Economic Slowdown | Pressuring Reshuffle and Consolidation in China's Laser Industry

Over the past decade, China's industrial laser industry has experienced rapid development, demonstrating strong applicability in the processing of both metal and non-metal materials, with a broad range of applications. However, laser equipment remains a mechanical product directly influenced by downstream processing demand and fluctuates with the overall economic environment.

Economic slowdown has resulted in a sluggish demand for laser products.

The economic slowdown has led to a soft demand for laser products in China's laser industry in 2022. Due to frequent outbreaks of the pandemic and prolonged regional lockdowns disrupting normal economic activities, laser enterprises engaged in rounds of price wars to secure orders. Most publicly listed laser companies experienced a decline in net profits, with some seeing increased revenue but not increased profits, resulting in significant profit declines. In that year, China's GDP growth rate was only 3%, marking the lowest since the beginning of reform and opening-up.

As we enter the post-pandemic era in 2023, the anticipated retaliatory economic rebound has not materialized. Industrial economic demand remains weak. During the pandemic, other countries stockpiled a significant amount of Chinese goods, and, on the other hand, developed nations are implementing strategies of production chain relocation and supply chain diversification. The overall economic downturn is significantly impacting the laser market, affecting not only the internal competition within the industrial laser sector but also presenting similar challenges across various industries.

Under fierce competition, companies companies are under pressure to engage in price wars.

In China, the laser industry typically experiences periods of high and low demand within a year, with the months of May to August being relatively slow. Some laser companies are reporting rather bleak business during this period. In an environment where supply exceeds demand, a new round of price wars has emerged, with intense competition prompting a reshuffle in the laser industry.

In 2010, a nanosecond pulse fiber laser for marking cost around 200,000 yuan, but 3 years ago, the price had dropped to 3,500 yuan, reaching a point where it seemed there was little room for further decline. The story is similar in laser cutting. In 2015, a 10,000-watt cutting laser cost 1.5 million yuan, and by 2023, a domestically manufactured 10,000-watt laser costs less than 200,000 yuan. Many core laser products have seen a staggering 90% decrease in prices over the past six to seven years. International laser companies/users may find it challenging to comprehend how Chinese companies can achieve such low prices, with some products possibly selling close to cost.

This industrial ecosystem is not conducive to the development of the laser industry. The market pressure has left companies anxious – today, if they don't sell, they might find it difficult to sell tomorrow, as a competitor might introduce an even lower price.

Cost-cutting pressures are being transmitted to various links in the industrial chain.

In recent years, faced with price wars, many laser companies have been exploring ways to reduce production costs, either through large-scale production to spread costs or through material design changes in products. For example, the exquisite aluminum material for handheld laser welding heads has been replaced with plastic casing, resulting in cost savings and reduced selling prices. However, such changes in components and materials, aimed at cost reduction, often lead to a decline in product quality, a practice that should not be encouraged.

 Due to the drastic fluctuations in the unit price of laser products, users have strong expectations for lower prices, placing direct pressure on equipment manufacturers. The laser industry chain includes materials, components, lasers, supporting equipment, integrated devices, processing applications, and more. The production of a laser device involves dozens or even hundreds of suppliers. Thus, the pressure to reduce prices is transmitted to laser companies, component manufacturers, and upstream material suppliers. Cost-cutting pressures exist at every level, making this year challenging for laser-related companies.

After the industry reshuffling, the industrial landscape is expected to be healthier.

By 2023, the space for further price reductions in many laser products, especially in medium and small-power laser applications, is limited, resulting in low industry profits. Emerging laser companies have decreased in the past two years. Previously fiercely competitive segments like marking machines, scanning mirrors, and cutting heads have already undergone reshuffling. Fiber laser manufacturers, which used to number in the dozens or even twenty, are currently undergoing consolidation. Some companies producing ultrafast lasers are struggling due to limited market demand, relying on financing to sustain their operations. Some companies that ventured into laser equipment from other industries have exited due to thin profit margins, returning to their original businesses. Some laser companies are no longer limited to metal processing but are transitioning their products and markets to areas such as research, medical, communication, aerospace, new energy, and testing, fostering differentiation and carving out new paths. The laser market is quickly reorganizing, and industry reshuffling is inevitable, spurred by the subdued economic environment. We believe that after the industry reshuffling and consolidation, China's laser industry will enter a new stage of positive development. TEYU Chiller will also continue to pay close attention to the development trends of the laser industry, continue to develop and produce more competitive water chiller products that better meet the cooling needs of industrial processing equipment, and strive to the leader of global industrial refrigeration equipment.

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