Falling prices to kill off half of Chinese LED chipmakers

In China, surplus capacity and sliding prices are sounding the death knell for half of the companies making light emitting diode (LED) chips used in Samsung television panels and Sharp computer monitors, with only the large, state-backed players likely to pull through.Sluggish global sales of TVs and computers may further cut LED chip prices by 20 percent this year, and consolidation or closure are the only options for China's smaller LED players, analysts say.By contrast, Sanan Optoelectronics Co Ltd, China's top LED chipmaker with a market value of $2.8 billion, and Elec-Tech International Co Ltd will be among a handful of large companies that will survive as they continue to receive subsidies and incentives from the government, according to analysts."That's China's strategy. They want their biggest companies to survive" in this restructuring, Nomura analyst Anne Lee said.
For the majority of LED firms, the government is slowly rolling back incentives, including tax breaks, free land and more than $1.6 billion in cash to buy LED chip-making equipment, that had helped sustain the industry for more than three years.Mighty Bright Showcases Brilliant Line of LED Book Lights and Task Lights at 2012.Proview International, whose Shenzhen-based unit is battling Apple Inc over the iPad trademark in China, is grappling with slumping LED prices and fierce competition that have dragged down earnings for other LED companies including Hangzhou Silan Microelectronics Co and Foshan Nationstar Optoelectronics.
Hangzhou Silan fell 2.9 percent to 10.10 yuan in Shanghai trading on Friday, while Foshan dropped 1 percent to 8.10 yuan on the Shenzhen exchange. The stocks were down more than 30 percent in the past year.Many LED companies are operating their factories at 50 percent capacity in China, with up to half of the 700 or so chip-making machines purchased with government money during the boom years in 2009 and 2010 left idle, industry watchers say.
In the past year, overcapacity has shut hundreds of small Chinese makers of LED lighting, according to analysts."China's financial policy is not giving enough support to mid-tier and smaller enterprises," said Bao En Zhong, executive vice chairman of the semiconductor lighting association in Shenzhen, one of China's largest production bases for LED lighting. "We may see more factory closures."