(Author: Changxin, guest writer, LEDinside, Translator/Editor: Judy Lin, Chief Editor, LEDinside)

Changxin, a guest writer for LEDinside highlights several market trends ahead of the upcoming Guangzhou International Lighting Fair, including a thorough analysis of why the industry has escaped being sucked into the vicious cycle of low price wars this year.

 “LED manufacturers have initiated a new round of price wars, where Philips is planning to lower LED bulb prices to ultra-low price of US $0.8 in 2016,” according to a latest quarterly report from a Chinese research institution. But is there evidence to support this claim in the LED industry?

LED price falls ease in 2016

Going down the memory lane, Philips started a low pricing strategy for its LED bulbs and T8 LED tubes, a few months prior to Guangzhou International Lighting Exhibition in 2015. Chinese LED manufacturers quickly caught on the price war trend including Opple Lighting and Foshan Lighting. By June 9, 2015, the first day of the lighting show, Forest Lighting (MLS) even hosted a forum to explain its “Forest Warfare” strategy to discuss pricing of LED T8 tubes and its aim to promote LED products in the industry. In comparison to the same period in 2015, things in the LED industry have slightly stabilized this year.

Even though LED product prices continued to tumble in China, especially in the aftermath of price wars in 2015. Data compiled from numerous research institutes indicate LED product price falls in China started to ease from late 2015, and there is limited room for further product price cuts. Most price falls have occurred among mid to high power LED products. LEDinside’s research report released in March this year even shows LED Average Sales Price (ASB) has gone increased incrementally.

Last year was an earthshattering year for the LED industry, offset by price wars, mergers and industry restructures. Thankfully, leading international and Chinese LED manufacturers have been “merciful” in 2016, which has allowed the industry to peacefully welcome the upcoming Guangzhou International Lighting Exhibition.

Market rumors that Philips LED bulbs factory price would bottom to US $0.8 originated from Taiwan supply chain in October 2015, but a source from Philips responded this was not an official announcement, and said he was unfamiliar with the issue. The company has not emphasized new pricing discounts during “Philips Lighting 2016 China distributor assembly” held at Sanya, a city in Hainan Province recently.

Analyses of Philips Lighting spin-off strategy

When Royal Philips announced the spin-off of its lighting business last year, Philips Lighting had to prove its market value through its revenue and market share performances, so it could have a better market outlook. This explains why Philips Lighting engaged in price wars in 2015.

Philips Lighting was able to acquire the desired result, despite the Dutch group reporting a total loss of EUR 39 million, the lighting business witnessed revenue growth of 3% in fourth quarter 2015. By first quarter 2016, Philips net profit plunged 63%, but its LED revenue climbed up 27%, contributing to 50% of its lighting business revenue.

Philips Lighting’s stellar performance won over shareholders trust, which resulted in Royal Philips decision to list the business on the Dutch bourse, and issue an IPO instead of selling the business to an interested acquisitor, which is a much more ideal outcome. Philips Lighting could continue its Philips “heritage” and use the Philips brand, collaborate with other business arms in the group, while reducing impact on its management and market strategy.

Even though there are cases where companies were sold after issuing IPOs, if Philips Lighting follows the general IPO process the company would be sufficiently funded for the next two years. The next step for Philips Lighting after the IPO is to focus on implementing long term strategies and profitability after the strategic transformation in the next two years.

Philips Lighting announced the company is a lighting solutions provider that offers comprehensive total lighting solutions, rather than being a pure luminaire supplier. Philips Lighting’s transforming strategy is targeting smart connected lighting, and has started to collaborate with technology companies including Cisco, SAP and Vodaphone in recent years. Price wars was a temporary strategy in 2015, and would not work out in the long term.

Forest Lighting focuses on India and internationalization

In contrast, Forest Lighting (MLS) subsidiary in India has taken up most of its resources at the moment. The India subsidiary is just the Chinese manufacturer first strategic step in internationalization, which will impact its future branding strategy and aim to become a global company. The company’s endeavors in India makes failure impermissible.

Even though Forest Lighting’s India subsidiary is supported by Epistar and headed by the Taiwanese company’s senior manager Ita Lin, market competition in the country is intensifying. Plummeting government tender prices has piled significant pressure onto Forest Lighting. Forest Lighting is mainly supplying LED package components to local India companies that have successfully acquired government bids, and it plans to launch its lighting brand Forest Lighting in the India market during second half of 2016. This strategy will definitely require the company to invest more effort in its work.

In its home market China, Forest Lighting’s revenue performance tumbled 40%, and is in dire need of improvising its company measures to convince its investors. Market rumors in claiming Forest Lighting is planning to raise its display component prices in the country are not surprising.

It is common knowledge that manufacturers will use price wars to acquire market shares, and Forest Lighting has already accomplished this feat, and has a larger market share and steady distribution channels (up to 23,000 distributors). The company is estimated to gradually recover some of its losses incurred through raging price wars.

Opple Lighting finally issues IPO, Foshan Lighting recovering from investor lawsuits

Opple Lighting finally succeeded issuing an IPO in March 2016, after numerous failed attempts the company was overjoyed. Following the approval of its IPO application, Opple is reevaluating its development strategy. From its brand name, it’s not hard to see the Europhile company market strategy is focused on Europe lighting market. In 2014, the company constructed its Europe headquarters in Netherlands to pave the road into the continent’s local market.

The Chinese company formed a partnership with Seaborough in 2015 as its core internationalization strategy, which will accelerate its global expansion.

Foshan Lighting had a very tough year in 2015, it had incurred heavy losses after courts ruled it had to compensate investors for presenting misleading financial statements. Moreover, Osram decided to sell its stake in the company, which was followed by mass resignations among senior management. The company’s net profit plummeted 80% in 2015.

