Government subsidies give birth to LED chip excess capacity

Government subsidies have fueled domestic investment in LED chips and caused serious overcapacity. Faced with the decline in LED chip prices and LED chip company performance, the government’s subsidy for LED chip production equipment is decreasing this year. For Sanan Optoelectronics, BDO Runda and other large domestic LED chip makers, whether it can smoothly switch from the "policy engine" to the "market engine" has become the biggest test.

Sanan Optoelectronics nearly doubled its revenue last year, but its net profit decreased by 10%. According to its annual report last year, Sanan Opto's 2012 operating income was 3.36 billion yuan, an increase of 92.48%; net profit was 810 million yuan, a year-on-year decrease of 13.47%; net profit after deducting non-recurring gains and losses was 549 million yuan, a year-on-year increase of 18.94%.

The company has been closely watched by the government in recent years and it was not accidental last year. Sanan Optoelectronics received government grants of 328 million yuan last year, 805 million yuan in 2011, and 253 million yuan in 2010.

Over the past few years, local government subsidized Sanan Optoelectronics with many names, up to 24 at a time. Among them, the two largest projects are: government subsidies for MOCVD equipment procurement subsidy projects amounted to 911 million yuan, and equipment procurement subsidy funds for Suncom Solar PV Technology Co., Ltd. was 480 million yuan. In addition, there are various subsidy items such as new products and industrialization of LED chips.

Another listed company in the LED industry, BDO Runda, is similar to its case. Its 2012 revenue was 2.824 billion yuan, a year-on-year decrease of 7.89%; net profit was 168 million yuan, a year-on-year drop of 57.14%. For the declining performance, BDO Runda stated that an important reason is that the government subsidies that were credited to profit or loss for one-off in the fourth quarter of last year did not arrive as expected.

BDO Runda predicts that net profit will fall by 30% to 60% in the first half of this year compared with the same period of last year, which is mainly due to the combined effect of the government subsidies received in January-June 2013 and the significant decrease in the previous year and the year-on-year improvement of the main business.

BDO Runda admitted in the first quarter of this year that local governments gradually suspended or cancelled subsidies for new equipment, and government subsidies weakened. At present, the company already owns 80 sets of equipment. The remaining equipment is still in procurement. If the government cancels equipment subsidies, it will significantly increase the company's input costs for the equipment. This will cause uncertainty for the company's continued expansion of production capacity, which will affect the company’s performance and the LED industry. The overall strategy of the layout.

Zhang Hongbiao told reporters that from the perspective of listed companies, Sanan Optoelectronics, BDO Runda, etc. were companies that received more government subsidies because they had been “frying” upstream in the past two years. Local governments used subsidies to attract foreign investment in order to attract investment. lever.

Zhang Hongbiao believes that if the government subsidy of Sanan Optoelectronics and BDO Runda is taken away, these two LED chip listed companies will basically lose money in 2011 and 2012.

Government subsidies have accelerated the rise of the LED industry in mainland China. Zhang Hongbiao analyzed that LED companies in mainland China could not compete with enterprises in Taiwan and other countries. With subsidies, scale, and technology development, LED companies in mainland China have a competitive edge. Last year, Sanan Optoelectronics also acquired Taiwan's Zhenyuan Optoelectronics.

However, government subsidies also caused serious overcapacity of domestic LED chips. In the three years of 2009, 2010, and 2011, the average annual number of new LED chip projects was more than 20, and at most, there were more than 80 domestic chip companies. More than 50, and more than 20 were withdrawn in 2012. Many of the pre-investments in the project have been “flooded” and wereted. Overcapacity also caused the price of LED chips to plummet, and many LED listed companies in 2012 and 2013 continued the trend of “increasing income without increasing profits”.

“The government used to waste more investment in the past, and it also contributed to the support of the industry.” Zhang Hongbiao said.