LED Oversupply Switches Attention of Taiwan's Manufacturers to Lighting Market

Taiwan's LED (light emitting diode) companies, mostly chipmakers and packagers, are under no illusion that the LED backlight market might rally in 2012 following nearly a year of slump. They are optimistic, however, about prospects for the lighting market this year.

Studies by the market research firm LEDInside show that despite lingering uncertainties about the global economy, many of Taiwan's LED-device makers will venture into the lighting sector or bolster their presence there. LEDInside associates their growing push into the lighting sector with the increasing popularity of Taiwan-made lighting LED chips and packages in major Asian economies, notably mainland China and Japan, because of their good quality and low prices.

A survey of 40 mainland Chinese LED dealers and distributors conducted last year by GG-LED.com, a mainland Chinese market consulting firm, showed that over two-thirds of the contracted high-bright chips they sold were from Taiwanese manufacturers. The conclusion of the survey was that these chips, along with chips from South Korea, were equal in quality to the products of American manufacturers while packages incorporating them were only half the price.

GG-LED.com predicted that prices of the chips would drop a further 50% over the next two years after falling a staggering 70.71% in 2011. The firm noted that behind the mark decline were the global economic slowdown, brisk production expansions at LED packagers and applications makers, and a vigorous push into the Chinese mainland market by international LED suppliers.

Although the number of mainland China's homegrown LED-device entrants has increased significantly over the past few years, their products have been largely ignored by lighting manufacturers there because of their inconsistent quality, GG-LED.com's survey indicates.

The Chinese government has been imposing quality standards on LED lighting, a trend deemed advantageous to Taiwan's manufacturers. Central-government ministries are working on industry standards for LED lighting in cooperation with overseas institutions, namely Taiwan's government-backed Industrial Technology Research Institute (ITRI), and the Guangdong Provincial Government has announced a plan to draw up 130 industry standards for LED lighting in an effort to control quality in the province's public LED-lighting projects.

The Guangdong government has so far installed over 260,000 LED lights on 2,500 kilometers of roads, and massive installation projects will continue in the future. Once the standards are in place, Taiwan's LED makers will have a good chance of winning contracts to supply the devices for the remaining projects, according to both LEDInside and ITRI.

Business opportunities arising from these projects are huge, estimated by LEDInside at around US$7.6 billion through 2015. Japan is another major market, with a 2012 national budget that includes incentives for various green-energy projects including electric cars, solar-powered buildings, and energy-saving equipment.

Feeling that the LED backlight market will begin to slow down in 2013, Epistar Inc., which is recognized as the world's No.1 supplier of blue LED chips by volume, is striving to switch to chips for backlights to chips for lighting applications. The company has entered into an alliance with NVC Lighting Technology Corp., a leading Chinese lighting maker, as has its Taiwanese rival, Formosa Epitaxy Inc.

Formosa Epitaxy has begun volume production of a 120 lumen-watt chip it released in the third quarter 2011, and plans to boost output for lighting manufacturers this year. A cooperative project that it has forged with Mitsui & Co., a leading retail group in Japan, is expected to bring lucrative orders from Japanese lighting suppliers.

Other Taiwanese LED-device makers that have branched out into the lighting sector include the Everlight Electronics Co., LiteOn Technology Co., Edison-Opto Corp., Lextar Electronics Corp., and Genesis Photonics Inc. Everlight, reportedly the world's No.1 LED packager by volume, has teamed up with the Shanghai Yaming Lighting Co. and partnered with six lighting manufacturers worldwide. The company delivered 20 million sets of LED lighting products in 2011 and predicts that its shipments will grow at a double-digit pace this year.

Genesis has worked with JEF Engineering, Inc. of Japan to tap that country's LED lighting market, while Lextar has become a contract supplier to international lighting brands. Edison is drumming up sales of its LED lighting solutions in Europe and America since winning LM-80 approval for its products.

At a recent year-end party, Chairman Alpha Wu of the Unity Opto Technology Co. stated his belief that the darkest days for the LED industry are past and that the global LED-lighting market will begin to take off in 2012. His company, he said, is ready for the improved environment with a complete range of lighting products.

Last year, it had total revenue of NT$5.7 billion (US$190 million), contracting from 2010's 6.7 billion (US$223 million).The company vows that it will definitely see revenue rise this year based on signs that make it believe its shipments of lighting LEDs and backlight LEDs will rise soon.

Lighting products alone are predicted to bring the company NT$3 billion (US$100 million) in revenue this year, including NT$800 million (US$26 million) from recent contracts to supply American retailers with LED lights in 2012.

Already a contract supplier of backlights to the world's top five TV brands, Unity Opto Technology will boost its marketing of backlights in mainland China and South Korea. Wu says that the company's new products for lighting and backlight applications will help drive growth this year.

Most of Taiwan's LED-device manufacturers were in a slump throughout 2011 because of the weak backlight market. Epistar's revenues dropped 10.39% for the year, to NT$17.7 billion (US$590 million at US$1: NT$30), while Everlight suffered a 2.58% decline to NT$16.2 billion (US$541 million).

Formosa, Unity Opto, Bright LED Electronics, and Edison posted reductions of 10% to 15%.

According to LEDInside, Taiwan's listed LED chipmakers as a whole took in total revenues of NT$45.4 billion (US$1.5 billion) in 2011, down 7% from the year before. For December alone the total take of NT$2.64 billion (US$88 million) represented a drop of 16.5% month-on-month and 30.2% year-on-year.

The island's listed LED packagers had total revenues of NT$54.9 billion (US$1.8 billion) last year, down 3%. In December alone, combined revenues of NT$3.9 billion (US$130 million) represented a decline of 8.66% month-on-month and 10.3% year-on-year.

LEDInside predicts that LED backlights will remain in an oversupply situation this year, though the amount of the excess will moderate.

Companies outside of Taiwan are also responding to this problem by ramping up the production of lighting products. The Nichia Corp. of Japan, for example, spent US$900 million in 2011 to boost output in anticipation of strong demand from the LED lighting markets in Japan and mainland China. Panasonic Lighting and Panasonic Electric Works will combine their lighting operations in early 2012 with the aim of boosting their parent group's operating income from LED lighting to 10% of its total.

Philips recently announced a plan to open an LED-lighting factory in mainland China's Chengdu city, its second mega investment in the Chinese mainland.