On June 30, 2014, Dutch lighting conglomerate Philips announced the spun-off of LED component business Lumileds and automotive lighting business into an independent company. The two businesses revenue aggregated to US $1.9 billion last year. On the same day, leading Taiwanese LED chip manufacturer Epistar acquired FOREPI through conversion of stocks.

Under intensifying LED industry market competition, industry integration kicked off by major manufacturers can actually improve the industry’s production capacity and cost management, a China Business Journal report cited a Chinese analyst saying. The same analyst projected rising LED industry integration trend will become more evident in 2014.

Concentration of upstream manufacturers increases

Philips and Cree stock prices were up four percent and 3.4 percent after June 30, 2014. Philips recent move might result in the integration of the Dutch company’s LED business with Cree, and benefit upstream LED industry concentration, according to U.S. media analysis.

In the upstream LED market, leading global LED chip manufacturer Cree has stronger profitability. The company’s financial reports show Cree’s LED product revenue reached US $801.50 million in 2013, gross profit amounted to US $344.60 million, while profit margin reached 40 percent. The U.S. based manufacturer’s LED product portfolio mainly includes LEDs, chips and silicon carbide (SiC) material.

As for Epistar’s acquisition of FOREPI, LEDinside noted this will ease price cut pressure on LED chip manufacturers. The research institute also noted the acquisition will bring Epistar’s installed MOCVD equipment to 436, and greatly increase production capacity. For more please see here.

In reality, LED industry performance has been excellent in second quarter. Supply shortages have occurred both for manufacturers in upstream LED chip industry and downstream packaging.  According to statistics, most Taiwanese LED manufacturers revenue climbed up in May 2014.

During mid-May this year, Taiwanese LED manufacturers announced last month’s revenues. Taiwanese LED manufacturers consolidated revenue in May reached NT $10.97 billion (US $370 million). Out of these, eight LED chip manufacturers revenue amounted to NT $5.02 billion, a growth of 19.6 percent year-on or 7.8 percent Quarter-on-Quarter (QoQ). Nine Taiwanese LED packagers combined revenue was also up 9.4 percent Year-on-Year (YoY) or 0.15 percent QoQ.

Industry development picks up pace

Most industry insiders agree the LED market will maintain strong growth within the next three years. The LED industry’s YoY growth will increase in 3Q14, and further raise profit margin, according to a report by CITIC Securities.

The report pointed out the LED industry’s growth in second half of 2014 is mainly contributed by new Apple products. Although, smartphone penetration rates have reached the ceiling. Apple industry supply chain growth faces challenges, but current events and structural opportunities are still worth noting. In second half of 2014, Apple will be releasing iWatch and iPhone 6, which will create new development opportunities for the industry.

Apple’s iWatch sapphire watch cover will account for six percent of global sapphire market demands in 2014, according to LEDinside’s latest Global Sapphire Substrate Report in 2014. Previously, LEDinside analysts estimated if iWatch sales met market estimations of 60 million in 2015, it would make up 27 percent global sapphire usage. For more details please click here.

Another consulting organization HIS gave a positive outlook on the Chinese LED market, in which LED chip revenue will grow 36.6 percent to US $1.48 billion. The LED package industry revenue is also expected to go up 14.8 percent to US $4.81 billion. Accompanying the release of China’s LED lighting and related policies, many manufacturers focused on the exporting market have started to enter China’s domestic market. Conventional lighting manufacturers have also shifted into LED lighting.