The price of components has been dropping in the LED industry. According to industry sources, the price drop of LED components in 2011 has been around 25-35%. According to David Chung, chairman of Genesis Photonics, the oversupply condition in the market has been most apparent in small- and medium-size products. Chung expects the price of large-size LED products to hit bottom and rebound in 2012.

Industry sources indicated that from past experience, the price of LED components usually falls by 10-20% annually. In 2010, the LED market was booming so the price remained quite steady. However, the due to weak demand in 2011, the price drop of LED products in the first half of 2011 reached 15-20%.

South Korea-based LED firms began to slash prices in first half of 2011. China-based newcomers followed suit. The fierce competition has been causing the gross margins to fall significantly.

Chung pointed out that to stimulate the LED lighting market, the price drops are necessary. However, the price of small- and medium-size LED chip products has been experiencing freefalls due to severe price slashing taken by China-based firms. The large-size LED chip products, on the other hand, continue to be controlled by Taiwan-based firms, said Chung. Despite the price drops, the firms that are dominating in the large-size LED chip market will likely have room for profits.