Supply chain
A glance at Taiwan photonics industry in 2015
Staff, DIGITIMES, Taipei

The photonics industry has a significant influence on future industrial development of both Taiwan and the world. According to data from the ITIS project initiated by the technology division of the Ministry of Economic Affairs, of Taiwan industries or products ranked among the world's top three in 2014, production of crystalline-silicon solar cells including overseas manufacturing reached 9,972MW, 22.1% of the global market.

Production of large TFT LCD panels (10-inch or larger) topped US$23.616 billion in value, 24.55% of the global market, and production of small to midsize TFT LCD panels (under 10-inches) totaled US$7.431 billion, 26.73% of the global market, both of which ranked No. 2 in the world. OLED panels had a production value of US$223 million, 3.79% of the global market. Touch screen production reached US$5.97 billion in value, 20.9% of the global market. LED components generated a US$3.2 billion production value, 19.1% of the global market, ranking number 3 worldwide.

According to statistics from Photonics Industry and Technology Development Association (PIDA), total production value of the Taiwan photonics industry reached NT$2.467 trillion (US$67.4 billion) in 2014, about the same level as 2013, accounting for 12% of the global photonics industry value of US$576.6 billion. Ranked by production value, TFT LCD panels, touch screens, LCD components and materials, solar cells, and precision optical components and lenses were the top five industry sectors. In terms of production growth, LED lighting, solar energy crystalline-silicon materials, precision optical components and lenses, LED components, and phototherapy held the leading five positions.

Slowing growth of display panels

PIDA estimates Taiwan panel production will total NT$917.696 billion in 2014, a decrease of 1.4% on year. This shows the Taiwan display panel industry has reached a plateau in 2014 and expansion will slow down with only flat growth going forward.

Looking forward to the global display panel industry in 2015, PIDA thinks the makers will speed up the introduction of new panel technologies and materials, including the innovative LTPS and IGZO display technologies that are gradually being adopted in mainstream display products. The development of ITO replacement material is also well underway. In addition, embedded touch panel technology will become more popular. For example, On/In-Cell embedded touch panels that only display panel makers were capable of producing now start to appear in smartphones with 5-inch or smaller screens.

High definition display panels will soon become market mainstream. Regardless of the size, HD or FHD is the way to go for large, midsize, and small display panels. Demand for 4K UHD TV will be the main force driving growth of large size display panels and growth of small to midsize panels will come from FHD tablets and smartphones.

The distribution of the display panel industry will likely see significant shifts in 2015. Consumer purchasing power on the rise in the China market in addition to expansion of China-based panel makers will most definitely cause changes in the distribution of panel makers' market shares worldwide.

If the markets for smart mobile devices and wearable devices are able to grow significantly, display products for tablets, smartphones, and wearable devices will become more affordable and popular, which will influence the display panel industry, indicated PIDA.

The display panel industry is one of the two trillion and twin star industries in Taiwan and therefore is of great importance for the overall industrial development in Taiwan. However, the Taiwan display panel industry will face potential problems including stagnating growth discussed above, upstream and midstream suppliers struggling with challenges from China makers, and the lack of strong local brands capable of driving up demand as in the case of Korea.

New applications of LED are essential

The Taiwan LED industry still holds a leading position globally. In particular, the merger between two major LED epitaxial wafer and die makers, Epistar and Formosa Epitaxy, in 2014, Everlight's production expansion plan, and international leader Cree's investment in Lextar all boosted the Taiwan LED industry's worldwide visibility. It is estimated the Taiwan LED industry will see 10% and 14% growth in 2014 and 2015 respectively, especially dominating the handset and LCD backlight markets.

In terms of competitor performance, competitiveness of products quoted in Japanese Yen is on the rise thanks to the deeply depreciating yen in the past two years. However, between Nichia and Toyoda Gosei, one saw an increase but one saw a decrease in 2014 revenues. As a result, the Japan LED industry is estimated to only show 1% and 5% growth in 2014 and 2015 respectively.

