The logic behind LED manufacturers’ price increases

In early May, after Mulinsen took the lead in announcing a price increase of 5% to 10% for its entire range of products, a wave of price increases spread from top to bottom in the LED industry.

According to a TrendForce survey, some LED manufacturers have adopted price increase measures. The main price increase items are concentrated on upstream lighting LED chips. Low-power lighting chip items with an area of less than 300 mil² (inclusive) have the most price increases, with an increase of about 3~5%; for special sizes, the increase can reach up to 10%.

From the current price adjustment letters announced by LED manufacturers, we learned that a total of 17 manufacturers, including Dongshan Precision, Ruisheng Optoelectronics, Jingtai Optoelectronics, Zhaochi Optoelectronics and other LED packaging companies, and LED display companies such as Leyard, Jinlixiang, Ledman Optoelectronics, BOE Crystal Chip, and Haijia Cailiang, have announced price increases for LED display products, with an increase of approximately 5% to 10%.

On the other hand, packaging manufacturer Nationstar Optoelectronics and LED display manufacturer Absen announced product price cuts. China Star Optoelectronics lowered the price of some RGB products by 3.5% to 11.5%; Absen lowered the price of commercial display AbsenCP series products by 10%.

It is worth noting that some packaging and display companies have also made secondary price increases for LED products, such as Mulinsen, Leyard, Jinlixiang, Dongshan Precision, etc.

Upstream, midstream and downstream companies have joined in, starting a new round of price increases in the industry. Does this mean that the industry has passed the lowest point of the LED industry in recent years and ushered in a new cycle of growth? It may be necessary to explore the logic behind this round of LED price increases.

Reason 1: Rising raw material prices and falling product prices

Global LED terminal demand will decline significantly in 2022, and LED lighting, LED display and other markets continue to be sluggish. The demand for terminal LED products is not ideal, which intensifies the competition in the industry. Most companies have significantly reduced the prices of their products in order to clear inventory.

On the other hand, in the past three years, due to the comprehensive impact of the macroeconomic environment, geopolitical factors and other aspects, all walks of life have faced the problem of supply chain disruption. The resulting shortage of raw materials and rising production costs have continued to put pressure on enterprises.

Each company mentioned in their price adjustment letters that fluctuations in raw material prices and the continued decline in company product prices are one of the main reasons why LED manufacturers increased product prices this time.

In terms of LED packaging device suppliers, in the May price adjustment notice, Dongshan Precision mentioned that since the beginning of 2022, the price of lamp beads has continued to decline, which has caused huge troubles to the company's operations. In order to ensure high-quality products and better services, continue stable operations, and better cope with current pressures and challenges, it has decided to increase product prices.

In June, Dongshan Precision issued another price adjustment letter and stated that after a long period of low utilization rate and destocking production status, the company's current inventory of various models has tended to normal, but it is still in a state of severe cost inversion, so it has raised product prices again.

Zhaochi Optoelectronics said that due to factors such as rising chip and some material costs, personnel wages, etc., the delivery price of some products has been increased. Ruisheng Optoelectronics mentioned that in the past year, product prices have continued to fall, while bulk product prices have continued to rise, which has had a considerable impact on the industrial chain, resulting in a serious inversion between costs and product selling prices.

Price increases in upstream packaging and chip links have driven LED display companies to simultaneously increase product prices. Among them, Leyard said that the rising supply costs of the main upstream raw materials (mainly semiconductor chips and lamp beads) have led to the company's LED display product manufacturing costs continuing to rise.

In the face of fluctuations in terminal demand, companies maintain normal operations through price cuts and promotions. However, in the long run, when raw material prices continue to fluctuate, such strategies do not bring much positive impact to the company, but instead further compress corporate profits.

Reason 2: Market downturn puts LED manufacturers’ performance under pressure

Faced with declining demand in the context of a sluggish environment, price reduction strategies have failed to prevent most LED companies from escaping the decline in performance.

Relevant data statistics show that in 2022, only 63 of the 140 LED-related listed companies achieved year-on-year revenue growth, and 60 achieved year-on-year net profit growth, accounting for approximately 45% and 42.86% of the total number of companies respectively.

In the field of LED display screens, although overseas market demand will recover rapidly in 2022, domestic market demand is not good. Against this background, most LED display screen companies experienced a decline in revenue and net profit last year.

In the field of LED lighting, overall, the size of the LED lighting market is showing a downward trend. According to TrendForce's "2023 Global LED Lighting Market Analysis-1H23" analysis, multiple factors have led to the global LED lighting market size falling back to US$61.4 billion in 2022, a year-on-year decrease of 5%.

The chain reaction caused by poor downstream demand has led to a decline in the LED performance of midstream and upstream packaging and chip companies. For example, the LED-related businesses of chip companies such as Qianzhao Optoelectronics, Azure Lithium Core, and Jucan Optoelectronics in the upstream; and packaging companies such as Dongshan Precision, Nationstar Optoelectronics, and Mulinsen in the midstream have experienced a decline in revenue and profits in 2022.

TrendForce said that the decline in terminal demand has led to a reduction in the capacity utilization rate of the upstream LED chip industry, causing oversupply in the market and continuing price declines. According to research by TrendForce, the decline in both volume and price will cause the global LED chip market output value to decrease by 23% annually in 2022, to only US$2.78 billion.

The global LED packaging scale in 2022 will be US$14.2 billion, down 19% year-on-year, with the most obvious decline in the LED lighting packaging field. In the field of LED display packaging, affected by falling prices and reduced downstream orders, the full-year market size was US$1.45 billion, down 16% year-on-year.

