It has been widely reported that Sharp is in a difficult financial situation. The company has been meeting banks to discuss restructuring, and last week it was revealed that one of the proposals being discussed was the possible closure of the LED fab in Mihara this year. In recent years, Sharp’s internal LED consumption for TVs may not have met earlier expectations; plus, after experiencing tough competition from panel and TV suppliers in Korea. Sharp has also been unable to establish itself as a global leader in packaged LED sales for LED lighting.
Sharp is not the only large company that sees more profitability in areas beyond LED lighting. Samsung recently decided to stop selling LED lamps internationally (while continuing to sell packaged LEDs), and it has been a long time since a large company entered the LED market. Packaged LED, or LED die, remains a tough competitive environment. In general lighting, prices have fallen rapidly for such a long time that it has become increasingly challenging to make a good profit margin, while still retaining market share; therefore, larger corporate companies with a wide variety of business lines might, in some cases, no longer view LED as a core or profitable business in the coming years. These types of companies may even exit the market. While China is growing and winning share in the LED market, for several years now other LED companies have been cautious about adding additional capacity in this increasingly competitive environment.
LED products are transforming the lighting industry, because they are not only cool and exciting, but also offer improved energy efficiency, which helps reduce carbon emissions. There is no major problem with the products themselves that is causing larger companies to leave the market, it is simply a case of too much competition beginning in 2011, when many new players in China entered the market and other existing players ordered too much equipment. As competitive pressure is reduced, and a few players exit the market, the LED market could become more stable.
The fourth quarter (Q4) of 2014 was disappointing for packaged LED sales. In fact, several companies recorded negative growth, during what has historically been a growth quarter for the industry. However, this does not change the long term picture. LEDs still have a small minority of the lighting market, so growth will continue, as penetration increases. While some companies will continue to find it challenging to make a profit, the top LED companies are thought to be in reasonable financial health and may be less affected by the currently tough market than newer entrants or second or third tier suppliers. Apart from a few big companies, like TSMC, Samsung and Sharp, many LED suppliers are specialists, which means exiting the industry is not really an option, anyway. Many of the top suppliers -- Nichia, Seoul Semiconductor and Cree, for example -- derive the majority of their revenue from LED-related products and are fully committed to the success of the industry.
The good news for these companies is that IHS continues to forecast growth for packaged LEDs in 2015, including double-digit growth in general lighting applications.
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