The LED manufacturing supply chain, like any other industry, has been affected to a large extent by globalization. A large number of LED products have been manufactured in response to macroeconomic shocks such as tariffs and the COVID-19 pandemic. It is these disruptive events that reflect the vulnerabilities of suppliers.
The manufacturing of LED products has been affected as a shortage of components for integrated circuit chips used for electronics, particularly LED drivers, has extended lead times. Due to LED chips shortages, supplier price increases, and other reasons, some major U.S. LED product manufacturers have raised the price of LED fixtures by 2% to 8% and LED drivers by 9%. To better understand LED manufacturing supply chain issues, this article will take you to learn about the reasons behind the problems and their future trends, in order to make some countermeasures.
The most important structure of LED light is the wick of the LED light. LED light wick can be composed of many materials. The luminous efficiency and light spectrum of LED light manufacturing of different materials will be different. The most commonly used materials in LED are gallium arsenide, gallium nitride, yttrium aluminum garnet, gallium phosphide, aluminum gallium nitride, and aluminum gallium phosphide. Controlling the composition of these materials can change the wavelength of light emitted by LEDs.
Under normal circumstances, the materials are not scarce in the market, but the covid-19 epidemic in 2022 has not been improved, the international logistics is not as smooth as before, and the supply end and production end of LED raw materials are not at the same area, which makes the supply of LED light difficult. In particular, led wicks are in short supply. The price of many led wicks has tripled or even reached 10 times. The epidemic continues, and the international situation is more volatile, which will bring more uncertainty to the LED manufacturing supply chain.
What determines the color of an LED?
The material used for constructing LED determines its color. In other words, the wavelength or color of the emitted light depends on the forbidden gap or energy gap of the material.
Different materials emit different colors of light:
- Gallium phosphide LEDs emit red, yellow, and green light.
- Yttrium aluminium garnet LEDs emit white light.
- Gallium arsenide LEDs emit red and infrared light.
- Aluminium gallium nitride LEDs emit ultraviolet light.
- Gallium nitride LEDs emit bright blue light.
- Aluminum gallium phosphide LEDs emit green light.
Basic Types of LED Chip
SMD (Surface Mounted Diode)
SMD is a stand-alone chip on a ceramic base that can be integrated into various commercial applications, such as linear LED strips or downlights. With more complicated designs, SMD LEDs have RGB capabilities on a single chip, such as SMD 5050 chips. Three diodes – the red, green, and blue diode, can be placed on the same chip. With these three diodes, you can create any color you desire by adjusting the level of output.
COB (Chip on Board)
It comes as a high-power chip with a printed circuit board that can manage heat effectively. COB allows nine or more diodes on the same chip. In comparison to other chips, it is capable of increasing the lumen-per-watt ratios of LED technology. However, adjusting the colors of different sources requires multiple channels. Thus, this technology is very suitable for single-color LED devices, but it might not be as effective when there is a color adjustment needed.
ETI FC (Flip-Chip)
In comparison to current COB LED production, it is a novel patented technology by which the LED is mounted upside down. Compared to other traditional LED technologies, it not only can reduce costs, but also can reduce thermal resistance thus resulting in higher heat dissipation. In addition, FC LEDs are even more focused and brighter due to their more compact design.
The Impact of LED Manufacturing Supply Chain Disruptions
The Causes of Supply Chain Disruptions
In the past few years, there were two big macroeconomic events have disrupted the LED manufacturing supply chain. They are as follows:
The Tariff Policy
The Trump administration imposed tariffs on certain commodities originating in China, including LED luminaires and LED packages, in 2018 and 2019. After the implementation of the tariffs, U.S. customers faced 5-25% of the increase in LED package costs. A large part of the tariff’s cost was actually passed on to the customers.
There are similar worries among downstream manufacturers. The tariffs between China and the United States had some manufacturers to shift the manufacturing of LED lights from China to Vietnam, Malaysia, and other Southeast Asian countries. However, a significant proportion of LED manufacturing remains in China.
As an unexpected consequence, the manufacturing of some intermediate components, such as light engines, was moved from the U.S. to Mexico to avoid the tariffs. However, the manufacturing of LED lamps in the United States has not changed significantly, and there are still a large number of LED assembly and manufacturing plants in the United States.
Of course, the second big event is the COVID-19 pandemic. During the first 6-9 months of the pandemic, the LED manufacturing supply chain problems revealed by fabricators included shortages and delays, reduced sales and demands, and a mix of inventory shortages and surpluses.
In the initial stage of the pandemic, the shortages in LED packages, materials, and driver components were due to the shutdown of many manufacturing plants in China. These shortages had a ripple effect, which affected the rest of the supply chain.
As the pandemic proceeded, the concerns changed from supply chain issues to decreased demand and inventory surpluses. Due to the pandemic, the decreased demand for lighting products was the biggest challenge for many manufacturers. In addition to a drop in demand and attendant decline in sales, some manufacturers also reported inventory surpluses for some products.
How the LED Industry is Affected by LED Manufacturing Supply Chain Issues
Until 2022, many manufacturers and industries have been suffering from severe global chip shortages, such as sensors and semiconductors. The LED lighting industry has also been hit without exception.
First, due to the low profits of LED chips, more and more manufacturers are turning to high-value chips. Second, most of the wafer semiconductors go to high-value chip manufacturers, and ordinary LED chip manufacturers can’t obtain enough wafer semiconductors. However, a few chip manufacturers will prioritize meeting the needs of the LED industry giants, so lots of smaller factories have stopped taking orders.
