Market for sapphire may be dominated by China
In the last 18 months, more than 40 of the 50 new entrants which have announced intentions to enter the sapphire market (applicable to LEDs) are located in China
Following the massive material shortage in 2010, sapphire material and finished wafer prices remained high throughout early 2011 according to Yole Développement's “Sapphire Market” report.
The situation was aggravated as wafer and LED manufacturers preparing for a massive intake of LED in the LCD TV market started building up sapphire inventory for fear that supply might remain short.
But a softer than expected LED TV market and an increasing sapphire capacity coming from established vendors worked together to rapidly bring supply and demand back into balance this summer. This has triggered a fast drop in wafer prices that have now returned to their pre-shortage levels.
While sapphire demand will pick up in late 2011 and early 2012, additional capacity from new entrants is expected to enter the supply chain and keep 2” prices at their historical lows for the foreseeable future.
“Yole Développement forecasts this low pricing to keep on running for the next coming months,” says Eric Virey of Yole Développement.
Coupled with significant volume growth, the sapphire material shortage experienced through 2010 and early 2011 have created a window of opportunity for new entrants. In the last 18 months, more than 50 companies have announced their intention to enter the industry and would bring the total number of potential participants in this market to close to 100. More than 40 of those new entrants are located in China. Looking at midterm, adding up the capacity plans announced by those newcomers leads to a figure corresponding to almost 3x actual demand, a situation unlikely to actually materialise.
Most of the new entrants have little to no prior experience in sapphire crystal growth and wafer manufacturing. While the availability of “turn-key solutions” from various growth equipment suppliers has lowered the barrier to entry, reaching and sustaining high quality and high yields in sapphire crystal growth still requires significant expertise.
The learning curve can be steep for newcomers to reach yield levels on par with established tier one manufacturers. Wafer finishing also requires unique expertise and could prove challenging for companies with no prior experience. Beyond wire saw manufacturers offering efficient slicing solutions and process, not turnkey solution are available for wafer finishing.
The 2010 pricing environment was very forgiving and allowed some new entrants to achieve comfortable margins despite low yields and subpar technology. Yole Développement calculated that many of those new companies have production cost in the $6 - $10 / mm of 2” core and will therefore lose money at the current market price.
At the same time, established vendors with higher yields, large volumes and a more favourable product mix including large diameter wafers can achieve production cost < $5 that will allow them to maintain positive margins and weather the storm. Midterm, Yole Développement expects that this situation will weed out the weakest players and trigger the withdrawal of many potential new entrants.
“The sapphire substrate industry, driven by LED applications, was initially developed based on a 2” diameter platform. Companies like Lumileds and Nichia were the first to move to 3” around 2003 while Osram pioneered the adoption of 4” shortly after. Due to the large concentration of MOCVD capacity in Taiwan, and the current ramp in China, 2” is expected to remain the dominant platform through 2012”, explained Eric Virey.
However, many established Taiwan based epitaxy companies are transitioning from 2” to 4” while some technology leaders in Korea, the United states and Europe have already made great strides in the their 6” conversion. Long term, a question mark remains regarding the economics of 8”.
But R&D has already started and Yole Développement believes that recent improvements in sapphire growth and slicing technologies could enable a cost of ownership that in time will be compatible with the adoption of the platform.