Following Chinese governments declining subsidies in 2015, industry insiders projected a slowdown in global LED production capacity growth rates, according to a Chinese-language Commercial Times report. The industry, though, still faces oversupply situation as the total volume of MOCVDs will reach 2,000 this year, said Epistar Chairman B.J. Lee.

Lee estimated 250 new MOCVDs would be added this year, and projected 200 old MOCVDs would retire from the market in 2015. However, excessive capacity on the market will still be an issue, since the new equipments are large machines with high production capacity, he said. San’an Opto alone will be adding 100 new MOCVDs, Epistar 40, and other companies will contribute to the remaining 110 machines.

San’an Opto has often been singled out as the main culprit of the oversupply situation in LED market, due to the many MOCVD subsidies it receives from the Chinese government. The subsidies give the company low equipment cost advantages. The company has been trying to lower costs through mass production, but inventory levels tend to build up whenever market demands ease. To clear out unwanted inventory, the company has been aggressively employing low pricing strategies on the market.

In addition, San’an Opto received subsidies for half of the 200 new MOCVDs it has acquired in Xiamen, China. Most industry experts agree the company will not be receiving subsidies for the remaining 100 MOCVDs, due to limitations imposed by the Chinese government Notice No. 62. The notice intends to end preferential business practices, and forbids local governments from deliberately subsidizing enterprises with taxpayer’s money.

Separately, the Chinese government has changed the industries it is subsidizing recently. In response, San’an Opto entered GaN epiwafer manufacturing, and further observations are required to determine whether the company will allocate GaN subsidies to LED.

Dramatic market changes has made Taiwanese LED manufacturers far more conservative this year, especially with MOCVD purchases. For instance, GPI has no plans of acquiring new machines, instead it will be upgrading its MOCVDs from 2-inch epiwafers to 4-inch epiwafer machines. Additionally, Epistar will be adding 40 new MOCVDs starting from August 2015. Following the acquisition of FOREPI, it is estimated Epistar will boost production capacity by 35% in 2015. The company’s utilization rates reached 70% in 2Q15.