The Chinese government has created an environment for big growth in LED manufacturing, but according to officials from MIT they are now concerned that aggressive investment could overheat the industry. Much of the profit in the LED industry is in the chip production, but China’s focus has been primarily on the packaging side, which is far less profitable. The government has been supportive in helping to expand the LED chip manufacturing business by offering subsidies designed to bring investment from Taiwan and the US.
Taiwan based LED companies are pointing out though that LED chip production requires high level technologies and lots of experience in order to do it right and that a massive capacity ramp won’t necessarily translate to quality that will meet industry standards. Not to mention, prices will drop-- considerably eating into the margins of many small to mid tier LED manufacturers.
What we will undoubtedly see in the LED industry is something very similar to the solar industry, where China based companies scrambled to increase capacity and go public leading to oversupply and a big drop in LED prices and their respective stock prices (should they go public). As of now there is only one publicly traded China based LED company on a US exchange and that is China Intelligent Lighting (NASDAQ:CIL), so I don’t think there is a big concern yet, but as soon as we begin to see a few China based LED companies go public, it’s time to start thinking mini bubble in the LED space.
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