Fair Winds for Taiwan's LED Industry

By KEN LIU

Despite lukewarm sales this April, leading Taiwanese LED makers are optimistic about the market prospect for this year and beyond, citing several recent developments that they believe will help boost their sales.

These developments include the March 11 Sendai earthquake and tsunami, an agreement between Taiwan and mainland China on co-developing industry standards for LED manufacturing and beyond, expansion halts by leading South Korean LED makers, and anticipated falling sapphire substrate costs in the second quarter.

Mounting energy-saving awareness across Japan following the March 11 Sendai earthquake and ensuing tsunami has fueled demand for LED lamps, while Japan's ECO-Point incentive program is encouraging using LED bulbs and light tubes.

According to Japan office of market consulting firm GfK Group of Germany, in the May 30 week LED light bulbs constituted 42.3% of all types of bulbs sold in 4,000 stores across Japan, spiking 2.9-fold from the same week of last year and for the first time outnumbering incandescent bulbs, which accounted for 39%.

The office's statistics show that sales of LED bulbs in Japan had never exceeded 20% of the mixture since August 2010. The office estimated LED bulbs are likely to further rise to account for half of the combination sometime this summer, a bright sign for Taiwan's LED-lamp makers.

Profits in Savings
Delta Electronics Inc. Chief Executive Officer (CEO) Yancey Hai points out that the company's LED-lamp shipments to Japan have increased significantly in the wake of the disastrous earthquake. Delta has recently won orders from Japanese buyers other than Hitachi, which has been Delta's foremost contract buyer in Japan.

Genesis Photonics Inc. executives note that the company has recently landed contracts to supply LED-lighting equipment to a leading Japanese steelmaker, which is equipping its steel mills with high-power LED lamps as replacements for traditional lamps to save energy. The orders helped send the company's revenue for May surging to new monthly high of NT$1.9 billion (US$65.8 million).

Ledtech Electronics Co., Ltd. has won contracts to supply LED light bars to several convenience stores in Japan, while Cal-Camp Electronics & Communications Co., Ltd. has been contracted to supply LED lamps to Toshiba.

Lextar Electronics Corp. Chairman F.C. Su said that strong demand for LED lighting in Japan in the wake of the disaster has pushed up the company's shipments.

Everlight Electronics Co., Ltd. Chairman Y.F. Yeh notes that the March 11 Sendai earthquake and ensuing tsunami remind people of the importance of nuclear power security and energy saving, encouraging people to embrace LED lamps. He says that LED lamps are on average 80% more power efficient than incandescent lamps and could save the power equal to the output of 1.5 nuclear power plants in Taiwan if all lamps were replaced by LEDs.

Cross-strait Cooperation
In May, Steve Ruey-long Chen, chairman of the Taiwan-based Sinocon Industrial Standards Foundation, and Hu Yen, chairman of China Electronics Standardization Association, represented Taiwan and the mainland, respectively, to sign an agreement to co-develop industry standards for LED, LCD, and solar-product manufacturing on the two sides. The three products are designated as pivotal sectors in the mainland's 12th five-year development plan and Taiwan's Golden Decade Plan.?As part of the five-year plan's "eco-lighting project", Beijing began last year offering subsidies to households and enterprises using energy-saving lamps including LEDs.

Taiwan's LED makers expect the agreement to create opportunities to win orders related to the mainland's energy-saving projects.

The mainland's Vice Minister of Industry and Information Technology, Xi Guohua, and P.K. Chiang, chairman of Taiwan's semi-governmental Straits Exchange Foundation, witnessed the signature to the cooperation documents. Xi noted that cooperation on developing common industry standards will help bolster the economies of the two sides.

People familiar with the cooperation deal point out that cross-strait collaboration on LED technology is moving forward quickly. The two sides have signed agreements to set up common standards for LED indoor and outdoor lighting, LED lighting for mass-transportation vehicles, and LED lighting fixtures.

Taiwan's LED chipmakers are expected to breathe easier as South Korea's top LED chipmakers have reportedly decided to halt expansion plans.

According to LED-equipment suppliers, leading South Korean LED chipmakers have recently decided to shelve their expansion plans because of slower-than-expected demand for LED backlights for liquid crystal display (LCD) TVs and inferior cost efficiency relative to Taiwan's manufacturers. Among them Samsung has set aside part of its backlight chips for lighting purposes to ease pressure on oversupply.

These South Korean manufacturers launched bold expansions beginning early last year, planning to add a total of 600 metal organic chemical vapor deposition (MOCVD) chambers. However, they have stopped at only 150 to 200 MOCVDs.

Industry executives point out that the expansion halts are a windfall to Taiwan's chipmakers, including Epistar Inc., Formosa Epitaxy Inc. and Genesis Photonics Inc.

Better yet. Reported price cuts of sapphire substrates for the second quarter are estimated to further boost the Taiwan chipmakers' gross margin. Sapphire substrate is an integral component to the chip making and accounts for a hefty portion of the manufacturing cost.

Lextar's Su estimates the company's gross margin for the third quarter would be higher than that of the first quarter if sapphire substrate cost drops as expected.He notes that over the past few years LED-lighting costs have declined at annual rate of 20-30%, contributing to a doubling of the market scale. He reports that by drawing on cost advantages, his company has won contracts for lighting fixtures and light tubes from the world's top five lighting suppliers.