Foshan Lighting explained its poor revenue performance was caused by “market developments that led to lowered product retail prices, declining gross margins and shrinking profits.” From the reasons cited can it be inferred that Foshan Lighting is preparing for another price war?

CSP LED market trends

Moving onto CSP LEDs, after Lumileds unveiled the technology in 2007, the product was not mentioned on the market for about six years. It was not until 2013 that CSP LEDs made a comeback and was gradually discussed among industry insiders. By 2015, CSP LEDs have become the highlighted products at lighting exhibitions and forums. Industry insiders have been heatedly discussing CSP LEDs, which has made it the representative for pioneering technology.

Last September, Seoul Semiconductor released its CSP LED based product line Wicop LEDs, which emphasizes the removal of LED packaging, eliminating the need for eutectic bonding, soldering, LED leadframes, and gold wires.

Shortly after the announcement, Seoul Semiconductor launched an ad campaign “kiss leadframes goodbye” on mainstream Chinese media, but it did not create much of a market response. Observing market developments in China, CSP LEDs has mainly been a buzz word. Only a few local LED manufacturers have launched CSP products, including Maven Optronics International (Maven Optronics) thin film coating technology for CSP LEDs and ZhongShan LITI Lighting Technology’s phosphor film and coating for CSP LEDs.

Despite the package-free revolution led by CSP LEDs, members in the industry have been fairly rational. Despite maturing CSP LED technology there is a limit to miniturazation, eventually chip size will reach a bottleneck. So there is still a very large market for the survival of LED package manufacturers, where there are many types of LED packages.

In general, across the different LED package types COB is known for its color performance and lighting quality, EMC has higher C/P ratio, and highly compositive AC LED is suitable for high power flip chip and other package technologies. The technologies are complimentary, especially for Chinese LED companies that in general do not have especially advanced technologies, for these companies pursuing advancements in COB technology and the spread of COB applications takes precedence over CSP LEDs.

According to market rumors, CSP LEDs are mostly applied in Apple and Samsung smartphone flash lights, and ultra-thin TVs manufactured by the two Korean vendors Samsung and LG. The CSP LED manufacturing process is classified into frontend and backend processes. Industry insiders noted once Chinese companies fully control the frontend and backend markets, it can be foreseen CSP LED volume will soar by the end of 2016. Despite CSP LEDs rapid growth spurt in the next two years, it will might not acquire large market share.

Filament LED market trends

In 2016, global LED filament market demands will reach 220 million, and its market value will peak to RMB 2.9 billion (US $445.67 million), according to statistics revealed by a research institute. LED manufacturers including Philips, Foshan Lighting, Taiwanese companies and Thai manufacturers all displayed filament LED products at Thailand’s LED Expo 2016.

However, some industry insiders noted LED filament market demands are lower than projections. At Lightfair International in U.S. this year, only a few booths were displaying LED filament bulbs. According to a manufacturer based in Zhejiang Province of China, its monthly LED filament bulb production has dropped from 4 million bulbs to 1.5 million LED bulbs.

LED filaments suddenly became a hot market topic in early 2016, mainly due to campaigns initiated by Epistar and MLS (Forest Lighting). Epistar has great expectations for its LED filament technology, but was unable to achieve projected commercial benefits from the technology.

Impacted by its mediocre revenue performance in 2015, Epistar is planning to expand its revenue income with LED filament technology. However, LED filaments is an uncommon product, and mostly manufactured to meet the preferences of consumers who have a taste for vintage or aesthetic products in Europe, U.S. or East Asia. However, some consumers might equate “vintage” products to “old-fashion,” hence LED filaments developments still depend on consumers’ preferences.

Forest Lighting announced it will be initiating low-pricing strategies in the LED filament market, due to its niche market position it will have limited impact on the LED industry.

Since LED filaments were launched on the market, the market size has been limited by technology and costs. If Forest Lighting aims to use low prices to forge its way into the LED filament market, it might add a new growth market for the LED industry.

Industry rumors point out Epistar and Forest Lighting have found a way to make cheaper LED filaments, using a glass bulb, the resulting LED bulb can achieve omnidirectional light while significantly reducing the cost structure. Forest Lighting aims to launch different LED types of LED filament bulb products in China by third quarter this year.

In sum, whether it is aggressive price wars or innovative technology, there are currently no signs of significant breakthroughs in the LED industry.

Due to leading Chinese and international LED manufacturers strategies, the probability of a “new round of price wars” is low this year. However, LED prices are unlikely to climb back to levels before the price wars, as Chinese LED vendors continue to expand production capacity and the global economy remains anemic. LED  price curves on the market will seek a new equilibrium price point to stabilize developments.

Before the market steadies, most LED manufacturers and retailers in the end market will not raise retail prices. Companies with larger market shares and stable distribution channels have the capacity to raise prices, and might implement such measures to gradually recover losses from price wars.

There are also disadvantages in innovative and advanced technologies, which cause instabilities in the market as the majority of manufacturers scramble to adjust to changes. The emergence of CSP LEDs, LED filaments, light engines, smart lighting, agricultural lighting, visible light communications (VLC), and UV LEDs is highly anticipated, but it will also fundamentally change the market orientation from product volume to product quality.

A research organization’s conclusion that a new round of price wars has started requires further evaluation, compared to the same period in 2015 the LED industry is in a relatively peaceful phase. The LED industry should let go of its anxieties and make the most of current market opportunities. Manufacturers that have been injured from price wars last year need to quickly recover, and those lagging behind in technology advancements have to catch up. A word of caution to over expanding manufacturers is potential risks associated with rapid expansion is the breakdown in capital flow.