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Yole: Three Players Monopolise LED MOCVD Market

Aixtron, Veeco and Taiyo Nippon Sanso represent 97 percent of the LED reactor market share
Driven by the fanfare over (and overestimation of) the LCD display market, the LED Front-End equipment market experienced an unprecedented investment cycle in 2010 to 2011.

The market surge was driven mostly by MOCVD reactor shipments to new Chinese entrants, who benefited from the generous subsidies of the Chinese central and local governments in a bid to stimulate domestic chip production.

Following an eighteen to twenty-four month digestion period, the market is now slowly recovering and will experience another investment cycle in 2014 to 2016 driven by demand for general lighting applications.

However, this 2nd cycle will be limited in value due to improvement in equipment throughput and yields, increased competition and potential consolidation of the industry.

Indeed, LED manufacturers initially relied on old semiconductor systems designed for other applications. Now that the industry has reached a critical size, several LED-dedicated equipment (that take into account the specificities of LED manufacturing), has been commercialised.

As a result, the equipment market will peak at nearly $580 million in 2015 with MOCVD reactors representing more than 80 percent of the business. The bulk of these reactors are still being shipped to Chinese manufacturers or Taiwanese players transitioning to 4" diameters. Lithography, plasma etching, PECVD and PVD equipment will follow a similar trend.

This report presents major equipment used in LED Front-End Manufacturing. It describes market size and volume (2009 to 2020), trends per process steps (performance, ASP, emerging technologies and so on), key suppliers, and more.



DIFFERENT MARKETS WITH DIFFERENT COMPETITIVE LANDSCAPES

The LED epitaxy equipment market (MOCVD reactor) is very concentrated under the control of the Big three (Aixtron, Veeco and Taiyo Nippon Sanso) who represented nearly 97 percent of market share in 2013.

Comparatively, the lithography, plasma etching, PECVD, and PVD equipment markets are much more fragmented with several players battling to enlarge their market share. As an example, the top three suppliers of LED lithography equipment represented nearly 70 percent of market share in 2013 with the remaining 30  percent in the hands of more than ten competitors.

This situation is due to specificities of the different LED Front-End manufacturing process steps. LED epitaxy is quite specific and requires dedicated tools supplied by companies that have developed strong know-how.

Also, other LED Front-End manufacturing processes can use older or refurbished semiconductor systems designed for other applications. And with the growth of the LED industry, suppliers of LED-dedicated systems have also appeared. This has further fragmented these markets, now both traditional semiconductor equipment suppliers and new LED-dedicated equipment suppliers compete.

INCREASED COMPETITION IN THE MOCVD INDUSTRY? YES, BUT NO REAL IMPACT ON MARKET STRUCTURE UNTIL NOW

LED epitaxy equipment market has always been of central interest to equipment manufacturers due to its high ASP, strong profitability, and large market volume compared to other equipment markets.

Since 2010, following the explosion of the LED TV market, more than twenty players (mostly from Asia) have tried to enter the MOCVD reactor market but without real success: in 2013, these new suppliers represented only 3 percent of market share (only +2 percent compared to 2010).



This situation arises for two main reasons. The first is that new entrants have missed the first two LED growth cycles (small display and large display applications) that have allowed leaders to build their expertise and know-how as well as their networks (sales office, training centre etc.). Even big names, such as Applied Materials, did not achieve access to these markets.

Secondly, revenue collected during the 2010 to 2011 investment cycle (a total of more than $2 billion for MOCVD reactors, with over 90 percent going to Aixtron and Veeco) have allowed Veeco and Aixtron to slash ASP and initiate a price war to lever further market entry barriers.

The current LED Front-End industry is largely driven by cost reduction (as technological evolutions are reaching their saturation point). The main strategy developed by a new MOCVD reactor supplier is to focus on decreasing Cost of Ownership through a new heating system, new gas flow design, and increased automation and so on.

However, even if this is the best and only strategy to adopt, Yole does not expect new entrants to have a big increase in future market share as the finances and expertise of the Big two far surpass any of their competitors.

In the short term, Yole anticipates that only two types of suppliers (outside of the Big three) will survive. These are suppliers that develop collaboration with some big LED manufacturers and Chinese suppliers that are able to scrape together bits and pieces of the huge local market.

 



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