The hottest thinking about the periodicity of LED

2022-09-23
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Thinking about the periodicity of LED chips: how do excellent enterprises deal with the industry downturn

we studied the periodicity of the LED industry, discussed the strategies of excellent enterprises at the cycle trough, and discussed the indicators that should be paid attention to when the next cycle comes

I. thinking about the periodicity of chips: how can excellent enterprises cope with the industry downturn

LED chips still have a strong cyclical attribute. After the boom of the industry last year, LED chip prices have entered a downward cycle this year, the gross profit margin of enterprises has declined, and the inventory is high. Since the cycle cannot get rid of, how to preserve strength in the downward phase of the cycle and wait for the boom to pick up is a problem that every enterprise must consider; In terms of investment, understanding the characteristics of the cycle is also the premise to judge the winner of the industry. We briefly analyze the generation and current stage of LED chip cycle, and analyze the Countermeasures of enterprises

periodicity comes from the imbalance between supply and demand, especially the fluctuation at the supply side, which comes from enterprise decision-making. Enterprises at the peak of the boom will increase production expansion out of optimism for the future. When the boom is declining, LED chip factories generally will not respond by reducing production. This is due to the cost structure and industrial characteristics of LED chips. Depreciation and fixed amortization account for nearly 50% of the cost. When the chip price falls below the cash cost, manufacturers are still in a positive cash inflow state, so there is no need to reduce production in the short term. Manufacturers with long-term competitiveness will still choose to continue production, maintain the market share advantage, and wait for the boom to reverse. The rational decision-making of enterprises leads to the occurrence and continuation of the cycle

at present, if the cash cost line is taken as the limit, the prices of mainstream chip factories still have great room for decline

it is understood that since production will not be stopped in the short term, the trend of oversupply in the industry will continue until the price falls below the second tier enterprise shutdown line (cash cost line), or downstream demand recovers or incremental demand digests excess capacity. At this stage, the competition between enterprises falls on cost and technology, relying on the light efficiency of products, production yield and scale effect. Enterprises with rough products and low cost will be eliminated first. On the other hand, the downturn is an opportunity for leading enterprises to expand counter cyclical and gain a more stable position when the next cycle comes

at the bottom of the boom, the best strategy for leading enterprises is to increase research and development and maintain a moderate expansion of production. When the industry is booming, we should aim to make profits, accumulate funds for the needs of expanding production, and improve the financial structure; In the boom and bust period, the goal is to expand market share, reduce production costs and squeeze the living space of competitors. Facing the cyclical cycle, the countermeasures that chip factories can do are:

complete the production expansion before the boom peak (the last boom peak was 2017h1). During the boom peak, the equipment needs to be increased due to excessive oil spillage, and the supply and demand are tight, which not only leads to the rise of equipment prices and the extension of delivery time. At this time, the expansion of production is half the effort

when the boom falls, excellent enterprises have more capital reserves than their peers. At this time, the best strategy continues to expand production capacity gently and increase market share; Increase research and development efforts, reduce production costs, and get rid of the gap with peers

at the beginning of the boom, the production structure is ready. At this time, the production capacity should be expanded rapidly, so that higher profits can be obtained at the peak of the boom, and the profits obtained at the peak will bear the depreciation costs caused by the expansion of production capacity

at the peak of the boom, the strategy is to maintain high profitability and technological advantages. In addition, it is easier for the company to raise funds at this time

at the current time point, the high inventory of upstream chip plants has not been alleviated, the purchasing willingness of midstream packaging plants has remained low, and the gross profit margin of chip plants has continued to callback, indicating that this round of downward cycle has not yet bottomed out

visible LED has been produced for more than 20 years, and has become the light source of many products. The light efficiency has gradually increased, the price has steadily decreased, and the scope of application has gradually expanded. It is expected to continue to grow steadily in the future. Downstream demand is moving along a stable path, while the supply side has brought about an industrial boom cycle due to fluctuations in enterprise decisions. Looking forward to the future, I'm afraid the industry is still difficult to avoid periodicity, but for individual enterprises, it is necessary to make predictions in advance and make appropriate decisions in order to cross the cycle and keep the foundation green

second, what should we pay attention to when the next cycle comes

since the cycle has not bottomed out and the next boom is coming, it is necessary to replace oil pipes with higher intensity. What indicators can be used for tracking and verification? Let's first look at a picture of San'an optoelectronics:

we can find that there are certain rules in the three data, which is actually logical:

in the upward stage of the cycle, the gross profit margin rises and the inventory decreases, and the two deviate. At this time, the stock price performs best, and the typical range is 2014q1-2017q3

in the downward stage of the cycle, the gross profit margin decreases and the inventory rises, and the two converge. At this time, the stock price is in a downturn, and the typical range is from 2017q4 to now

when the gross profit margin and inventory rise or fall together, the stock price performance is relatively stable at this time, and the typical stage is 2011q1-2014q1. One possible explanation for why the two are synchronized is that the company's production capacity changed little from 2011 to 2014. The number of MOCVD equipment increased slightly from 144 to 160, making the actual production capacity more flexible. The decline in inventory means that customers' willingness to purchase decreased. The company's voice in the supply chain decreased, resulting in a decline in gross profit margin. The rise in inventory means that a large number of goods are prepared for peak season procurement, and the gross profit margin increased due to the return of pricing power. After 2014, as the company began to expand production, this law failed, and the inventory decreased when the gross profit margin increased, which is a manifestation of the company's improved voice in the industry

is it the same with other chip enterprises? Let's look at the figure:

the gross profit margin and "inventory/current month revenue" of the three chip factories have experienced from dispersion to convergence in history, and they ran counter to each other after parallel for a period of time. Now they are beginning to converge again. We can boldly judge that the time when the two lines cross again is the low point of the cycle, and then it will hit the bottom and rise

1. The stock price is still most related to the gross profit margin. After the market determines the trend of gross profit margin, the stock price will rise

2. The gross profit rate and inventory determine the cycle position, including the industry cycle and the company's own cycle. Otherwise, it is easy to cause dangerous situations such as machine failure and personal injury. The time point of the chip factory may be different, but the interval is similar

3. The inflection point is that the gross profit margin hit the bottom and rebounded, the inventory fell to a low compared with the single quarter revenue, and the stock price has bottomed out in advance and no longer hit a new low. It is expected that the low point of gross profit margin will be in the first quarter of next year, and the upward inflection point may appear in the second quarter of next year; The inflection point of inventory will be low in the second quarter of next year, and the lowest point of stock price may be around the first quarter of next year

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