China LED Industry'S High Unused Capacity Renders 2H12 Outlook Uncertain

China LED Industry'S High Unused Capacity Renders 2H12 Outlook Uncertain
As the global economic outlook remains stagnant, LED industry's peak season performance may fall short of expectations. Thus, Taiwanese LED firms such as Epistar, Unity Opto, Lextar, and Genesis Photonics underwent setbacks in the stock market on July 16. Since July, despite the orders keeping pouring in, there is still a considerable amount of unused capacity in the Chinese LED industry. Research institutes and foreign capitals become conservative about the LED market outlook, which kicks off the second half of 2012 with uncertainty.

Most listed LED companies posted strong performances in June. Revenues of Epistar, Everlight (2393), Lextar, Unity Opto (2499), Formosa Epitaxy Inc. (3061) saw growths for five consecutive months. On account of the fact that those companies are packed to capacity, the companies have the room to readjust their product lines. Market predictions suggest that Epistar's profit margin for 2Q12 will be up to 22% with the quarterly revenue amounting to US$500 million, which may offset the loss in 1Q12. On the other hand, Formosa Epitaxy Inc. may turn profitable in 2Q12 as well – the orders will keep pouring in well into September. The company noted that even though the market status has not seen drastic changes, the stock prices have taken a dive

Epistar Vice General Manager Rider Chang noted that despite the fact that the utilization rate remains 100% in July, certain low-powered small products see downturns in sales. Due to low-powered products' low profit margin, demand for high-powered products may further increase. Epistar will increase the production of high-powered products, which is positive for the company's profit margin. Formosa Epitaxy Inc. also pointed out that the backlight and lighting demands will pick up in the third quarter of 2012, and therefore, the company believes the 3Q12 revenue will not experience a setback.

Chinese LED companies purchased a lot of MOCVD equipment before, and with the market becoming more stable, the MOCVD equipment starts to be in use. Among the Chinese LED companies, Sanan Optoelectronics is the most proactive. The company’s low-powered LEDs have successfully made its way into the supply chain of Taiwanese package companies. The price/performance ratio of Sanan’s low-powered LEDs has been improving, and their prices are 10%-20% lower than those of Taiwanese companies. Research institutes believes that the European debt crisis will hurt the end-market demand in the second half of 2012 and the peak season performance. Swiss global financial services company UBS AG noted that the market uncertainty has weakened the panel demand and in turn negatively affected the LED backlight market. Although the market outlook for 3Q12 is not as bleak compared to 3Q11, the LED revenues in 2Q12 still suffered a downturn compared to 2Q11, which shows that the global LED industry's rebound may not be on the horizon.

Source: LEDinside