Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
China LED – The sleeping dragon
Event
While the market focuses on the potential for LED demand in China, we think
it is also important to watch the longer-term development of China’s domestic
LED chip industry supply. We recently spoke with Sanan and Silan, two of
China’s largest chip makers. Our key conclusions are a) while a technology
gap with TWN (particularly in high-power) persists, China is making progress
in more mature segments such as low/med-end backlight (NB/MTR) and lowend
lighting, and, in our view, LED TV chip will be a key factor in 2H11 to
gauge further progress; b) China’s lighting market is mainly project rather than
policy-driven right now, but longer-term, domestic players could benefit more
than foreign players from policy-driven demand in 2012-13; c) no substantial
cuts to MOCVD subsidies.
While 2Q will see sequential improvement from a low 1Q base, we are
cautious on LED chipmakers as TV chip commoditization in 2011E will make
a return to 2010 “peak” margins difficult despite the street’s high hopes, with
forward risk of LED lighting pressure from global suppliers who are pricing
down to defend share. China’s LED capacity build and tech competitiveness
remains a longer-term overhang to watch in 2012/13, in our view, and we
retain UP on Epistar.
Impact
Technology gap is narrowing at mid/low end. Our checks with Sanan/Silan
indicate a yield gap with TWN exists, especially in high power LED, but China
is progressing in mature areas (23x10mm) like NB/MTR (mostly for domestic
market), handset and low-end lighting. China players benefit in the yield curve
from talent-poaching from TWN, while less stringency in IP/specs also lowers
the barrier. In some low/mid end segments, a yield gap of China (70%+) and
TWN (80%+) is rapidly narrowing while ASP is at a 5-10% discount, making
China’s LED makers competitive. A key swing factor to further gauge
tech/yield progress of China’s LED chip makers in 2H11 will be TV chip, as
increased local sourcing would demonstrate China’s ability to further move up
the tech/yield curve in our view. Sanan already expects to start supplying TV
chips to local brands in 2H11.
Local players favoured by gov’t? China’s lighting market is mostly focussed
on outdoor street/indoor commercial lighting in 2011, and is more projectbased
and B2B rather than policy-driven. Demand has been slower than
expected YTD, and current visibility is low. China’s LED chip players have
been aggressively investing in MOCVD capacity in the past few years to
prepare for the long-term goal of domestic general lighting, with hopes of a
govt subsidy push to drive demand (maybe in 2012). The market potential is
large, but some foreign/TWN makers have concerns that China’s govt could
prioritize domestic players over overseas players. The govt has stated it aims
for domestic players to supply 70% of China’s LED demand by 2015, and
even TWN players with a JV are uncertain whether they would qualify. This is
a key watch point in our view. Thus TWN players are aggressively building
relations in China, such as GPI with Putien for example.
No word of further MOCVD subsidy cuts. Our checks indicate there have
been no further MOCVD subsidy cuts from other regions besides Yangzhou
(ends July 2011). While we do not rule out other regions eventually ending
subsidies, we note that subsidies are administered by the local govt, and
based on talks with Sanan and Silan as well as our own checks, we do not
expect a country-wide subsidy cut. Thus China’s MOCVD units, and by proxy
its LED chip capacity, continue to grow aggressively, and we believe the longterm
watching point is when its technology curve catches up, and product
overlap becomes more apparent with TWN and global players.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
China LED – The sleeping dragon
Event
While the market focuses on the potential for LED demand in China, we think
it is also important to watch the longer-term development of China’s domestic
LED chip industry supply. We recently spoke with Sanan and Silan, two of
China’s largest chip makers. Our key conclusions are a) while a technology
gap with TWN (particularly in high-power) persists, China is making progress
in more mature segments such as low/med-end backlight (NB/MTR) and lowend
lighting, and, in our view, LED TV chip will be a key factor in 2H11 to
gauge further progress; b) China’s lighting market is mainly project rather than
policy-driven right now, but longer-term, domestic players could benefit more
than foreign players from policy-driven demand in 2012-13; c) no substantial
cuts to MOCVD subsidies.
While 2Q will see sequential improvement from a low 1Q base, we are
cautious on LED chipmakers as TV chip commoditization in 2011E will make
a return to 2010 “peak” margins difficult despite the street’s high hopes, with
forward risk of LED lighting pressure from global suppliers who are pricing
down to defend share. China’s LED capacity build and tech competitiveness
remains a longer-term overhang to watch in 2012/13, in our view, and we
retain UP on Epistar.
Impact
Technology gap is narrowing at mid/low end. Our checks with Sanan/Silan
indicate a yield gap with TWN exists, especially in high power LED, but China
is progressing in mature areas (23x10mm) like NB/MTR (mostly for domestic
market), handset and low-end lighting. China players benefit in the yield curve
from talent-poaching from TWN, while less stringency in IP/specs also lowers
the barrier. In some low/mid end segments, a yield gap of China (70%+) and
TWN (80%+) is rapidly narrowing while ASP is at a 5-10% discount, making
China’s LED makers competitive. A key swing factor to further gauge
tech/yield progress of China’s LED chip makers in 2H11 will be TV chip, as
increased local sourcing would demonstrate China’s ability to further move up
the tech/yield curve in our view. Sanan already expects to start supplying TV
chips to local brands in 2H11.
Local players favoured by gov’t? China’s lighting market is mostly focussed
on outdoor street/indoor commercial lighting in 2011, and is more projectbased
and B2B rather than policy-driven. Demand has been slower than
expected YTD, and current visibility is low. China’s LED chip players have
been aggressively investing in MOCVD capacity in the past few years to
prepare for the long-term goal of domestic general lighting, with hopes of a
govt subsidy push to drive demand (maybe in 2012). The market potential is
large, but some foreign/TWN makers have concerns that China’s govt could
prioritize domestic players over overseas players. The govt has stated it aims
for domestic players to supply 70% of China’s LED demand by 2015, and
even TWN players with a JV are uncertain whether they would qualify. This is
a key watch point in our view. Thus TWN players are aggressively building
relations in China, such as GPI with Putien for example.
No word of further MOCVD subsidy cuts. Our checks indicate there have
been no further MOCVD subsidy cuts from other regions besides Yangzhou
(ends July 2011). While we do not rule out other regions eventually ending
subsidies, we note that subsidies are administered by the local govt, and
based on talks with Sanan and Silan as well as our own checks, we do not
expect a country-wide subsidy cut. Thus China’s MOCVD units, and by proxy
its LED chip capacity, continue to grow aggressively, and we believe the longterm
watching point is when its technology curve catches up, and product
overlap becomes more apparent with TWN and global players.
No comments:
Post a Comment