"Growing number of manufacturers have incurred heavy losses and exiting the market."

LEDinside estimates that the value of the global high-brightness LED market will increase by just 2% year on year to US$14.52 billion in 2015 and by another mere 3% year on year to US$14.95 billion in 2016.

Even though lighting demand has spurred LED usage volume growth, the ongoing increase in LEDs luminous efficacy has the opposite effect of reducing usage volume. Additionally, LEDs are still under an immense downward price pressure. Based on these observations, LEDinside projects that in the next five years the LED industry's compound annual growth rate (CAGR) is unlikely to reach more than 10% as before.

Demand in LED backlight and lighting markets has been lower than expected this year, which has caused sliding ASPs of LED chips and LED packages. This trend has been markedly observed during this year's second half, when LED chip and package prices have sharply plunged to point that prices of some products are now close to material costs. Facing losses, manufacturers are being pressured to lower their prices in the short term. However, prices are now almost equal to production costs for many of them. As more companies drop out of the chip and package markets, further LED price cuts will be limited.

Chu noted that Chinese LED enterprises are now in a strong position to make merger and acquisition deals after raising funds from the stock market and receiving government backing. Their targets are major international LED players' patents and lighting brands, which the Chinese hope will strengthen their patent portfolios and overseas distribution channels. Additionally, more Chinese LED manufacturers are also transforming their business models. Mergers and acquisitions are a way for them to leave the hotly contended red sea markets and enter other market sectors.

Previously, only a few manufacturers highlighted their flip-chip LEDs as major products due to low yield rates, production costs and other technology challenges. However, an increasing number of Taiwanese and South Korean manufacturers begin to invest in the R&D of this technology starting in 2014. Consequently, flip-chip products have gradually become more efficient and profitable as their quality improves and costs go down. This year, South Korean LED manufacturers started to apply flip-chip LEDs on a large scale in TV backlight. South Korean branded TV vendors have also significantly raised their usage of flip-chip LEDs as the source of LED backlight. LEDinside expects that LED manufacturers will continue their aggressive promotion of flip-chip and the even smaller chip scale package (CSP) LEDs in the TV backlight market. Hence, the penetration of flip-chip technology in this application is projected to exceed 50% by 2017.

LED lighting replacement products (e.g. LED bulbs and tubes) are becoming more standardized and have been eagerly promoted by many branded lighting companies. As a result, LED bulb prices around the globe are nearing their traditional, energy saving counterparts. Lighting companies will continue to find cost-cutting solutions in 2016.

They will not just be looking at the cost of LEDs when it comes to lowering the price of an entire LED lighting product. They also consider lowering the costs of driver and other components. Bringing costs down help with efforts to lower product prices, which in turn expand sales and market share. LEDinside expects LED lighting replacement products to be widely adopted in the next three years.

Due to the intense LED pricing competition in the white LED market, LED manufacturers are searching for innovative or special lighting applications to boost profitability. Some of the newly emerged applications that have drawn manufacturers' attention are related to non-visible light spectrum, such as ultraviolet (UV) and infrared (IR) LEDs.

Compared with lighting or backlight applications, the non-visible light applications are very limited in their market sizes. However, UV and IR LED markets have a very high technology barrier and production is highly customized. LED manufacturers supplying these application markets will need to work closely with solution providers/system manufacturers. On the other hand, non-visible light LEDs will have significantly higher gross margins than white LEDs.

UV LEDs, for example, currently has exposure and curing as its largest application markets, but manufacturers are also paying attention to other applications such as disinfection. Developing LEDs of UV-C wavelength, which is suited for disinfection, requires manufacturers to overcome an exceptionally high technology barrier. Though the UV-C market has relatively few players, the number of active entrants is expected to increase.

IR LEDs have a broad range of applications. Primarily, they are used in remote controls or security / surveillance solutions. They are also present image sensors, motion sensors, position detection sensors, proximity sensors, biometric recognition systems and photoplethysmography sensors (which measure a person's pulse rate and blood oxygen level).

IR LEDs will also find value-added applications in handheld devices, such as information security and health management. On the whole, the IR LED market is highly profitable and has lots of room for growth on account of the technology's diverse uses.