The global LED market weathered a tough year in 2015, according to market research firm Yole Developpment. The entry of Chinese players to the market and lower-than-anticipated demand in the LED backlight and LED lighting markets drove prices down. For the first time ever, global packaged LED revenue declined, according to Yole, reaching $15 billion from $15.1 billion in 2014. Likewise, IHS reduced its 2015 packaged LED revenue forecast by 7 percent due to pricing pressure. For 2016, prices seem to be recovering, but LED manufacturers are also seeking other ways to stop price erosion.
Average selling prices (ASPs) for low and mid power LEDs declined 30 percent to 40 percent in the second half of 2015, and ASP for high power LEDs, though less affected, still declined 20 percent to 30 percent, Yole reported. So far, 2016 has seen the industry recovering, and packaged LED ASPs have mostly stabilized for highly-commoditized SKUs such as the low-power 2835 and mid-power 5630. Higher power grades for lighting applications are seeing increasing demand, but also stiffer competition, which likely will lead to a significant ASP decline as competition intensifies. The packaged LED market is expected to show moderate – 3.4 percent -- growth in the coming years, reaching $18.5 billion in 2021.
Industry consolidation was expected to decrease competition and stabilize price erosion, according to Yole. This eventually happened in China during 2014 and 2015, but with unforeseen effects on the overall industry. Several smaller players went bankrupt and many midsize players have since been acquired, leading to a situation where dozens of companies staged “going-out-of business” sales. Non-Chinese LED manufacturers were forced to match the pricing trend.
From a packaging point of view, more and more packaged LED manufacturers are implementing a vertical integration strategy to move toward the module level and add more and more value in their LED components. Here, too, they're facing competition from China. Chinese LED package manufacturers are now imitating advanced foreign technology in order to increase their market share in the general lighting arena, according to Yole. China represents the main global manufacturing base for LED lighting products, with major OEMs/ODMs setting up factories there. This recent development surge in the LED lighting industry is driving the ongoing expansion of the local market and industry. In 2015, Chinese LED packagers, including MLS, Nationstar and Honglitronic generated $2.9 billion in revenue, representing 19.3 percent of total LED market revenue.
In this depressed environment, other players have decided to develop new strategies in order to differentiate from mainstream players and reap higher margin levels. In the top tier, companies are looking at:
- Product diversification toward new package types: mostly chip on board (COB) LEDs, LED filaments, flip chip (FC) LEDs, and chip-scale package (CSP) LEDs.
- Application diversification toward niche applications: automotive lighting, horticultural lighting, and others.
In the mid to low tier, companies are pursuing:
- Product diversification toward nonvisible LEDs: UV LEDs and IR LEDs.
- Vertical integration toward LED modules.
As an example of diversification, the UV LED industry has seen its number of players double in the past three years, Yole reported. The associated market is still small compared to visible LED ($117 million in 2015), but considerable growth is expected in the coming years (more than $1 billion in 2021).
There are also opportunities in packaging materials. With the general lighting market growing, LED packaging requires materials suitable for application requirements. The high-power density of LED devices has spurred the use of ceramic substrates, a market that will grow from nearly $684 million in 2015 to $813 million in 2021. Encapsulant/optic materials will follow the same trend (from nearly $400 million in 2015 to $526 million in 2021), driven mostly by the increased use of silicone material offering better reliability/lifetime than traditional epoxy material.