June 13, 2012 -- Guangzhou (China) Lightfair Conference is the biggest lighting fair in Asia, with companies throughout the light-emitting diode (LED) lighting supply chain, including new Chinese MOCVD makers, International Solid State Lighting Alliance and China SSL Alliance. Citi analyst Timothy Arcuri notes trends at the show in LED manufacturing and pricing ahead of China’s subsidy program going into effect.
The NDRC’s demand rebate program is more positive than Citi originally estimated, because the rather meager RMB2.2B (~$350MM) would get more funds if this iteration of the subsidy catalog’s funds are depleted, expected to take only ~12-24months. Producers are even more excited by provincial-level subsidies, Arcuri says. In Guangdong, the province in which the conference took place, these will boost revenue for local LED producers to RMB5B (~$850-900MM) by 2015.
Major buyers like Kingsun (#1 China outdoor fixture maker) are finally coming to shop at the local LED makers, sourcing up to 60% of their LEDs domestically by 2013. Companies that months before were making Christmas lights are now making bulbs; bulbmakers are vertically integrating rapidly into fixtures. Lumens/W at these companies have increased dramatically even from last fall.
Citi heard of many examples of Chinese LED makers selling well below cost to gain an edge on the current first round of bids -- there could be even lower prices for the next 4 rounds of bids through year-end.
The “gray market” for metal-organic chemical vapor deposition (MOCVD) tools is gaining steam, but province-specific. The thought has generally been that the existence of local subsidies for LED fab tools would drastically limit any impact of the grey market. Citi’s observed talk of stronger vendors within a given province buying new, unused, or virtually unused tools from weaker vendors (in most cases recertified by the tool vendor). As long as the equipment does not leave the province, local government is happy. Also, in many cases, the local government is playing “matchmaker” behind the scenes to force consolidation.
China’s LED fab tool utilization rate is around 35-40%. Citi estimates that ~60% of all reactors shipped to China are turned on, with ~60% utilization on these tools, implying overall utilization of ~35-40%. Tanlong Photoelectric (China) now has a working MOCVD tool and Nippon Sanso is officially entering China market to compete w/VECO and AIXG (Nippon has ~70% share in Japan with a strong reputation).
Timothy Arcuri is an alternative/renewable energy analyst at Citi.