Analysis: the crisis of LED foundry companies

At the beginning of reform and opening up, China has become the best destination for the processing and manufacturing of low-end industrial chains in Europe, the United States, Japan and South Korea with low labor costs and favorable investment conditions. The LED industry is also the same. By vigorously developing the export-oriented OEM economy, a number of LED industrial zones in the coastal areas such as the Pearl River Delta, the Yangtze River Delta and the Chongqing Triangle have been formed.

At present, foundry is still one of the main development models of China's LED industry. With the decline in the price of LED products, the intensification of market competition, the compression cost of brand enterprises, the continuous disappearance of domestic demographic dividends, and the rising cost of raw materials, the development of foundry companies has been severely constrained. In the face of a changing economic environment, LED foundry companies must actively transform their strategies, otherwise they will be eliminated by the market.

The danger of foundry and machine

The LED foundry mode mainly includes three modes: processing, OEM and ODM. OEM is original equipment manufacturing, commonly known as OEM; ODM is based on OEM, engaged in or involved in product development and design. At present, the domestic LED industry OEM is mainly OEM. Relevant data shows that the proportion of LED products exported by China has reached more than 80%.

OEM can help brands and manufacturers achieve win-win cooperation, combining brand and technological advantages with cost control and cheap labor advantages. Foundry has become one of the main ways for traditional lighting companies to transform LED lighting and participate in global competition for most domestic LED companies. Traditional lighting companies such as NVC Lighting, Foshan Lighting, and Midea have all adopted the OEM model to cut into the LED lighting field. For these traditional lighting companies that win by channels, the biggest advantage is obviously not the production link.

In March 2010, Abbison established the lighting division, which defined its positioning of LED lighting professional OEM/ODM integration service providers around the world, and chose to manufacture as an important foundation for the lighting industry.

“Many small and medium-sized enterprises in China focus on OEM business, mainly due to the pressure of survival. OEM orders are relatively stable, the operation cycle is short, cash on delivery, there is not much financial pressure and inventory. OEM only needs to focus on R&D and In the production field, branding requires huge up-front investment, high profits and high risks,” said a senior industry insider.

Affected by energy conservation and emission reduction policies, the demand for global LED terminal products has risen sharply. International lighting giants, domestic brand LED manufacturers and cross-border enterprises have entered the field of LED lighting, and continue to expand production capacity to seize the market, which provides OEMs with more development opportunities.

OEM has become an effective way for brand operators to quickly seize the market. For brand operators with strong financial strength, strong brand influence, advanced technology research and development and rich market operation experience, the integration of product advantages through OEM can maximize production capacity and diversify products in a short period of time. . Most of the products such as Philips, Osram and GE are produced by OEM. Shanghai Yaming, Sunshine Lighting, Feihua Lighting and Libit Lighting have successively processed the energy-saving lamps series for Philips.

As the manufacturing value with the lowest added value on the “smile curve”, the difference in labor cost is the main source of profit for the foundry company, because the customer will pay the foundry enterprise at the price of higher labor cost. However, as domestic labor costs and raw material costs continue to increase, the demographic dividends gradually disappear, and LED foundry companies can only rely on their volume to maintain profitability.

Foxconn, the most influential foundry in the world, is best at large-scale production, labor costs and material cost control. Now it is also beginning to transform itself, taking its own brand and adopting machined production. It can be seen that the situation of small and medium-sized foundry enterprises is even more difficult. An industry insider said: "In the past, for the processing of big brands, the profit is still OK, but with the increasingly fierce price war, the brand company can keep the price low and the profit is getting thinner and thinner. , it will lose money."

In this regard, Professor Xu Chunming, deputy dean of the School of Intellectual Property of Shanghai University, said that China's foundry enterprises must transform, because the profit model of foundry lies in low labor costs, but in the past two years, China's labor costs are 10%-20% per year. The increase in proportion has squeezed the profit margin of China's LED foundry industry. China's LED enterprises must realize the transformation from cost-driven to innovation-driven and take the road of independent brands.

Foundry and independent brands in parallel

In the LED industry, the chip packaging field of the upper and middle reaches is driven by technology and innovation; in the downstream lighting application field, brands and channels are often the core competitiveness of enterprises. As an LED foundry enterprise with neither technology nor brand and channel, it can only survive by meager processing profit, which is not conducive to the long-term development of the company.

Edit: Cedar

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