Taiwan's Industry Watchers Optimistic About LED Lighting

Manufacturers to benefit from expected industry upturn

Two Taiwanese market consulting organizations, LEDInside and the Industrial Economics and Knowledge Center (IEK), forecast that sales of LED lighting will expand by 50-60% to top the US$10 billion mark this year and achieve a compound annual growth rate of 25-40% between 2012 and 2015.

The MasterLink Securities Corp., a member of the Taiwan-based MasterLink Securities Group, feels that the LED lighting market will grow at breakneck speed this year for a variety of reasons.

First and foremost, after a steep 40% markdown of median LED unit prices in 2011, a decline triggered by worldwide oversupplies of LED devices used as TV backlights, lighting manufacturers are boosting supplies of LED lights using less-expensive LED devices.

By the end of last year, the median prices of LED equivalents of 40W incandescent light bulbs had dropped around 50% from a year earlier, to US$20. Prices offered by some LED lamp makers in Taiwan, South Korea, and Japan dipped even further, to only US$15.

Secondly, major economies, including Taiwan, plan to impose total or partial bans on incandescent light bulbs beginning this year, and some economies have introduced subsidy program to encourage the purchase of LED lamps. The online news provider Digitimes predicts that global consumption of LED bulbs by quantity will soar 150% to 1.5 billion units this year and 67% to 2.5 billion units in 2013.

Government subsidies introduced following Japan's March 11 earthquake helped boost sales of LED light bulbs in Japan last year. According to Koji Sato, director of Toshiba's LED Business Division, last year's sales soared 40% above pre-quake expectations to around 31 million bulbs.

Finally, MasterLink Securities notes that unlike such consumer electronics products as mobile phones and tablets, which are not daily necessities and are susceptible to economic cycles, the demand for lighting usually remains stable.

MasterLink predicts that the Taiwanese LED chipmaker Epistar Inc. will benefit most from the anticipated uptrend. This will be a welcome turnaround for Epistar, which is reportedly the world's biggest exporter (by volume) in the line and was heavily affected by the collapse of the backlight market last year. Lextar Electronics Corp., Taiwan's only integrated LED manufacturer with the ability to make about everything from epi-wafers and chips to packaging and lighting modules, is also expected to gain strongly from the upturn.

MasterLink points out that Epistar is a global industry leader in terms of advanced technology, number of patents, production capacity, and market presence in mainland China.

The company operates 190 metal organic chemical vapor deposition (MOCVD) reactors turning out blue epi wafers and 40 reactors for making red epi wafers, giving it the biggest capacity in the world. Its latest technology is capable of producing more than 200 lumens per watt on LED-chip wafers, an extraordinarily high efficiency.

These advantages have convinced lighting titans Osram and Philips to outsource chips to Epistar.

In mainland China, Epistar has opened MOCVD ventures at strategic geographic points, making it eligible for a subsidy program which the authorities are expected to introduce as a means of boosting home-grown eco-technology developers.

MasterLink feels that Epistar has a good chance of avoiding patent disputes thanks to its widespread patent deployment worldwide, including cooperation with patent holders like Toyoda Gosei (TG).

Lextar is attractive to global lighting brands because of its capability to offer total solutions based on its integrated manufacturing capability. The company's 2011 revenue from sales of LED devices for lighting fixtures rose to 40% of its total revenue, up from 10% the year before.

Compared with MasterLink's bright forecast for 2012, Epistar Chairman B.J. Lee holds a rather cautious outlook. He thinks that 2012 will remain a hard year for the LED industry, although there might be reduced pressure. He believes that the global industry's economies of scale will be achievable only in 2013, until which time another round of fierce competition will winnow out weak companies.

Lee estimates that around one billion LED light bulbs will be sold in 2013, up sharply from 2011's estimated 150 million. He stresses that even if demand doubles to 300 million bulbs this year, however, that is not enough for economic production.

The only thing that could bring about a massive increase in the market at an earlier date than expected, Lee thinks, would be for the price of LED replacements for 60W incandescent bulbs to drop to US$12 apiece.

Jason Wang, general manager of the Opto Tech Corp., which makes chips for lighting and industrial products, feels that market outlook for LED will remain hazy throughout the first half of this year.

K.C. Terng, chief executive officer of the Lite-On Technology Corp., feels that 2011 was the darkest year in the most recent business cycle of LED industry. He insists that his company will definitely show a growth this year, however, thanks to signs that make him believe the demand for high-end lighting LEDs and LED backlights will rise soon.