Lamps now constitute 30% of Lextar's sales, with the remainder accounted for by in-house epitaxy-wafer, chip and package manufacturing. The company is a subsidiary of LCD maker AUO Group. The company plans to boost lamp sales to account for around 40% of its 2011 revenue. In conjunction with the ambitious sales goal, the company plans to increase its number of MOCVD chambers to 80 and package output capacity to 890 million units a year by the end of this year.

With costs falling, Delta executives estimate that consumers will soon be able to purchase three LED lamps that are equivalent to 60W incandescent bulbs for only NT$1,000 (US$34.4 at US$1: NT$29), only half current prices.

Everlight aims to become one of the world's top three LED-lighting suppliers in five years with its branded lamps. Yeh estimates the company's brand name operation to break even in two years. The company is currently Taiwan's biggest LED packager.

From TVs to Bulbs
Sanguine about market prospect of LED lighting, Amtran Technology Co., Ltd., a leading Taiwanese manufacturer of LCD TVs and monitors, has recently branched into manufacturing LED bulbs in cooperation with LED components makers Epistar, Lustrous Corp. and Neng Tyi Co., Ltd.

The company plans to ship hundreds of thousands of LED bulbs carrying its brand name "Vizio" this year alone to North America, where Vizio is already among the top three LCD-TV brands. LED bulbs will give the company another revenue source beyond LCD TVs and LCD monitors. Last year, the company had total revenue of NT$65.1 billion (US$2.2 billion) and after-tax net income of NT$2 billion (US$68.9 million), or NT$2.63 per share.

Amtran Chairman Alpha Wu reports that his company's bulbs are just five times more expensive than compact fluorescent lamps sold in the United States and only half the price offered by big-name suppliers. He estimates the company's LED-bulb sales to ramp up in two years when its selling prices drop to around two-fold that of compact fluorescent lamps.

In the second half of this year, the company will introduce LED bulbs as replacements for 40W, 60W, 75W and 100W incandescent bulbs.

As LED bulbs get cheaper, Wu estimates the day for LED lighting to outnumber traditional lighting on the market will come earlier than 2015, a date which is generally perceived by the market. The company's established sales network and strong R&D team for LCD operation, Wu says, will also be an advantage for its LED-lighting business.

LED packager Unity Opto Technology Co., Ltd. projects lighting to account for a quarter of its revenue throughout this year, an increase from 20% it reported in the first half of this year. In June alone, brisk shipments of LED bulbs and light tubes to Japan drove up lighting as a percentage of the company's revenue to 30%. Backlights remain the company's major revenue earner.

Eyes on the Mainland
Mainland China has emerged as another major market for the company. To fill brisk demand there, the company is constructing a factory in Beijing. Once completed early next year, the factory will supply its backlights mostly to BOE Co., Ltd., a leading manufacturer of LCD TVs and monitors in the mainland, and lighting products to the markets in northern China.

Industry executives estimate that the Beijing factory will generate NT$3-4 billion (US$103.4-137.9 million) in annual revenue once it starts operation.

Light-guide plate maker Global Lighting Technologies Inc. (GLT) estimates its sales of LED lighting plates and plates for large-sized LCD TVs to grow at leap rate. The company's chairman, M.S. Lee, projects lighting plates and large-sized plates to constitute 30-40% of the company's revenue combined at year-end, up from around 20% posted in the first quarter this year. Currently, plates for small and medium-sized backlights are its major revenue earners.

GLT has built its core competence on micro structure technology and roll-to-roll process, which Lee stresses are more competitive than other printing and laser processes thanks to their simplicity.

In light of the company's new product plans for the second half of this year and streaming orders, industry executives estimate the company to see revenue increase 30% from last year, to NT$4 billion (US$137.9 million) this year.

The inflection point of the Taiwan industry curve in the recent cycle came in April, when many of the island's leading LED makers posted lukewarm revenue results. Epistar saw revenue slip 2.74% from in March, to NT$1.69 billion (US$59.2 million) April; Everlight's NT$1.42 billion (US$49.6 million) represented a 0.3% dip from March; and Edison Opto Corp. had 3.2% less revenue in April than in March with NT$249 million (US$8.7 million).

In the first quarter, Epistar had been working hard to eke out more defect-free chips from its MOCVD chambers to combat falling average selling price (ASP) of the chips for TV backlights, which dropped at least 5% throughout the first quarter.

In spite of the slackening in April, Everlight estimates that revenue for the second quarter grew at a double-digit rate and its gross margin for the same quarter rose by 25-28% from the first quarter.

The non-profit Photonics Industry & Technology Development Association (PIDA), which tracks the optoelectronics industry worldwide, estimates that Taiwan's LED industry is likely to generate revenue of NT$200 billion (US$6.8 billion) next year, a 32% surge from this year's projected NT$151.6 billion (US$5.2 billion). The association attributes the outstanding growth of the Taiwan industry in recent years mostly to surging demand worldwide driven by incentives in many nations to encourage adoption of LED lighting.?(July 2011)