Packaged LEDs: Overcapacity Abating, Pricing Stabilizing?
March 13, 2017
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Canaccord Genuity (CG) reported that the packaged LED market remains in limbo, trying to find its balance. 2015 saw immense component ASP declines of ~40% y/y before those declines slowed in 2016.  During this transition, several manufacturers announced capacity expansions. Strategies Unlimited recently increased its packaged LED growth forecasts to a 5% CAGR through 2021 (compared to a previous 3% CAGR). There has also been a shift towards niche markets like Auto, IR, and UV where barriers to entry and margins are higher. Due to OLED penetration in smartphones, the largest display market, causing declining demand for display/mobile and increased LED efficiency for large area displays the backlight market has been stagnant. The next 1-2 years may see consolidation and closures among lower-tier manufacturers, but oversupply is the default, in CG’s opinion.
 
In January China-based San’an Opto informed customers that it would be raising prices on some of its low power LED chips as of January 10, which had followed price increases from other LED vendors late last year, and that MLS, China’s largest LED packaging producer indicated it would also raise prices on some items by 15%, with other Chinese LED packagers following suit.  Digitimes reported (unconfirmed) that Chinese LED and lamp suppliers will be increasing prices for LED lamps and LED light bulbs and tubes by between 5% and 15% and 8% and 15% respectively, as material cost increases are being passed down the supply chain. Prices for raw materials, particularly industrial metals, have been increasing, some say due to the expected increase in US infrastructure spending by the new administration, while others cite the weakening Chinese currency.  Either way, material price increases squeezed LED margins last year to the point at which producers began passing on increases, and the impact of those material cost increases have now reached the lamp manufacturers.  While it would certainly be premature to call this an inflationary cycle in the LED space after years of declining LED prices, it will be interesting to see how much of these increases pass to the retail channel, and elastic LED demand actually is.

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