28 March 2018
Increase in MOCVD system installations to lead to 28.3% GaN LED surplus in 2019
© Semiconductor Today Magazine / Juno PublishiPicture: Disco’s DAL7440 KABRA laser saw.
In the last two years, the surplus in gallium nitride (GaN)-based LED wafers and die has been quite small, says market research firm IHS Markit. Metal-organic chemical vapor deposition (MOCVD) system capacity utilizations have been high but, in an environment of uncertain demand and falling prices, manufacturers were reluctant to make further investments, notes Jamie Fox (principal analyst, LEDs & Lighting).
However, in response to growing demand, Chinese manufacturers are once again taking advantage of government subsidies. China’s Focus Lighting and Shenzhen MTC have announced MOCVD expansion plans in recent months. Meanwhile Sanan, Osram Opto, HC Semitek and others are also expanding in 2018.
After assessing planned purchases by LED makers, IHS Markit projects that, in 2018, 330 MOCVD reactor chambers will be installed worldwide for producing gallium nitride (GaN)-based LEDs. At the peak in MOCVD shipment in 2010, 754 reactor chambers were shipped but, allowing for the greater production capacity of today’s more modern reactors, the actual wafer and die area capacity added in 2018 will be similar to that peak year. So, after MOCVD reactor chamber installations led to a GaN LED surplus of 7.4% in 2017, this surplus will grow to 15.8% in 2018 and 28.3% in 2019 (with an average capacity utilization of 78% in 2019).
IHS Markit’s forecast takes into account the available GaN LED supply – MOCVD system makers AMEC in China and Veeco in the USA will likely be working at full capacity to meet the expected higher demand in the coming years. MOCVD shipments in 2018 may even be limited by the available supply of systems, rather than demand.
China gaining market share
China’s production capacity for LED wafers and die increased dramatically between 2010 and 2018. The country has transformed itself from a small player in the LED market to become the country with more production capacity than the rest of the world combined.
This planned growth by Chinese companies was more than an attempt to meet demand; instead the goal was to increase the country’s market share, says IHS Markit. In fact, China’s San’an is now clearly ahead of Taiwan’s Epistar as the global leader in wafer and die production capacity.
Mid-power LEDs in lighting, automotive headlights and signage are among the areas that did well in 2017, and they will continue to grow in 2018 - even allowing for the fact that some portion of the announced orders might be canceled or deferred into the following year, says IHS Markit. The expected over-capacity will have a bigger effect on some markets, including lighting, and less on automotive and other markets, where the newer entrants are not qualified and the barrier to entry is much higher.
In a world of $0.01 2835-packaged mid-power LEDs for general lighting in Asia, LED vendors from other countries are realizing that they cannot compete with China’s subsidies and low costs. Vendors outside China are therefore now typically focusing on other LED categories for growth and profitability, including high power instead of low power, automotive instead of lighting, ultraviolet instead of visible, and light engines instead of packaged LEDs.
For example, South Korean LED maker LG Innotek’s revenue fell in fourth-quarter 2017, and the firm announced that it will instead focus on higher-end products and ultraviolet LEDs. This is a direct response to the growth of Chinese capacity. Other companies have followed a similar strategy, but they have been able to avoid revenue declines by focusing more on the high-end market, along with automotive and signage, in addition to lighting.
Another dynamic is that most non-Chinese companies have not expanded their capacity in recent years. In fact, many of them have not invested in MOCVD at all, which means that capacity may even decline over time, as older systems go offline. These companies instead buy die from China and sell them as packaged LEDs or light engines. In some cases, they outsource to China their entire production of packaged LEDs. The current trend of expanding production capacity — along with further expansions in China — likely means that this trend will continue, says IHS Markit.