Industry chain M&A effect During the reporting period, the company's sales of LED chip products increased by 98.24% over the previous year. At the same time, the acquisition of blue crystal technology increased the sales revenue of substrate wafers, and realized operating income of RMB 612,925,800, an increase of 41.16% over the same period of the previous year; and realized operating profit of -29,022.6 thousand. Yuan, a decrease of 29,564,400 yuan over the same period last year. During the reporting period, the company actively signed strategic cooperation agreements with core customers, strengthened the supply chain cooperation management, enhanced the company's capacity utilization rate and product research and development efficiency, and laid a solid market foundation for further expansion and efficiency. The company officially launched the construction of the Zhejiang subsidiary, and the successful construction of the project will lay a more solid foundation for the company to win the leading position in the future global market competition. While expanding and strengthening the main business, in order to further extend the industrial chain, form synergies and enhance comprehensive competitiveness, the company actively invested in advanced technology during the reporting period. In April 2016, in order to expand the company's development space in the third-generation semiconductor application direction and expand the new application fields of the company's products, the company plans to invest 3 million yuan to participate in the field of robotics and radar. In addition, after more than a year of mergers and acquisitions, the 100% equity of Lanjing Technology was registered and registered under the company name to achieve successful mergers and acquisitions. Excessive market competition has improved In the context of continued strong sales growth, the loss of operating profit was mainly due to the fact that the industry is still in the stage of competitive elimination, and the market price is very unstable. Compared with the previous year, the product price dropped significantly during the reporting period, although the sales volume increased significantly, but the revenue growth was less than the growth rate of sales volume in the same period last year. Moreover, the cost reduction was less than the decline in sales prices, resulting in a significant narrowing of the gross profit margin of LED products. Due to excessive price declines, the prices of industrial products have bottomed out since the second quarter. At the same time, the enthusiasm of customers' sales repayments during the reporting period has significantly improved, indicating that the situation of excessive market competition has improved. The company achieved a net profit of RMB 53.716 million in the first half of the year, an increase of 323.02% over the same period of last year, but the net profit after deducting non-recurring gains and losses decreased compared with last year. The reason for the change in net profit in 2016 compared with the same period of last year is that the price decline is greater than the cost reduction, which leads to a decrease in operating profit. However, after the chip products experienced a decline in the fourth quarter of 2015, the second quarter of this year was compared with the fourth quarter of the previous year. In the first quarter of this year, prices have rebounded slightly. Product strategy adjustment is effective The company seized the opportunity of the market recovery in the second quarter and actively explored the market and adjusted its product strategy in a timely manner. At the same time, the implementation of streamlining personnel, reducing costs and controlling costs and other measures, so that the second quarter results began to improve. Since May, the wholly-owned subsidiary Blue Crystal Technology has been included in the scope of the company's consolidated statements. On the other hand, government subsidies included in the current profit and loss during the reporting period have increased significantly from the previous year. In the first half of the year, the demand for LED chips continued to grow, and the company's production and sales increased steadily, further consolidating the company's dominant position in the market. In particular, benefiting from the rapid growth of the demand for small-pitch display screens, the company's products in the display segment market show a prosperous situation of both production and sales. It is expected that the company's dominant position in the display market will give the company an opportunity to win faster growth in the next 2-3 years. At the same time, in terms of overseas market expansion, export revenues have steadily increased. Continuous research and development investment "grab time for the future" During the reporting period, in order to further consolidate and strengthen the company's core competitiveness, with the expansion of production scale, continue to increase investment in product research and development, and continuously improve product performance. At present, the red light reverse polarity LED chip, the backlight flip chip LED chip, the yellow green light bright LED research and development project are basically completed, and individual projects have been applied to the batch products, enriching the product categories, exploring the product market, and improving the company's comprehensive competitiveness. As always, we will invest in independent research and development, aim at international leading level to further enhance product competitiveness, and actively seek opportunities for international cooperation in intellectual property rights. In April, it reached a cooperation agreement with Australian company BluGlass to jointly explore the use of RPCVD technology to explore the low-temperature deposition of aluminum nitride (AlN) and the application of P-GaN on high-brightness LEDs. The two companies will work together to improve the process and enable the production of high-efficiency, high-brightness green and white LEDs at low cost. Look at the "risk countermeasures" of Huacan Optoelectronics The LED chip industry in which the company is located has experienced a sharp price drop due to the release of new large-scale investment capacity. Although the current decline has stabilized, in order to compete for market dominance, the market price irrational competition will reappear in the short term. It cannot be completely avoided, so the company will also face the risk of falling profitability caused by the continuous decline in product prices. Countermeasure: By amplifying production scale, product sales are distributed in multiple market segments, reducing the risk of a full price drop in a single market. At the same time, expand the existing dominant position of the display market and avoid simple price competition with competitors by leading the pace of product replacement. In addition, in the field of white light products, by increasing the level of research and development, more products will enter the international mainstream market and avoid vicious price competition with domestic competitors. With the rapid growth of the company's scale, especially the expansion of international business, the risk of conflict between the company and its competitors in intellectual property will increase in the future. This will affect the speed of the company's products in the international market. Countermeasures: Further strengthen the application and protection of independent intellectual property rights, and expand the channels of technical exchanges and cooperation with international counterparts, and seek to establish mutually beneficial and win-win cooperation.
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