China’s massive investments in light-emitting diode (LED) manufacturing capacity are paying off, with a Chinese company entering the top ranks of the global market for the first time ever, according to IHS Technology.

China’s MLS Electronics Co. Ltd. in 2013 rose to the No. 10 rank in the worldwide market for packaged LEDs, up from 14^th place in 2012. With the other top 10 players based in South Korea, Japan, the United States, Germany and Taiwan, as presented in the attached figure, this represents a first for China’s burgeoning LED industry.

“Since 2011, most of the new LED production capacity that has been added worldwide has occurred in China,” said Jamie Fox, principal LED analyst for IHS. “Because of this, it was inevitable that Chinese companies eventually would penetrate the ranks of the top 10 LED suppliers. MLS was first to join the global elite, having established itself as the clear leader in the Chinese market by capitalizing on strong domestic demand. For the major suppliers, MLS’s ascent into the market’s upper ranks represents a clear signal that Chinese firms soon will become major competitors in the global LED business.”

These findings come from the IHS LED Intelligence Service.

China’s LED market lights up

MLS is one of many Chinese LED suppliers that have sprung up amid the surge in production. However, the other firms do not even rank among the top 20 global suppliers. China’s LED supply base is massive and highly fragmented, with thousands of small manufacturers located across the country.

“Despite leading the domestic market, MLS accounted for less than 10 percent of Chinese LED revenue in 2013,” said Alice Tao, China LED analyst at IHS. “The next five largest LED suppliers in China represented only about 20 percent of the market.”

With the rise of LED manufacturing capacity in China, concerns have risen relating to overcapacity. Some of the equipment purchased for metal-organic chemical vapor deposition (MOCVD) manufacturing—the most important process step in LED production—is now sitting idle in China. Observers have fretted that the overcapacity could result in the shutdown of some Chinese suppliers.

However, only a few of the smaller Chinese vendors so far have closed their LED operations. Most of the top companies remain active in the market, with some posting strong profit margins.

An insular market goes global

MLS and the smaller Chinese suppliers mostly compete among themselves for a share of the large domestic LED market. The international portion of sales for these companies is very small.

At the same, the extremely low prices in the Chinese market make the country inaccessible to overseas suppliers. Because of this, foreign LED makers don’t encounter Chinese competitors very often.

But that situation will change rapidly. IHS expects the LED revenues of Chinese vendors to grow steadily over time, as the country’s economy continues to grow strongly. Because of this, Chinese LED suppliers will begin to sell more internationally and come into competition with foreign rivals.

Barriers to entry

Both intellectual property and quality are concerns for international customers that are considering Chinese suppliers.

However, several factors suggest these concerns could be alleviated over time. These factors include patent expirations, China’s established history in other industries, the sheer volume of manufacturing capacity in the country and the fact that many LED lamps are assembled in the nation.

Top-tier LED suppliers such as Nichia, Osram, Lumileds and Cree so far have seen only a small impact from Chinese vendors on their sales. This is especially true in the market for general lighting in regions such as Europe and the Americas. Such will not necessarily be the case by the end of the decade.

For instance, MLS has started 2014 on a strong note, and may have even ranked among the IHS top 10 LED suppliers in the first quarter.

One out of every four dollars spent worldwide on light-emitting diode (LED) drivers in 2013 was used for lighting applications, illustrating the growing importance of illumination in the LED business, according to IHS Technology.

LED driver revenues from lighting applications last year totaled $305 million, representing 25 percent of the total driver market of $1.2 billion, as presented in the attached figure. The LED lighting market will continue to boom in the coming years, causing revenue for associated drivers to nearly triple to $893 million in 2019. This will amount to 43 percent of the $2.1 billion LED driver market.

“Lighting represents the fastest-growing segment of the LED market, and is accounting for a larger share of market revenue—as well as of overall driver sales,” said Jamie Fox, principal LED analyst for IHS.

The lighting segment mainly consists of lamps and luminaries, with flashlights, architectural illumination and other applications representing a smaller share of the market. Lamps accounted for most of the lighting units shipped in 2013, and for 50 percent—or $151 million—of the revenue for all lighting ICs. This share is set to increase.

The information in this release is derived from the report entitled “LED Driver ICs — World” from the Lighting & LEDs service at IHS.

Driving to growth

An LED driver is an integrated circuit (IC) that manages and controls the electrical current for an LED.

LED driver ICs play an important role in energy savings and are used to support most high-brightness LEDs. Drivers are regarded as an important, if not essential, feature in high-quality LED lighting products.

Beyond the lighting segment, there are also significant sales of driver ICs to diverse applications such as signage, mobile handsets, TVs, notebooks, monitors and tablets, as well as automotive applications.

Price pressure lightens up

LED drivers aren’t subject to the same brutal price erosion that’s impacting the LED market itself. As a result, LED driver revenue will rise by double-digit percentages in 2014, 2015 and 2016.

Furthermore, unit sales of dimmable LED lamps are outgrowing those of non-dimmable lamps. The average price of drivers for non-dimmable lamps is much higher than dimmable lamps, helping maintain strong revenue growth.

Texas Instruments drives to the top

Texas Instruments maintained its position as the leading supplier of LED driver ICs in 2013, followed by STMicroelectronics.

In the signage segment of the market, Taiwan’s Macroblock remained the leader. Meanwhile, Western semiconductor giants played prominent roles in other segments, including companies such as On Semiconductor, Maxim, NXP, Skyworks, ams and Power Integrations.

While suppliers overall focus on different markets, most of the companies that are expected to continue growing will remain directed toward a lighting market that already accounts for a quarter of the total business, and will continue to grow as LED lamp sales increase rapidly during the next few years.