Hualei Optoelectronics: Accelerating into the fast lane

[Source: "High - tech LED - Research and Review" December issue reporter / Liu Qiaomei ]

Looking back at 2012, there is a relative surplus of LED chip production capacity, market competition is increasingly fierce, prices are falling, and product profit margins are constantly being compressed.
According to the statistics of the High-tech LED Industry Research Institute (GLII), as of the end of the third quarter of 2012, the domestic MOCVD stock reached 896 units, with an average operating rate of 58.4% and a capacity utilization rate of approximately 30.1%. In terms of price, the average domestic price of white light-illuminated chips in the first three quarters dropped by more than 30%, and the average price of display chips decreased by more than 50%.
The rapid decline in chip prices directly led to a sharp decline in the gross profit margin of products. This year, most LED chip companies are in a state of break-even, and even many companies have incurred losses. Obviously, the release of production capacity has not brought about an increase in profitability for enterprises.
As the only LED epitaxial chip company in Hunan Province, the performance of Xiangneng Hualei Optoelectronics Co., Ltd. (hereinafter referred to as “Hua Lei Optoelectronics”) is impressive. "2012 Hualei Optoelectronics revenue is expected to exceed 300 million yuan, an increase of about 67%." In the eyes of Hua Liguang, general manager of Hualei Optoelectronics, the company has begun to accelerate into the fast lane.
Diversified business strategy

In the development of Hualei Optoelectronics, the two diversified strategic layouts are milestones. In 2008, after several investigations and arguments, the chairman of Xiangmei Group, who had been in the coal pile for decades, made a decision to enter the LED industry. "Resources must survive and develop, and industrial diversification is an unavoidable choice."
In October 2009, Hualei Optoelectronics Phase I LED epitaxial wafer project was officially put into production. At this time, the LED epitaxial chip market is in a stage of short supply.
"As long as LED epitaxial chip companies can produce chips that are acceptable in the market, there is basically no need to worry about sales." An industry insider described the market conditions at the time.
Since then, the domestic LED epitaxial chip industry chain has set off an investment frenzy. The statistics of the High-tech LED Industry Research Institute (GLII) show that in 2010, 20 epitaxial chip projects have been announced in China. In 2011, the investment boom continued, and a total of 15 epitaxial chip projects were announced for investment construction throughout the year.
In 2010, Hualei Optoelectronics' second LED project has been fully launched. As of the end of 2011, Hualei Optoelectronics Phase II project had 22 new MOCVD equipment. Although at the time, it seemed that compared with the speed of the crazy expansion of Sanan Optoelectronics and Dehao Runda, Hualei Optoelectronics’ “slow rhythm” expansion seems to be somewhat conservative, but it is precisely because of this that Hualei Optoelectronics just avoided Opened a "trap" of overcapacity.
Up to now, Hualei Optoelectronics has 32 MOCVD, and the epitaxial wafer production capacity is 100,000 pieces/month.
“Hua Lei Optoelectronics does not have the problem of overcapacity.” Mao Zili said, “Hua Lei has promoted big sales and sales through large customers by establishing a three-dimensional marketing model through sales, paybacks, and efficiency activities. Sales became cooperative sales, strict implementation of the payment policy, implementation of differentiated pricing and other measures, basically achieved a balance between production and sales.
However, the fact that cannot be ignored is that market competition is becoming increasingly fierce and corporate profits are constantly being compressed. Incremental gains have become a dilemma that chip manufacturers must solve.
“For a company, maintaining a gross margin of 20%-30% is a necessary condition for survival.” Mao Zili stressed that the fundamental reason for solving the incremental increase is to reduce costs, and how to properly extend the LED industry chain and find new achievements. The point of growth is also key.

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