In part one of these series, LEDinside explored Philips, Osram and Cree’s vertical integration strategies. In the second part of this series we will take a closer look at major Chinese LED companies MLS and Elech-Tech International’s (ETI) vertical integration strategies.

Upheld as the classical business models in the LED industry, Dutch lighting giant Philips and leading German lighting manufacturer Osram business models have been the most discussed among market insiders. The two European companies vertical integration models are considered textbook cases in the industry. In contrast, many Chinese manufacturers have adopted a strategy of diversification in the industry, with the exception of ETI that has been diligently following the vertical integration creed. Since absorbing Guangdong Jiang Longda (健隆達) in 2009, through various investments ETI has been able to gradually piece together its missing links throughout the LED supply chain. The company has become a fully vertically integrated company with a comprehensive supply chain incorporating LED chips, LED packages and lighting products.

Top two U.S. chemical companies Dow Chemical and DuPont signed an agreement in an all-stock merger of equals to merge into an enterprise worth US $13 billion, reported Guangdong LED. This is one of the largest international business and industry merger. After the merge, the new company will trail behind German BASF to become the world’s second largest industrial company, while becoming the largest global chemical company.

Mergers and acquisitions (M&A) are occurring at a rapid pace in the LED industry. Based on incomplete statistics compiled by LEDinside editorial team in China, more than 37 mergers have occurred in the LED industry during first half of 2015, averaging three acquisitions per month. Acquisitions in the industry are maturing, and new M&A trends have emerged.

GlacialLight, the diversified LED technology provider, announces the availability of its 2015 LED industry outlook report – “LED Lighting Industry and Value Chain Shift” – an in-depth look at the current state of the $27.5 billion LED lighting industry, and a forecast of upcoming changes based on market trends. Authored by Shawn Hsieh, Chairman of GlacialTech, the report makes a number of observations and predictions including: a shift in profit margins from the core LED package to the thermal module and LED driver, price competition in the LED package segment, the growing popularity of CoB LEDs, and the opportunity for smaller companies to grab market share.

Ripple effects from volatile Chinese stock market has directly impacted LED capital market, shaking many companies’ management structures. Up to 18 managers in listed LED manufacturers have resigned as of Aug. 25, 2015, nearly double the number of senior managers that retired in 2014.

In a generation where people compare looks and family backgrounds, the business sector is also engaged in similar competitions. The LED industry is a field that is not short of manufacturers showing off their renowned backers. LEDinside lists below classical examples in the field.

LED package manufacturer Everlight and Japan’s largest LED manufacturer Nichia initiated patent wars in Japan, Taiwan, Germany, U.S. and other countries for the past decade, reported Chinese-language magazine Money Weekly. Nichia is one of the top five global LED manufacturers, and spending largely on patent lawsuits against Everlight.  The reason behind these tactics is patents are the only arsenal left for LED Japanese manufacturers that are falling behind Taiwanese and Chinese counterparts production expansion.

Taiwan Lighting Fixture Export Association (TLFEA) has been promoting the inclusion of LED lighting products at World Trade Organization (WTO) Environmental Goods Agreement (EGA) negotiations, a UDN report cited the association chairman Steven Lin saying at a meeting.

Cree’s patent lawsuit against Feit Electronics and Unity Opto has sounded a warning bell for the Chinese LED industry, according to a ledsw.com report.

In the ongoing Foshan Lighting deceptive financial lighting case, another 519 plaintiffs are now demanding compensation, reported Chinese media Sinai.

Japanese LED chip manufacturer Nichia’s first flip chip LED product, set to be launched in October this year, will be one ninth the size of the average flip chip, said the company’s optoelectronic division chief technology officer today at a press conference at Hotel Okura in Taipei, Taiwan.

Chinese LED manufacturer MLS has become China’s second most valuable listed LED company within a week. The company’s shares have soared on the Chinese bourse for five consecutive days since Feb. 27, 2015 bringing its total market value to RMB 20.15 billion (US $3.21 billion).

Luminus Devices, a global manufacturer of high-performance LEDs and solid-state light sources, announced today the appointment of Mark Pugh as Vice President of Marketing. Pugh brings tremendous solid state lighting (SSL) experience to the company adding new depth and market knowledge to the Luminus executive management team.

Recent patent litigations launched by major LED companies aim straight at latecomers in Chinese and Taiwanese LED industry, who have insufficient patent portfolio. The LED market will be restructured to focus on major LED companies with extensive patent portfolio and technological strengths.

Taiwanese LED manufacturer Everlight has made its way into the global top five manufacturers, having finally joined the US$ 1 billion revenue club in 2014, according to a cnYes.com report.

