Business in the global LED sector is recovering, supported by the demand for LED lighting products and the slowdown in capacity expansions, Credit Suisse said in a recent client note.
While the market size for backlight units (BLU) is expected to start shrinking because of rapid adoption in the past few years, rising LED demand will more than offset the weakness next year and beyond, HSBC Securities said in a separate note.
The brokerages’ remarks came after several local LED manufacturers said last week they were cautious about market demand and warned that lower demand for LED lighting in the traditional slow season this quarter could have an effect on their revenue.
Epistar Corp (晶元光電), the nation’s top LED chipmaker, last week said its consolidated sales could fall by 15 percent to 20 percent this quarter from last quarter’s NT$5.75 billion (US$195 million) because of its lighting customer adjustment, while Everlight Electronics Co (億光電子), the nation’s top LED chip packager, said it forecast sales this quarter to drop by less than 5 percent from last quarter due to seasonal factors.
Lextar Electronics Corp (隆達電子), which makes LED chips and lighting items, also expressed worries last week about the slow season, citing low visibility of orders.
However, HSBC Securities said it is normal and healthy to see seasonal adjustment during the fourth quarter, which is typically slow.
“With many new and innovative products coming to the market next year, lighting brands are exercising prudent inventory management,” HSBC analyst Jerry Tsai said on Thursday.
Tsai also cited Philips Lumileds’ remark that LED lighting demand is close to a “critical inflection point,” driven by rapidly declining retail prices, government support and increasing standardization.
In its note, Credit Suisse said the trend toward vertical integration and ongoing cost reductions in the LED supply chain will benefit the whole sector and boost the penetration rate of LED products in the long term.
“We forecast more vertical integration in the sector, either through the changing of business models or different technologies, to help firms better meet the lighting demand,” Credit Suisse analysts Derrick Yang (楊泓極) and Jerry Su (蘇厚合) said in their note on Friday.
“We have also seen the continuous cost reduction initiatives at different levels of the supply chain, such as substrate size migration, new equipment, new packaging technologies, etc,” Yang and Su said.
According to LEDinside, global LED demand will balance next year and induce a positive pricing environment.
At a forum hosted by LEDinside on Wednesday and Thursday last week in Taipei, the research division of market advisory firm TrendForce Corp (集邦科技) forecast LED lighting penetration to increase to 33 percent next year from 24 percent currently, and the sector’s revenue to see a compound annual growth rate of 40 percent from this year through 2015.
Unlike its local peers, Unity Opto Technology Co (東貝光電), an LED packaging and testing services provider, appears more upbeat about its business outlook in view of China’s expected new round of subsidies on purchases of home appliances.
Local media reported that Beijing is likely to launch another round of subsidies for purchases of energy efficient home appliances in January. A previous program ended on May 31.
Unity Opto said the new program could prompt TV brands to resume buying LED backlights this quarter, while the still-strong sales momentum in LED lighting may help boost its sales by a double digit percentage from the July to September quarter.
Epistar shares rose 1.92 percent to NT$53 and those of Everlight advanced 2.1 percent to NT$53.5 on Friday. Lextar increased 3.19 percent to NT$25.9, but Unity Opto fell 0.42 percent to NT$23.6.
Additional reporting by CNA