Entering 2023, society has returned to normal operations, but there are still many companies that have experienced declines in their first-quarter performance. Relevant statistics show that in the first quarter of 2023, about 128 LED-related listed companies announced their results, of which only 41 achieved year-on-year revenue growth and 57 achieved year-on-year net profit growth, accounting for approximately 32.03% and 44.53% of the total respectively.

Therefore, the downturn in the LED industry from 2022 to the first quarter of this year has resulted in continued pressure on corporate performance, which is also one of the reasons why some LED companies have increased prices. From the perspective of long-term development of enterprises and industries, in fact, the price increases of LED enterprises have also allowed the enterprises themselves to return to a more normal operating state, weakening the negative impact of raw material price fluctuations, improving corporate profitability, continuing to bring high-quality products to customers, and driving the industry back to a healthy competitive environment.

Reason 3: Industry demand has gradually picked up recently; LED emerging applications have gradually grown

In addition to the decline in corporate profitability, the recent recovery in market demand is also one of the reasons for the price increase in the LED industry chain. In 2023, the LED industry will gradually recover and the recovery of LED lighting market demand will be more obvious.

Analysis by TrendForce pointed out that LED commercial lighting is the application that is recovering the fastest in the overall LED lighting market. From the supply side, the LED lighting industry has entered a trough period since 2018, leading to the withdrawal of some small and medium-sized players. Other traditional lighting supply chain players have also transitioned to display and other high-margin markets, resulting in reduced supply and low inventory levels.

Since the world's main suppliers of LED lighting chips are currently concentrated in China, low-power lighting chips in the Chinese market are the first to increase in price this time. In the short term, this is a measure taken by the industry to improve profitability; in the long term, companies adjust the balance of supply and demand and increase industry concentration, gradually returning the industry to normal.

In terms of LED display, with the continued growth of overseas markets and the normal operation of the domestic market in 2023, LED display market demand has gradually recovered. Jufei Optoelectronics recently stated that the current Mini LED business is progressing smoothly, with shipments increasing month by month. The company's MiniLED backlight technology has been rapidly applied and promoted.

Leyard said that in the first quarter of this year, the growth rate of the Asian, African and Latin American markets was strong; domestically, direct sales have recovered rapidly since March, and several major industries including military industry, education, energy and other large industries have performed better in terms of order growth.

Leyard also mentioned that the company's Micro LED products have been launched for more than 2 years. At this stage, prices have continued to decline, performance indicators are stable, and customer satisfaction is high. The current product supply exceeds demand, so the company raised the price for Micro LED in the price adjustment letter.

Unilumin Technology mentioned in a recent conference call that the company’s orders gradually recovered in the first quarter and market demand is gradually picking up. Display manufacturer Alto Electronics revealed that the company’s market demand for advertising-level and short video live broadcast-level products in the xR virtual shooting market is gradually increasing.

TrendForce found in its research that the recovery in downstream demand for LED display screens drove upstream demand for LED display chips to pick up in June, and the capacity utilization rate of chip manufacturers increased.

In addition to reasons such as lighting supply exceeding demand and the gradual recovery of domestic and overseas markets, another reason for the recovery in LED demand is the rapid rise of emerging applications in LED lighting and displays. As LED performance continues to rise, costs continue to fall, and Mini LED/Micro LED technology is gradually optimized, companies are quickly opening the door to multiple LED segments.

In the LED lighting market, subdivided fields such as plant lighting, ultraviolet lighting, smart lighting, health lighting, and automotive lighting all show broad development space. Among them, automotive lighting is the focus of enterprises. Stimulated by the development of the new four modernizations and domestic substitution in the automotive industry, the demand for LED automotive lighting is rising.

In the LED display market, emerging applications such as xR virtual shooting, naked-eye 3D, all-in-one machines, cinema screens, rental screens, transparent screens, and special-shaped screens are becoming the main growth drivers of the LED display market. Electronic consumer products such as monitors, TVs, AR/VR glasses, and smart wearable devices are waiting for further development of Mini/Micro LED technology.

Price increases are the key for the LED industry to meet large demand

In the short term, the price increases reflect the fact that LED companies are facing dual pressures of falling product prices and rising costs amid the downturn in the industry and intensified market competition, as well as the continued negative impact on performance. The current market demand is gradually increasing, giving LED companies an opportunity to return to normal operations and a healthy market environment.

In the medium term, behind the price increase is the fact that companies are optimistic about the continued recovery of LED demand in the future. Although the international situation is complicated and the macro economy is still weak, the domestic and foreign markets are currently in a relatively stable state compared with the past three years, which increases the possibility that demand in the LED industry will continue to rebound in the second half of this year and the next two to three years.

In the long term, behind the price increase is the fact that companies are optimistic about the further expansion of the future applications of LED technology. Today, LED technology is mainly used in the fields of lighting, display screens and backlights. Compared with other technologies in various fields, LED has obvious application advantages. With the continuous optimization of performance and cost and the rise of Mini/Micro LED technology, LED will accelerate its penetration in various applications in the future.

It still takes time to judge whether the company's price increases represent the LED industry entering a new growth cycle. But for LED companies, price increases are necessary adjustments for current and future development. As society's awareness of environmental protection and energy efficiency increases, the LED market is bound to continue to expand in the future. LED companies need to improve their operating capabilities and product quality, form healthy competition in the industry, promote the sustainable development of the LED industry, and wait for the era of greater LED demand to arrive.