“However, as the major LED chip makers continue to carry out capacity expansion plans, we do not exclude the possibility of temporary oversupply in the next two years”, says Figo Wang, senior analyst of LEDinside.

Wang also points out that prices of LED chips in China fell sharply during 2015, resulting in a surge of orders going to Chinese LED chip suppliers in 2016. In order to meet the demand, Chinese chip suppliers have decided to raise their CAPEX. In comparison, other chip makers worldwide have lowered their investment in production, and even withdrew from the LED market. In 2017, Chinese LED chip makers continue their active investment in the industry and this year’s new MOCVD expansion plans mainly come from San’an Optoelectronics, HC SemiTek and Aucksun.

Regarding 2-inch equivalent epitaxial wafer, San’an Optoelectronics, HC SemiTek and Aucksun increase their production capacity by 1.3 million pieces, 1 million pieces, and 0.83 million pieces respectively, making them the top 3 LED chip suppliers in China. With the chip makers’ capacity expansion at the end of 2017, the market is expected to enter a balance in supply and demand. Therefore, suppliers like San’an Optoelectronics and HC SemiTek strategically adjust their prices of chips for lighting applications and digital displays, which are always a focus of competition in the industry. The prices, which have been pushed up for one and a half year, have chances to enter a period of stability or slight fluctuation.

After this round of large-scale expansion, the production capacity of the three industry leaders will exceed 1 million pieces per month, increasing the industrial production concentration. It can also improve the supply structure and prevent excessive price competition. In addition, new MOCVD systems have higher production efficiency than previous generation of K465i, lowering the cost by 30%. As the result, major players like San’an Optoelectronics and HC SemiTek will enhance their cost competitiveness while other suppliers that cannot afford the production expansion will be marginalized in the market.