Why did LED chip factory revenue decline in the first quarter? related to this policy

Recently, LED chip manufacturers such as Sanan Optoelectronics, Qianzhao Optoelectronics, and Jucan Optoelectronics have successively released performance reports for the first quarter of 2026. The first-quarter operating income of many chip factories fell significantly year-on-year. Among them, the revenue of Sanan Optoelectronics, Qianzhao Optoelectronics, and Jucan Optoelectronics in the first quarter of 2026 fell by 32.59%, 47.27%, and 42.71% year-on-year.

In the main businesses of Qianzhao and Jucan, LED chips account for a higher proportion of revenue and have experienced a larger decline. However, experts say that after observing the data, Research found that this is not due to a major decline in the revenue of its main business, the chip sector, but to the fact that its precious metal scrap recycling no longer recognizes revenue.

The proportion of scrap revenue of LED chip factories in the past

Since the first quarter report usually rarely discloses the revenue information of various business segments including scrap, in order to better understand the impact of scrap revenue on the total revenue of LED chip factories, experts said that Research selected the data of the 2025 annual report, which is the closest to the first quarter report, as a reference to take a look at the proportion of scrap revenue of several listed LED chip factories in the past. The details are as follows:

Sanan Optoelectronics' total revenue in 2025 is 17.949 billion, of which scrap revenue is 5.826 billion, and scrap revenue accounts for 32.46%; BOE Huacan Optoelectronics' total revenue in 2025 is 5.408 billion, of which scrap revenue is 2.844 billion, and scrap revenue accounts for 52.59% %; Qianzhao Optoelectronics’ total revenue in 2025 is 3.401 billion, of which scrap revenue is 1.629 billion, and scrap revenue accounts for 47.92%; Jucan Optoelectronics’ total revenue in 2025 is 3.127 billion, of which scrap revenue is 1.735 billion, and scrap revenue accounts for 55.48%.

It can be seen that when revenue is recognized from the recycling of precious metal scraps, about 32-55% of LED chip-related business revenue is scrap revenue. Therefore, in the performance disclosure of this first quarter report, the precious metal scrap recycling revenue, which accounts for about 50% of the total revenue, is adjusted from the total revenue, which is equivalent to a year-on-year decrease of nearly 32%-50% in revenue. Judging from the data disclosed in the actual first quarter report, the revenue decline of most LED chip manufacturers is between 30% and 40%, not reaching 50%. On the one hand, it may be because these companies have other non-LED chip business, or the exclusion of precious metals affects the main business growth.

The main reason why chip factories adjust scrap revenue

LED chip production uses high-purity granular gold. During the production process, only a small amount of gold is attached to the circuit through the evaporation process. Most of the remaining gold will be doped with other production materials and adsorbed on the surface of the processing device in the form of attachments, forming gold waste.

In the past, manufacturers could choose the time to buy and sell scrap precious metals. Choosing the model of buying gold and selling scrap may bring additional investment income than simply outsourcing processing. At the same time, due to the large investment in the semiconductor industry, for loss-making or high-growth technology companies, the secondary market segment prefers to use PS (price-to-sales ratio) rather than PE (price-to-earnings ratio) for pricing. Therefore, in the past, most LED chip factories sold gold scrap to professional gold recycling companies to generate scrap revenue.

As shown in the figure above, several LED chip manufacturers explained in their first quarter reports the reasons for not recognizing revenue from precious metal scrap recycling. Their reasons are common: According to the "Announcement on Gold-related Tax Policies" that will be implemented from November 1, 2025, when purchasing gold for production through the Shanghai Gold Exchange, the input tax deduction rate will be adjusted from 13% to 6%, and the applicable value-added tax rate for scrap sales is 13%. Therefore, LED chip factories do not recognize gold scrap as revenue, and the disposal model is adjusted from external sales to outsourcing processing, purification and reuse.

According to expert research, the new gold tax policy implemented in 2026 (Ministry of Finance and State Administration of Taxation Announcement No. 11 of 2025) will change the tax cost structure of OTC transactions through significant tax differences and strict invoice management, and guide transactions to be concentrated on exchanges (exchanges). For the first time, this policy strictly divides gold transactions into two categories: "investment" and "non-investment" according to their purposes, and applies different VAT treatments.

When companies purchase standard gold from the Shanghai Gold Exchange and Shanghai Futures Exchange, they must clearly declare the purpose during the outbound process. If the actual use changes after purchase (for example, gold scrap used for production is sold), it needs to be reported to the exchange before the change, and may involve complex tax treatments such as re-issuance of invoices and transfer of input tax. This is directly related to the disposal of scrap after semiconductor companies purchase gold for production (non-investment purposes).

According to the new policy, if the seller declares it as "non-investment use" when purchasing, then it can issue a special VAT invoice when it sells to a semiconductor company, which means that the semiconductor company can use the special invoice to deduct 13% input tax. Its actual purchase cost is "price + 13% VAT - 13% input tax = price", and the tax burden will not increase. But the problem may lie with the seller. When the seller purchases from the exchange (for non-investment purposes), it is tax-free and there is no input tax. When it is sold to a semiconductor company, it needs to pay an output tax of 13%. Since it has no input tax to deduct, this 13% output tax may become its additional tax cost unless it can pass the tax burden to the buyer through price increases.

This may result in sellers being unwilling to engage in such OTC transactions, or by increasing the selling price and transferring this part of the tax burden to semiconductor companies to cover the tax burden, resulting in increased procurement costs. Therefore, the impact on LED chip manufacturers is to change from external sales to physical replacement. Revenue from precious metal scrap recycling will no longer be recognized, but will be entrusted with purification and reuse.

Summary

Finally, after excluding scrap revenue, let’s take a look at the performance of the LED chip factory’s main business in the first quarter: Sanan Optoelectronics’ first quarter report stated that the current period’s operating revenue after excluding precious metal scrap increased by 2.85% compared with the same period last year. Qianzhao Optoelectronics refers to the 50.32% scrap revenue disclosed in its 2025 semi-annual report. After excluding the scrap revenue from its 2025 first quarter report revenue, the year-on-year growth rate of chip revenue in the first quarter of 2026 is estimated to be 6%. The first quarter report of Jucan Optoelectronics stated that its main business revenue was 359 million yuan, a year-on-year increase of 12.97%, GaN-based blue and green light business revenue increased by 3.37% year-on-year, and GaAs-based red and yellow light business revenue was 31.4667 million yuan, a year-on-year increase of 3548.31%.

It can be seen that there were no problems in the chip sector in the first quarter of 2026, the overall performance was stable and improving, and the adjusted revenue can better reflect the true quality of the main business.

*The above source is Expert Research’s analysis of the gold policy and LED chip company revenue accounting recognition. If there are any omissions, please correct me.

**This article was originally written by [Experts Talk about Display], focusing on display industry technology and market analysis, providing in-depth industry insights. Follow the official account and reply to "Report" to get the latest display industry white paper entry.