23 November 2010

China to leap from number-4 to top LED-making region by Q4/2011

While China was the number-4 region for LED production in Q3/2010 (with a 13% share of 2”-equivalent wafer capacity), by Q4/2011 it will become the number-1 region, with capacity share reaching 32% in Q1/2012, according to the latest Quarterly LED Supply and Demand Report from market forecaster IMS Research.

“China’s impressive share gains are a result of a multi-pronged stimulus program which incentivizes companies to manufacture LEDs in China by subsidizing the costs of the most critical tool in the manufacturing process, metal-organic chemical vapor deposition (MOCVD), by up to $1.8m per tool while also offering lower tax rates, accelerated depreciation, free land and growing domestic demand,” says IMS Research senior VP Ross Young.

The share gains have already started, with China the number-1 region for MOCVD installations for the first time in Q3/2010 (with a 32% share, up from 18% in Q2/2010). China is forecasted to lead in MOCVD installations for at least the next five quarters, accounting for 64% of 2011 MOCVD installations.

The country’s surge in LED capacity comes at a convenient time for LED toolmakers, says IMS, as Korean and Taiwan LED makers are slowing their capacity expansion plans as LED market conditions have temporarily deteriorated on slower-than-expected LED TV sales. At the same time, some Taiwan and Korean suppliers are shifting their capacity expansion plans to China in order to take advantage of the stimulus program. In fact, while 10 of the top 20 LED makers in Q1/2012 will have production in China, six of these will be headquartered outside China, reckons IMS.

In Q3/2010 the merchant MOCVD GaN LED market reached a record high of 230 tools. This unit growth was outpaced by revenue growth, up 22% quarter-to-quarter and 250% year-on-year to $489m. Aixtron remained the market leader with a 54% share (down from 55%), while Veeco’s share rose from 42% to 44%. However, on a revenue basis, Veeco's share rose from 44% to 48%, supported by the transition to its K465i tool (which was the industry's top-selling model in Q3).

South Korea’s LG Innotek installed the most tools in Q3/2010, followed by Taiwan’s Forepi and Huga Optotech. LG is expected to overtake Korea’s Samsung LED in wafer capacity in Q4/2010, although Samsung should reclaim the top spot in Q2/2011. In Q3/2010, LG led in 2” and 6” capacity with Samsung leading at 4”.

On an area basis, 2” wafers remained dominant in Q3/2010 (with a 77% share) and should continue to be dominant over the forecast period, since the China stimulus program is designed around 2” tools.

In terms of LED applications, revenues from small-display products including mobile phones and notebook PCs are expected to peak in 2010 before then starting to decline, while revenues from LED TV backlighting are expected to peak in 2013 as the market rapidly saturates.

Regarding planned MOCVD tool purchases by LED makers over the next five quarters, China’s San’an Optoelectronics is expected to install the most, and has already paid deposits on over 80 systems. IMS expects seven different firms to install at least 50 tools each over this period, with more than 1000 merchant tools installed in total between Q4/2010 and Q4/2011.

Based on current visibility, 2011 MOCVD shipments and revenues are expected to slightly exceed 2010 results (up 245% and 250% year-on-year, respectively).

See related items:

China government concerned about LED investment overheating

China plans to add 1200 MOCVD reactors, including 300 in 2010

Booming MOCVD market gathers pace


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