Mini LED chips help HC SemiTek to turn losses into profits in 2020

On December 23, Huacan Optoelectronics announced its performance forecast that the company expects to achieve a net profit attributable to shareholders of listed companies of 16 million to 24 million yuan in 2020, compared with a net profit loss of 1.048 billion yuan in the same period last year.

HC Semitek said that during the reporting period, benefiting from the company's product strategy transformation and adjustment, the proportion of Mini chips, high-end backlights, high-light-efficiency products and other products increased, the product structure adjustment achieved remarkable results, and the product gross profit margin and net profit increased significantly. It is expected to make a profit of 16 million to 24 million yuan in 2020, turning losses into profits.

In recent years, with the intensified competition in the LED market, the price of LED chips has dropped significantly, resulting in a decline in the sales volume of HC Semitek's LED chips, and a decline in both revenue and net profit. In particular, in 2019 and the first three quarters of this year, the net profit was in the red. In addition to the net profit loss, HC Semitek was also affected by factors such as the financing environment. For this reason, HC Semitek sold its equity in Harmony Optoelectronics in 2019 to alleviate the lack of liquidity.

In September 2019, Huacan Optoelectronics and Tianjin Haihuaxin signed a "Share Sale Intention Agreement", intending to transfer the company's 100% equity in Harmonious Optoelectronics for 1.96 billion yuan. In fact, this sale by Huacan Optoelectronics can be called a fancy cash-out. In October 2016, Huacan Optoelectronics announced that it would acquire 100% of the equity of Harmonious Optoelectronics by issuing shares for 1.65 billion yuan. The transfer procedures and related industrial and commercial change registrations were completed in April 2018. In just over a year, the company cashed in the assets.

Regarding the sale of Harmony Optoelectronics, HC Semitek explained that the previous acquisition of Harmony Optoelectronics was aimed at realizing its presence in the consumer electronics market and industrial application fields with the help of the MEMS sensor business, while the rise of MiniLED and MicroLED has put forward new requirements for the company's strategy. In the face of the imminent explosion of MiniLED industry demand, it is crucial for listed companies to promote the development of related products as soon as possible and seize market opportunities.

Although HC SemiTek is currently accelerating its layout in the MiniLED/MicroLED field, as more LED manufacturers enter the market, the competition among leading companies for Mini/Micro LED products is becoming more intense. Sanan Optoelectronics sued HC SemiTek for patent infringement in September this year, which is an obvious example.

Industry insiders pointed out that when the LED chip industry cycle hit bottom, Sanan and HC SemiTek both increased their investment in Mini LED chips in order to improve their operating performance. At this critical moment, whoever can take the lead will most likely gain the upper hand in the next cycle and achieve a redistribution of market share. Therefore, attacking competitors with patent infringement may prevent them from surpassing themselves.

At present, the gradual increase in HC Semitek's market share has posed a certain challenge to Sanan Optoelectronics, and the large-scale shipment of high-end Mini/Micro LED products has put pressure on the latter. From this perspective, Sanan's lawsuit against HC Semitek is a patent dispute and friction on the surface, but in essence it is a competition for the market.