fee and stabilize the price in the next six months.
LED-based products are expected to expand penetration in both residential and non-residential areas. As technology advances reduce costs and prices, market acceptance of these products will accelerate.
LED landscape lights are the main export products
LED products are being used in many major indoor and outdoor lighting applications, replacing fluorescent and incandescent lamps. In terms of gardens and landscape light sources, LED products account for a significant proportion of production and overseas exports.
The lighting and electrical exports in 2009 show that the market is shifting to green technology. In October 2009, shipments increased by 11% year-on-year to more than 3 billion, a significant improvement from the previous nine months. From January to September 2009, overall shipments fell by 24%. CFLs, LED bulbs and fixtures used with these sources grew the most in the first 10 months of 2009.
For example, CFL shipments fell only 6% to 1.7 billion. CFLs are 30-40% cheaper than LED bulbs and are more attractive in terms of price. Most suppliers expect CFL shipments to increase by 10% in the second half of the year.
Vendors expect sales of LED lighting products to increase by at least 10% in the first half of 2010. Vendors may continue to consolidate their markets in Europe, North America and Asia Pacific, and they are currently the main export markets.
However, there will be more vendors developing potential markets, such as Africa, which have high demand for low-end products and fewer trade barriers.
Foreign capital enters Chinese LED manufacturing enterprises
China is consolidating its position as the world's leading LED producer. In recent months, some leading international manufacturers have invested in the construction of factories in the Pearl River, the Yangtze River and the Lancang River Delta, the Bohai Rim Economic Zone and even the western part of China.
This year China will become the main battlefield for global LED manufacturing. Zheng Haowen, director of the National High-Tech Enterprise Development LED Professional Committee, said that the total foreign investment in this field is expected to exceed 8.8 billion US dollars, a substantial increase from about 1.5 billion US dollars in 2009.
In order to encourage international companies to set up factories in the mainland, the local government has introduced a policy of subsidizing construction costs. For example, Nanhai District, Foshan, Guangdong Province has established a financial support fund of US$1.46-293 million. The project was established in October 2009 to support the semiconductor lighting industry in the region.
As a result of this move, US SemiLEDs invested $350 million in the South China Sea to establish a new plant. The plant, called Xurui Optoelectronics Co., Ltd., will use SemiLEDs' patented metal-based vertical structure LED to produce wafers and high-power chips. The first phase is scheduled to be fully operational in October 2010. The monthly capacity of 1x1mm LED chips is 20 KK. It is expected that the capacity will exceed 380 KK/month after the completion of the third phase of investment at the end of 2013.
Jiangsu Yangzhou also has a similar policy. The city government took out $3.51-366 billion to subsidize MOCVD equipment purchases. The fund will be in place by October 2011. Through this policy, Yangzhou will take 1.5 million US dollars for each equipment purchase. Depending on the specific specifications of the equipment, the price of MOCVD equipment is around $4.4 million.
Formosa Epitaxy quickly took action to take advantage of this incentive. The company cooperated with Dongbei Optoelectronics, Ruixuan and South Korea LG, and invested 150 million US dollars to establish an LED epitaxial chip factory in Yangzhou, Jiangsu Shengyang Company. After full production in May, Jiangsu is expected to achieve a monthly production of 1 billion LED chips. Its products will be mainly used for LCD panel backlighting.
Other local governments are adopting the same strategy. After the National Development and Reform Commission released the latest industry guidance in October 2009, city officials increased their support for the LED industry. From 2009 to 2011, Shenzhen will allocate 14.6 million US dollars each year to help the development of the LED industry. Putuo District of Shanghai allocated a special fund of 57.5 million US dollars for the LED industry in 2010. US Cree and Osram are building LED production plants in Huizhou and Foshan, Guangdong.
Taiwan's Jingyuan Optoelectronics is also taking the same action. It is working with Taiwan's LED packaging company Lite-On and mainland appliance manufacturers to invest $120 million to build a factory in Changzhou, Jiangsu. It also established a joint venture with Taiwan's UMC and invested $16 million in Shandong Province to build an LED factory.
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