“Every year there are escaping manufacturers, but this has become an ongoing trend in 2014,” is a common saying in China’s lighting industry. This is related to the easing domestic economic market, and slowdown in the real estate market leading to diminishing construction projects, said industry insiders. The LED industry is in a rapidly expanding phase, and all these indicate “winter is coming” in the LED lighting industry. However, not all manufacturers are capable of defending themselves against the “cold” and some have resorted to “selfish” measures.

In recent years “labor shortages” and “layoffs” have become common terms in the Chinese LED manufacturing industry. In Guangdong Province in Southern China, short term labor shortages have increased in 2014 to reach between 800,000 to 1 million workers, according to a report by Chinese-language LEDtimes. Chinese electronic manufacturing conglomerates Haier Electronics, Gree Electric and Foxconn’s layoffs also attracted market attention.

Another Chinese LED manufacturer has gone missing and we're not surprised. In fact, LED industry has underwent massive restructuring during past months. Moreover, overall market demands in 4Q is fairly low, with Epistar, Lextar, SemiLEDs and other major manufacturers reported sliding revenues. Asian manufacturers have taken their own paths to confront the tide of change. Meanwhile in U.S.,Cree reported impacted by price war strategies.

Philips decision to spin-off Philips Lumileds, automotive lighting and later lighting business in mid-2014 was mainly caused by emergence of Chinese LED manufacturers, and rapid market changes, said Roger Chu, Research Director of LEDinside at LEDforum 2014 held in Taipei, Taiwan on Oct. 24, 2014.

Cree, a market leader in LED lighting, today announced revenue of US $427.7 million for its first quarter of fiscal 2015, ended September 28, 2014. This represents a 9% increase compared to revenue of $391.0 million reported for the first quarter of fiscal 2014. GAAP net income for the first quarter was $11.1 million, or $0.09 per diluted share, a decrease of 64% year-over-year compared to GAAP net income of $30.5 million, or $0.25 per diluted share, for the first quarter of fiscal 2014. 

Restructures in the LED industry this year have shaken the market, whether it has been Philips decision to spin off its traditional lighting business, or the sudden bankruptcy of sapphire manufacturer GT Advanced Technology. But the worse is to come in 2015, when Chinese LED manufacturers technology matures, said a Nichia spokesperson.

After Shuji Nakamura was awarded the 2014 Nobel Prize in Physics last Tuesday, the lawsuit the Japanese scientist brought against former employer Nichia in 2001 over patent compensation received renewed media attention. The Japanese LED manufacturer insisted it compensated Nakamura fairly for his work at a press conference in Taipei on Thursday. 

Taiwan’s LED industry godfather Everlight Chairman Robert Yeh upheld a positive outlook on the industry developments, according to an Economic Daily News report.

Russia hopes to further raise China-Russia LED trade volume, and attract top Chinese LED manufacturers to invest in the country, said Alexey Gruzdev, the Russian trade representative to China during a Russia’s lighting market analysis and strategy forum in Shenzhen, China.

The LED industry showed stable growth in first half of 2014, with conventional peak season arriving in 3Q14, many LED manufacturers July 2014 revenues set new historical records including listed companies Everlight, FOREPI and Lextar. LED upstream sapphire substrate manufacturers revenues were slightly weak last month, with only listed company Crystalwise Technology showing strong revenue income. Other listed sapphire substrate companies including Rigidtech and others have also expanded  production capacity. 

The LED industry remains optimistic despite faltering macroeconomic growth for LED products. ”LED prices will drop around 20 percent this year. Semiconductors and automotive lighting will become the most profitable sectors within the lighting industry,” said Dr. Ke Zhang, Director of Business Development and Government Affairs, Asia Pacific at Osram.

Electrolube, the global manufacturer at the forefront of electro-chemicals technology, has developed a clear polyester resin for the LED industry that delivers the high performance of a polyurethane resin without the use of hazardous isocyanates. The flexible encapsulation resin, PE7500, completely eliminates any health risk from isocyanate exposure, proven to cause irritation to the eyes, skin and respiratory system.  PE7500 carries no health warnings and provides a vastly safer environment for operators, whilst also reducing ventilation/protection issues and costs for manufacturers.

Looking at the current lighting market, smart lighting has already become a new product that manufacturers such as Philips are rushing to release. It was a hot topic not only at the Light+Building exhibition in Germany, but also in the recent Guangzhou International Lighting Exhibition earlier this month. The smart lighting market is still in its early stages of development, but manufacturers are eager to expand. The market anticipates to enter into a rapid growth period within one to two years. 

Philips Lumileds continues to develop new products to satisfy the ever changing needs of the LED industry. LEDinside had the opportunity to speak with Philips Lumileds Sr. VP of Sales & Marketing Emmanuel Dieppedalle, Sr. Director of Marketing and Business Development Ray Chock, and VP of APAC Sales Alvin Tse during the Guangzhou International Lighting Exhibition 2014 last week to discuss the company current situation and future outlook.