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China’s Local Governments Reverse Policy on Subsidies for LED Producers
June 17, 2019
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For the last 2-3 years, the LED industry has been suffering from severe oversupply, causing prices to drop along with corporate profits and gross margins, Much of this was due to excess equipment purchases by the largest Chinese suppliers, stimulated by large subsidies from local Chinese governments trying to encourage employment growth. With the downturn of the LED industry’s performance, despite the growth in LED lighting sales, these locals have sharply reduced subsidies for domestic LED firms, shifting the focus from subsidizing MOCVD equipment to R&D for technological innovations and patent applications. First-tier China-based LED chip makers all suffered significant on-year decreases in 2018 profit;

  • San’an Optoelectronics saw 2018 net profit drop 10.56%, with gross margin for first-quarter 2019 slipping to 36.94%  
  • HC SemiTek's net profit fell 51.43, and gross margin was  -4.39%.
 
In addition to reduction in local government's subsidization, China-based banks have become cautious about loan requests by local LED makers, sources indicated. While the drop in subsidies in Q119, is significant, it is only 1 quarter and could be an aberration. However, given the current oversupply in LCD displays, could this change in policy be a forerunner for the display industry?

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​Table 1: Government Subsidies of Tier 1 LED Companies in China
Source: Industry sources, compiled by DigiTimes, June 2019
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