In China, A government crackdown on white-box handset shipments has affected LED shipments from LED packaging company Harvatek since the beginning of 2008, with the effect becoming increasingly worse, according to industry sources.

In the fourth quarter of 2007, revenues from China's white-box market accounted for 27% of Harvatek's revenues. In the first quarter of 2008, that proportion fell to 15% and will drop to 5-10% this quarter, the sources noted. For all of 2007, 25% of Harvatek's revenues came from China's white-box market.

LED industry players argue that although global demand for handsets has been slower than expected this year due to an economic slow-down, demand in China has been constrained due to non-economic reasons. Harvatek did admit that there was inventory buildup in Chin'a white-box handset market at the end of last year and that demand was slow early this year due to it being the low season. However, the company indicated that while demand rebounded in March and April, government restrictions on the white-box market has hampered shipments this quarter.

For Harvatek, its current struggles have been compounded by the fact that it shifted its focused from high-end products in the first quarter of 2008 to entry-level products this quarter, so its gross margins will drop to about 20% this quarter, down from more than 29% in the first quarter.