Growing pains hurt the LED industry
Q - Is the LED now a commodity market?
A - LED lighting is becoming a commodity. For street lighting applications, or LED light bulbs that are replacing conventional lighting sources, there is a little commoditisation. But for backlighting applications, for automotive, this is not a commodity market right now.
Q - What is the LED market worth today, and how will it evolve in the coming years?
A - The LED market is growing at less than ten percent, and the current valuation is $25 billion to $30 billion. There are three major applications: one is [general] lighting, the second is automotive lighting, and the third is backlighting.
The general lighting market includes LED replacement of conventional lighting sources and street lighting. These are growing. This is why the trajectory of the LED market is growing at a little over ten percent.
The valuation of the LED lighting market is close to $45 billion to $47 billion, and the overall general lighting market is over $90 billion. So the proportion of LED lighting is more than 50 percent of the overall revenue generated. But this proportion will go up from 50 percent to 60 to 62 percent post 2020, and by 2025 it will contribute 80 to 85 percent. So this is a good trajectory for LEDs.
LED penetration in automotive is increasing, as many of the mid-range automobiles are also integrating LEDs for interior and exterior lighting.
The display industry is growing at a slower pace, and backlighting, because of the reduction in the selling price, has actually declined. Sales of portable PCs are declining, and large-area displays are also declining. Demand from emerging applications such as video walls and digital signage is expected to contribute to the backlighting market. However, the volume shipped for these emerging applications will not be very high.
The majority of low-cost devices are [deployed in] a standard back-lighting unit. They have LEDs, but the volume shipped is getting less. So that's another reason why LED lighting will be a bigger market than backlighting.
We have ultra-high definition TVs coming, and Samsung is getting out of the OLED market and manufacturing quantum dot TVs, so some are saying that the backlighting market may grow. But there is still a decline in the average selling price of the devices.
Q - What are the emerging applications?
A - Horticultural lighting is one of the areas. We also have applications such as LED light strips "“ that market is gaining good growth. And we have architectural lighting, which has been one of the contributing sectors of the LED industry for much time. But there is still a lot that is happening in this space.
There are also LED wallpapers, portable lighting and LED watches. There is also accent lighting, and LEDs used with IoT devices.
Q - There was a time when "˜the big five' ruled the LED market. How would you describe the current fortunes of Nichia, Toyoda Gosei, Cree, Lumileds and Osram?
A - When it comes to companies like Toyoda Gosei, Cree, Osram, and Nichia, they are big vendors. It's just that LEDs used to be manufactured by very few vendors, and now they are manufactured by many vendors.
Now we have LED lighting vendors such as Philips, GE Lighting, Stanley Lighting, Acuity Brands Lighting, Hella, Zumtobel Group, Eaton, Everlight, Seoul Semiconductor, Innotek, Kyocera, Bridgelux and Dialight. Some of these are renowned names in the LED lighting industry, and some of them also have end-to-end solutions of LEDs, right from LED chips to various LED lighting products manufactured in-house.
For lighting, the chip design and the chip making are not the final products "“ the final product is the LED luminaire. So the success in these particular industries depends on how well one can control the overall value chain of the industry. So a company that has big chip manufacturing and limited customers is finding it tough against a company that is manufacturing the chip and the final product.
At one time Cree, Nichia, Toyoda Gosei, Lumileds, Osram and Souel Semiconductor had up to 70 to 80 percent market share, but now all these vendors put together have less than 50 percent market share. So we are talking about high fragmentation in this market. But these [big] vendors are operating in all the sections of the market, from manufacturing LEDs to luminaires, so they are controlling their own supply and distribution, and are selling their own lighting products.
Q - These companies devoted much effort to protecting their IP. How important is IP today?
A - IP is very important. But it's not just to do with the chip design "“ it can also be the manufacturing process.
The rate of growth in the global general lighting market will pick up slightly over the next five years, according to Technavio.
The rate of growth in the global general lighting market will pick up slightly over the next five years, according to Technavio.
Q - Is there much to be gained by offering class-leading LEDs today? Or is cost the key?
A - The cost is the main thing. The cost of the product includes that of the LED package, the optics, mechanical/thermal components, assembly, and the LED driver. Of these, the LED driver attracts the highest cost, followed by manufacturing, mechanical/thermal components and others.
For manufacturing, the back-end process contributes more than 50 percent of the overall production cost, followed by the phosphor, substrate, epitaxy, and wafer processing.
The cost of the chip back in 2013 or 2014 was a little above a dollar. There are two factors behind its decline. One is the overcapacity of LED chips, that has forced all vendors to reduce the price; and the other is the manufacturing efficiency.
The cost of an LED chip has gone down to less than $0.60 per unit for LEDs, and close to $0.80 per unit for high-brightness LEDs.
Q - How dominant is China today in LED chip manufacturing?
A - China is dominant when it comes to chip manufacturing. Look at the number of fabs that have been established. Back in 2008, China had close to 28 fabs. In 2016 it was in the range of 70 to 75 fabs, and now it will be even more than that. The total number of fabs in the world is in the range 170 to 180.
Q - Is there much consolidation within China's LED chipmaking sector?
A - No. There is not much consolidation. Consolidation is happening at a very slow rate. Very small players get acquired or merge. Bigger companies such as Cree and Nichia have acquired small vendors.
Q - Are companies within China making much profit?
A - We studied the LED market in China back in 2016. We looked at two scenarios: whether companies had subsidies from the government; and what would happen after the subsidies went. Since then we have been tracking that market.
When companies had subsidises between 2011 and 2015 "“ during the twelfth five-year plan, which was directed at energy efficiency, with the government wanting LED companies to be established "“ profits were close to 8 percent to 10 percent. But, now after the subsidies are over and the companies are on their own to supply chips, profits are reduced to 5 percent to 7 percent, and for some companies 2 percent to 3 percent.
The LED lighting market will deliver double-digit growth over the next few years.
Q - Veeco shipped many of its K465i MOCVD tools to China in 2009 and 2010. Given the overcapacity that followed, and investment in new tools, is there a big market for second-hand MOCVD tools?
A - There was always a demand for Veeco tools in 2009 and 2010. But we are talking about a time for two-inch epitaxy. Now the path, for the majority of investment is four-inch. And after that it's six-inch.
MOCVD tools from 2009 and 2010 have a life cycle of seven to ten years, depending on the application. So these tools do not have much of a second-hand market. In the 70 to 75 fabs in China, there is no demand.
Q - For sales in China, are Chinese makers of MOCVD tools, such as Amec and Topec, about to overtake Veeco?
A - Amec's Prismo D-Blue MOCVD platform is gaining popularity among the customer base of LED chipmakers, as it delivers high-volume manufacturing of GaN, InGaN and AlGaN ultrathin layered structures required for highbrightness LEDs. Topec is one of the market participants focusing on developing MOCVD equipment domestically.
The global general lighting market will continue to be dominated by residential and commercial lighting.
Q - What is the most common platform for making LEDs? Is it now 6-inch sapphire?
A - The majority is now 4-inch.
Q - Who are the leading suppliers of sapphire substrates?
A - Some of the companies are Rubicon Technologies, Crystal Applied Technologies, Precision Micro-optics, Monocrystal, Kyocera, Crystalwise Technology, TeraXtal Technology, DK Aztec, Gavish, and Hansol Technics.
Q - How common is the use of patterned sapphire?
A - Patterned sapphire suppliers include Rubicon Technologies, Sinopatt, Jing'An, Rigidtech, ECEC, and Crystal-Optech. Rubicon have their complete product line as patterned sapphire. But there are some other vendors that have a product mix.
