Government Subsidies Decrease for China LED Chip Makers; Taiwan LED Chip Makers to Benefit from Reduced Price Pressure

China’s LED chip makers have seen a large decrease in government subsidies
this year, according to an article by Peoples
. Numerous companies have relied on the subsidies to offer lower
prices. The market is currently facing overcapacity.

Companies such as Sanan Optoelectronics which produces LED die and can offer
it at very low prices will be hardest hit. Other companies such as Elec-Tech
which produces LED production equipment will also suffer from the reduced

Peoples Daily cited, which said that Sanan Optoelectronics received
government subsidies totaling 328 million yuan ($53.3 million) in 2012, 805
million yuan in 2011 and 2.53 million yuan in 2010. These subsidy amounts
reportedly accounted for 40.5 percent, 85 percent and 60.4 percent of its net
profits respectively during these years.

According to People’s Daily, Elec-Tech would likely have suffered
losses in 2010 and 2012 if it weren’t for subsidies.

One result of the reduced subsidies is that the pace of LED price drops is
expected to slow down. Taiwan-based LED chip makers noted that prices for LEDs
have fallen about 35 percent in the last two years, according to Digitimes.

Sanan, a leader in China’s LED industry, has reportedly chosen to be less
aggressive in its price cuts, likely because of the reduced subsidies.

Digitimes noted that with prices stabilizing, TV backlighting
demand returning and the lighting market growing, Taiwan-based firms are likely
to see strong performance in the second and third quarter of 2013.

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