LED Equipment Spending on Track for a 2014 Rebound
By Tom Morrow, SEMI
The LED industry is working through its over-capacity problems and will renew capital spending and capacity increases in 2014. According to the SEMI Opto/LED Fab Forecast quarterly on HB-LED front-end fabs, 2014 LED wafer fab equipment spending will rise 17 percent to nearly $1.2 billion in 2014, following a 30 percent decline this year and 45 percent decline in 2011. Equipment spending trends also reveal a new era in the LED industry as equipment spending now is concentrated among the industry leaders, and aspiring survivors, rather than widely distributed among new entrants to the industry or new technologies.
Following the explosion in LED interest sparked by the LED TV boon and exuberant optimism for the long-term growth in solid state lighting, the LED industry dramatically expanded worldwide capacity over the past three years, partly fueled by lucrative government subsidies in China. Total worldwide capacity rose 49 percent in 2011 and 39 percent in 2012 and continued to grow by 19 percent this year. Driven by national and provincial subsidy and incentive programs, China LED manufacturing rose from approximately 100,000 4” equivalent wafers per month in 2010 to an astounding 620,000 4” wafers per month this year.
Much of this capacity expansion was driven by extremely optimistic forecasts in 2010 and 2011 that the LED market would grow to over $20 billion as soon as 2015. Current market forecasts for the packaged LED market in 2015 hover around $15 billion with compound annual growth rates below 5 percent. Principle reasons for the decline in growth forecasts are the greater efficiency (i.e. improved light guides in displays) in using LEDs, the greater efficacy of packaged LEDs, and the minimum size of a replacement market for LED lamps. According to Strategies Unlimited, the average cost per kilo lumen has declined from $13 in 2011 to less $3.65 today. The number of LEDs used in TVs has declined by one-third and many SSL luminaires require less than half the LEDs used just a few years ago. LEDs in mobile devices and notebook computers have also declined. Automotive remains a growth market, but represents only around 10 percent of the market.
With so much new capacity, new entrants, and declining growth rates, prices for packaged LEDs dramatically declined in recent years, creating severe financial hardship for many, especially new entrants and those restricted to lower margin mid- and low-power segments. Fab utilization dropped worldwide, especially in China. Sales for MOCVD systems, the critical production tool for LED epitaxial operations, plummeted. Leading MOCVD companies, Veeco and Aixtron, who saw sales triple in 2010, watched revenues plummet by nearly the same amount in 2012.
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Compensating for some the decline in packaged LED prices are steep declines in sapphire wafers, used by over 80 percent of the LED industry. Sapphire prices for 4” wafers are now approximately $32, down from their high of $130 in 2011, and 6” inch sapphire prices are now below $300, down from $450 eighteen months ago. Patterned sapphire substrates have rapidly become standard at 2” and 4” and are promising for 6” wafers. Declining sapphire prices and continued competitiveness of silicon carbide has dampened prospects for the penetration of GaN on Silicon in LEDs, once thought likely if not inevitable. A new report, titled “Dimming the Hype: GaN-on-Si Fails to Outshine Sapphire by 2020,” by Lux Research sees SiC and sapphire continuing to dominate the LED market, benefitting from added capacity and continued technology improvements. The report says that “new methods like hydride vapor phase epitaxy (HVPE) will further improve throughput and cut costs, keeping sapphire highly competitive for the rest of the decade.”
The global LED industry now appears to be stabilizing as leading manufacturers invest in 6” wafer production systems and associated equipment purchases to deliver improved yield and throughput. Recent LED manufacturing investment has centered on the move to 6” wafers by Cree (Silicon Carbide), Philips and OSRAM (Sapphire). Nichia continues to invest in capacity and technology improvements, and Epistar, Formosa Epitaxy, and Genesis Photonics from Taiwan all made significant manufacturing investments this year. Nearly leading manufacturers appear to be modernizing their production systems with increased in investments in metrology, automation, etch, and lithography.
China will resume its MOCVD purchasing in 2014 in the absence of government subsidies. SEMI estimates a nearly 50 percent increase in MOCVD reactors will be purchased in 2014, up from 150 reactors purchased in 2013. At the same time, many LED fabs will close or be repurposed in China as the market consolidates and non-competitive players disappear. San’an with over 120 MOCVDs and ETi (Elec-Tech) with 90 reactors are operating at increasing fab utilization rates and appear to be emerging as significant players. Some medium-size LED fabs in China like Canyang Opto and HC Semitek are also operating at near full capacity and are optimistic for their future. China will represent approximately 44 percent of total equipment spending in 2014, up from 33 percent in 2013. More information will be available at LED Taiwan 2013, which is co-located with SEMICON Taiwan, on September 4-6.
In conclusion, the global LED manufacturing market appears to be stabilizing and working through its rapid capacity expansion of 2010-2012. Significant packaged LED price declines have been partially offset by wafer cost reduction, yield improvements and wafer size increases. Global leaders like Nichia, Cree, Philips, Osram, and LG Innotek have continued to modernize their production operations for improved yield and throughput. The shakeout of the China market has begun and the survivors look to have staying power for long-term competitiveness.
With the overall LED market appearing to have modest growth rates for the next five years, and with many manufacturers being vertically integrated lighting manufacturers, the incentives for significant investments in manufacturing to gain cost advantage and market share are not high. In addition many mid-power packaged LEDs are migrating to lighting applications once thought reserved for advanced high-power products, opening up market opportunities for Chinese companies. However, many lighting manufacturers are looking to reduce parts count (die sizes, package and phosphor types) and stabilizing their product lines after many years of dynamic technology change, limiting the demand for new suppliers and product-types. It seems the stakes for success in the LED marketplace have revealed themselves and it remains to be seen how competition drives further manufacturing investments in the coming years.
Tom Morrow, VP and CMO of SEMI, will be speaking at the LEDs Conference on October 28-29 in Boston, MA. This year’s conference, entitled, LEDs & the SSL Ecosystem 2013: Phase 2, the Path to Profit, will feature speakers from OSRAM, Philips, Acuity, Cree, Canaccord Genuity, Rensselaer Polytechnic Institute, and many more. A special rate of $750 has been set up for SEMI members, valid until September 27. To register at this rate, log onto www.ledsconference.com and click on the ‘Register Now’ button. On the first screen, under the LEDs conference registration, you will see a listing for SEMI members – please click the box. To proceed, please enter the code SEMIVIP and hit "enter." This will be the only time you’ll need to enter this code. Proceed through the registration process; if you have any questions or issues registering, please contact Jennifer Carter firstname.lastname@example.org or call 207-781-9130.
August 6, 2013