Due to the impact of the COVID-19 pandemic, there is not much demand for LED lights in smart home applications. The problem of chip shortages is not obvious for this market segment. Instead, the prices for the chips are likely to fall.
Mini LED lights, however, which are primarily used in various consumer electronics, such as televisions and smartphones, are a different story. Many manufacturers using these chips have already started to stock up as early as the fourth quarter of 2020, based on the data from OEMsecrects.
According to TrendForce, the prices for the commodity have risen by around 10%. Many companies’ inventories were destroyed and in turn, their LED manufacturing supply chains were hurt.
Global LED Light Market
Over the period 2021-2026, the LED light market is expected to grow at a compound annual growth rate (CAGR) of 12.3%. One of the major drivers is the constant development and application of new technologies. On the other hand, LED manufacturing costs have also decreased. As a result, the average selling price (ASP) of LEDs has been significantly reduced, making LEDs a favored choice for consumers.
The rise of LED niche lighting is another primary driving force in the growth of the LED light market worldwide. These application areas include fishing lighting, healthcare lighting, ship lighting, horticulture lighting, and port lighting. In addition, governments around the world offer incentives to encourage energy-efficient lighting, which increases the demand for LEDs.
As TV backlighting shifts to LED technology, backlighting will become the largest and fastest-growing application of LED chips in the coming years. In 2012, LED for illumination, with applications including residential, industrial, and commercial lighting, accounted for approximately 30% of the overall market. Market share in segments such as automotive, signs, and signals is expected to decline during the forecast period.
Primarily due to their applications in backlighting and illumination, as well as high brightness, the market for blue LED light is expected to grow faster than the global average. By contrast, red LED lights are used in automotive taillights and traffic signals. Yellow, ultraviolet LED, and infrared chips are included in the other segments.
Mainly due to a great number of industry participants in the region, Asia Pacific is expected to make the largest contribution to revenue and hold the largest market share over the forecast period.
Key Market Segments
Our research report has categorized the global LED light market according to their different applications, colors, and geographical regions. The competitive landscape and key trends of the market are also analyzed later.
On the Basis of Applications
- Street Lighting
- Indoor lighting
- Horticulture Lighting
- Healthy lighting
On the Basis of Colors
- Monochromatic light
- Bichromatic light
- RGB light
Based on Geography
- North America
- Asia Pacific
- Latin America
- Middle East and Africa
The LED Light market consisting of several major players is highly competitive. But currently, few of these major players dominate the market. In order to obtain a competitive advantage, product differentiation strategies are carried out by the manufacturers. Furthermore, in order to gain higher revenue, these manufacturers are also attempting to portray their products as ones of high quality.
- Philips Lumileds Lighting Company
- SUNSHINE Lighting
- GE Lighting
- Omni Electrical & Lighting
Key Market Trends
Automotive is Expected to Hold Major Market Share
The automotive lighting industry has been positively affected by the rise of the automotive manufacturing industry worldwide. The growth of the LED market in the automotive market is driven by the growing demand for more cost-effective and less power-consuming lighting systems.
The global automotive LED lighting market is anticipated to reach $7.3 billion by 2020, according to Clearwater International. In the future, due to the massive production of automotive and hybrid cars, demands for LED lights are expected to be high in the U.S. and the Asian regions, such as South Korea, China, and Taiwan.
The Asia–Pacific Region is Expected to Achieve the Highest Growth Rate
Given the rising disposable income, rapid urbanization, and changes in consumer habits, the Asia-Pacific region has been the largest market for consumer electronics. The demands for high and medium-power LEDs are expected to grow due to rapid technological changes.
China has a large number of local suppliers to meet the local demand, making it one of the leading exporters of the LED light. Many Chinese LED chipmakers, such as Sanan Optoelectronics claimed to have received government subsidies in April 2020. The government incentives for chipmakers will contribute to the growth of the local LED lighting market. In turn, it will also boost the demand for LED chips.
As part of the country’s energy efficiency initiatives, Japan is deploying LED lighting solutions to replace traditional lighting solutions. For example, the trees along Tokyo’s Shibuyakoen-Dori street and zelkova trees in the park were illuminated by around 600,000 LED lights.
Moreover, the Indian government has imposed a free tariff on imports of LED components, in order to facilitate LED light and LED products to enter the market. The products at the LED Expo New Delhi 2019 were once again sold out due to the growing demand for LED technologies.
How to Deal With the LED Manufacturing Supply Chain Dilemma
Generally speaking, it is not easy to come up with solutions for the global LED light crisis, because even the experts cannot predict a clear future. Some companies react to the ongoing dilemma in LED manufacturing by stockpiling as many chips as possible. But we don’t recommend that all companies do like this, because it can lead to other businesses, especially small ones, having nothing. The best solution is a combination of approaches, including better diplomatic relations, multiple supply chains, better inventory planning, stronger relationships with suppliers, and even sound economic and trade policies.
Specifically, from the manufacturers’ point of view, they must adapt to the circumstances and strive to maintain existing sales and production. Perhaps hiring more staff, adopting better means of production, or finding alternative supplies could help. For users, on the other hand, all they can do is wait patiently before receiving the LED products they want.
MOKOLIGHT has been an LED manufacturer for more than fifteen years and currently has a large stock of high-quality LED products. Our LED chip reserves are sufficient, the price is stable. We have stable and diversified supply sources, free from the impact of the market cycle. We can deliver on schedule, even when the LED manufacturing supply chain is tight. If you have any questions about LED lights, you can consult us online and we are happy to help.