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Trends in the upstream LED industry
Jessie Lin, DIGITIMES Research, Taipei [Monday 9 July 2012]
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The entire LED lighting supply chain can be divided into the following segments: rare earth, MOCVD equipment, sapphire ingots and substrates, LED chips, LED packaging, and LED lighting fixtures. This Digitimes Special Report focuses on the upstream segments including rare earth elements for producing phosphor powder material, MOCVD equipment (for manufacturing LED wafers), sapphire ingots and substrates. The upstream segments are important as they are the indicators for future developments of the industry.
Abstract
Trends in the upstream LED industry

The entire LED lighting supply chain can be divided into the following segments: rare earth, MOCVD equipment, sapphire ingots and substrates, LED chips, LED packaging, and LED lighting fixtures. This Digitimes Special Report focuses on the upstream segments including rare earth elements for producing phosphor powder material, MOCVD equipment (for manufacturing LED wafers), sapphire ingots and substrates. The upstream segments are important as they are the indicators for future developments of the industry.

Rare Earth

China's rare earth outputs account for more than 90% of total rare earth supplies in the world. In 2012, the government continues to implement measures to limit the exports of rare earths which has been causing the price of rare earths to increase significantly.

Rare earth is the main ingredient for phosphor powder, an important material for both fluorescent and LED lightings. The difference is that fluorescent lights use large amount of phosphor powder compared to LED lighting. Therefore, as the price of rare earth increases, the cost of producing fluorescent lighting products increases as well. Comparatively, LED lightings only uses a small amount of phosphorus powder and have only been slightly affected by the price increase of rare earths.

MOCVD

After booming demand for MOCVD equipment in 2010-2011, the order visibility in 2012 has been shorter because most LED chipmakers have enough capacity to meet demand. Therefore, Digitimes Research predicts global demand for MOCVD equipment in 2012 will be 275 units, a 60% decrease from 690 units in 2011.

China continues to dominate demand for MOCVD equipment in 2012 because some shipments of MOCVD equipment have been delayed to 2012 and some local governments have continued to provide subsidies for procuring MOCVD equipment. Hence, demand from China in 2012 is to account for 68% of global demand.

Digitimes Research predicts US-based equipment provider Veeco and Germany-based Aixtron will continue to dominate the market in 2012. The combined market share of the two firms in 2012 is expected to reach above 95% and in particular, Veeco's global market share is to reach 60%.

Sapphire

Sapphire ingots and substrates are important upstream materials for LED firms. Currently, most firms use LED epitaxial wafers made from sapphire substrates. Only a few firms adopt silicon (Si) or silicon carbide (SiC) substrates. Hence the price trend and market balance of sapphire substrates are also important indicators for the development of the LED industry.

For 2-inch sapphire substrates, the price stabilized in first-half 2012 at US$8-9/unit. The price is expected to remain steady in second-half 2012 because the current price is close to production costs and has no room for decreases even if there is an oversupply condition of sapphire ingots. However, patterned sapphire substrates (PSS) can help to increase the brightness of LED products effectively, hence the price of the product is likely to show a slight increase in second-half 2012.

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