LED Market Rising, Taiwan Manufacturers Accelerate Consolidation

Market research firm LED Inside forecasts that the LED market size will grow 3 times by 2013 compared to 2009, with large-size backlighting and LED lighting becoming the primary applications, accounting for 42% and 25% of the high-brightness LED market respectively. The LED industry is in full swing; major Korean manufacturers Samsung and LG are rapidly entering the LED industry, with Samsung planning to invest 23 trillion KRW over the next 10 years to expand LED production. LED manufacturers in Taiwan, China, which play an important role in the LED industry, sense a potential crisis and are accelerating their investment and consolidation.

Taiwan's LED investment reaches USD 600 million

With TSMC, Epistar, AUO, and Chimei/Innolux actively building LED factories, the Semiconductor Equipment and Materials International (SEMI) estimates that Taiwan's LED factory construction and equipment investment will reach USD 600 million in 2010, ranking first globally. Meanwhile, this LED factory construction boom will drive the procurement of related materials and equipment (such as metal-organic chemical vapor deposition equipment and substrates). LED Inside optimistically forecasts that the global market for new metal-organic chemical vapor deposition (MOCVD) equipment will grow from 280 units in 2009 to more than 580 units in 2010. Among these, mainland China, Taiwan, and South Korea will be the regions with the largest procurement and usage volumes.

In terms of materials, Yole's research report predicts that the global high-brightness LED packaging materials market will grow at a rate of more than 25% annually.

Acceleration of Wafer Fab Consolidation

Korean manufacturers Samsung and LG have rapidly entered the LED industry, causing a significant impact on Taiwan's LED manufacturers. Data shows that before 2008, there were 700 metal-organic chemical vapor deposition (MOCVD) equipment units globally, with Taiwanese manufacturers holding approximately 40% market share. However, last year, there were 1,000 MOCVD units globally, and this year the number will increase to 1,700, while Taiwan's market share has declined. By the end of this year, Taiwan will have approximately 400 MOCVD units, with market share falling below 30%. This is mainly due to Korea's massive investments in the LED field. This year, Samsung will have 200 MOCVD units and LG plans to have 120 MOCVD units. The combined MOCVD equipment investments of these two major manufacturers alone are nearly equal to the total number of MOCVD equipment held by Taiwanese manufacturers. For Taiwanese manufacturers to break through this encirclement, consolidation is an inevitable choice.

Recently, Epistar (referred to as Jingdian), the leading LED epitaxy manufacturer, has made its move, investing more than NT$8.6 billion to acquire a 47.88% stake in Huga Optoelectronics, replacing Inventec as Huga's largest shareholder. In recent years, Epistar has been actively consolidating in the upstream LED epitaxy field. It first merged Guolian due to patent considerations, then merged Advanced Optoelectronic Technology (AOT) with a focus on the mainland China market. Since last year, it has actively taken stakes in Tekcore, and this year it has acquired more than 40% of Nan Ya Photonics. Now, after becoming Huga's largest shareholder, the blue-light MOCVD units under the broader Epistar group have reached 296. Epistar has officially surpassed Cree and may even overtake Japan's Nichia, becoming the world's largest blue-light LED manufacturer.

Among Taiwan's LED manufacturers, Epistar is the leader, and the capabilities of Huga and Formosa Epitaxy are closely matched. The collaboration between Epistar and Huga can enhance the competitiveness of Taiwan's LED industry in the international market. Epistar's Chairman B.J. Lee stated that the primary consideration for the strategic alliance between Epistar and Huga is the rapid rise of Korean manufacturers. To deal with strong rivals, Taiwan's LED manufacturers must accelerate consolidation to increase global market share and compete with Korean manufacturers. The strategic cooperation with Huga not only enables resource sharing and technical collaboration to enhance capabilities, but also allows joint development of different markets to create a win-win situation. Epistar and Huga will use dual brands to penetrate different markets, which will marginalize other LED epitaxy manufacturers such as Formosa Epitaxy and Genesis Photonics, and will also prompt other groups that have invested in the LED epitaxy industry, such as the Chimei Group and AUO Group, to accelerate their search for merger or partnership targets.

　　Accelerating Packaging Layout

　　Taiwanese epitaxial manufacturers are accelerating their layout, and the packaging segment is also lively. Everlight, AmTRAN, and LG Display (LGD) recently decided to jointly establish an LED packaging plant in Wujiang, mainland China. The project invests up to US$30 million, and the LEDs produced in the future will be preferentially supplied to LG Electronics and AmTRAN's Vizio, to compete against Samsung.

　　The project invests up to US$30 million, with Everlight holding 60% and AmTRAN and LGD each holding 20%. Previously, LGD and AmTRAN also invested in Everlight's convertible corporate bonds, making their cooperation even closer. An Everlight executive stated that the estimated capacity for the first phase is 100 million units, while the monthly capacity for the second phase is 200 million units. The LED packaging plant in Wujiang will begin trial production in November and mass production in December. Before mass production, the LEDs required by AmTRAN and LG will be supplied by Everlight's Suzhou plant.

　　LEDs have been rapidly adopted in LCD TVs. As the penetration rate is expected to reach 20% by the end of this year, LEDs have become in short supply, and major TV manufacturers have been expanding their channels to secure LED sources. The entire LED supply chain is clearly divided, mainly into two major forces: Samsung and LG. AmTRAN and LGD had previously jointly invested in the LED wafer manufacturer Formosa, while Epistar is a supplier for Samsung. This has brought the two major camps in LED-backlit LCD TVs formally to the surface: one side is Samsung, Epistar, and Dongbei, and the other is LG, AmTRAN, Formosa, and Everlight. In the LED packaging segment, Dongbei Optoelectronics was the earliest to enter Samsung's supply chain, while AUO and Chimei-Innolux each have their own supply chains, such as Lextar and Forward Electronics. Now Everlight has emerged as a strategic partner for LG and AmTRAN.