As for the Korea LED industry, development is closely related to the local display and smartphone industries. Therefore, the recession that these industries are experiencing has also impacted the revenue performance of the Korea LED industry. It is estimated the Korea LED industry will exhibit a 3% decline in 2014 and a mere 2% growth in 2015.

The China LED industry has the most eye-catching expansion in the world, with particularly rapid development in mid power LED for illumination. Also because of increasing availability of independent supply of LED components, the China LED industry stands out from the rest of the world that can only deliver a single digit growth rate or even show decline, which is putting pressure on Taiwan LED makers.

With an increasing number of LED applications for illumination, China is very competitive globally in the transition from traditional lighting to LED lighting. According to PIDA, the illumination markets around the world are still dominated by leading international brands or regional makers so Taiwan has little presence in the global lighting market, which is disadvantageous to the long term development of LED package and module industries.

PIDA is of the opinion that the Taiwan LED industry has to form strategic partnerships with international brands and thereby increase opportunities for LED applications. Furthermore, based on the current development achievement, the Taiwan LED industry should concentrate on some niche products with tremendous potential, such as UV and IR LED products, to enhance differentiating features and make development breakthroughs.

Development of precision optical components is closely related to smart handheld devices

Production value of precision optical components by Taiwan makers reached NT$97.7 billion in 2014, nearly 20% growth compared to 2013, and benefiting from smartphone brands continuing to introduce new products. In terms of product technology, 8 Megapixel is standard spec of smartphone camera lenses while high-end phones have been equipped with10 Megapixel lenses. Other features such as slimness, large aperture, and image stabilization are crucial to grabbing orders from leading smartphone makers.

However, not all optical component makers are able to deliver impressive performances. According to PIDA, among individual makers, only Largan was able to penetrate into the supply chain of various global smartphone brands, therefore showing stunning revenue growth. For example, Largan revenues expanded by 54% in the first half of 2014, accounting for 44% of the total combined revenues of the top ten makers. Profit margins were an astounding 90%. Revenues of the other nine companies, which posted a loss of US$713 million dollars, only increased by 4% in the same period. Although the situation improved in the second half of the year, it is still likely that the strong will continue to get stronger.

Moreover, the point-and-shoot camera market is shrinking because of the escalating popularity of smartphones, which has even threatened interchangeable lens camera sales. For example, global leading digital camera maker Canon is expected to show respectively 19% and 38% decline in shipments of interchangeable lens cameras and point-and-shoot cameras in 2014.

Digital camera makers and their outsource manufacturers of lenses have been experiencing pressure and have to undergo active restructuring in order to maintain growth. In response to Largan's continuing expansion, even makers focusing on the smartphone market may need to penetrate into other emerging optical application markets. Examples of this include Ability Opto-Electronics Technology and Optivision Technology cutting into the supply chain of China leading brands, tier-2 brands, or white-box phones, and therefore having room for capacity expansion.

Furthermore, with the economy in emerging countries taking off, demand for in-vehicle video keeps growing. Calin Technology, H.P.B. Optoelectronics, and Altek are among makers that got a head start in this market. Other applications such as lenses for robot vision and automated optical inspection are also potential development areas for optical component makers.

Photovoltaic industry raises competitiveness through mergers and acquisitions

Under the influence of the US-China anti-dumping investigation in 2014, the Taiwan photovoltaic industry showed an 8% decline in the fourth quarter of 2014 compared to corresponding period in 2013. However, PIDA thinks the influence from the investigation is mitigating due to the high growth in the first half of 2014.

In fact, the Taiwan photovoltaic industry still presented a positive growth in the total production value in 2014, reaching NT$170.1 billion, up 11% from 2013. Upstream crystalline-silicon materials showed the highest growth of 26% on year thanks to rising global demand. Solar panels had a total production value of NT$104.9 billion, taking up the largest share among photovoltaic industry segments, 62% of the solar energy production value in Taiwan. Solar cells sustained the most impact from the anti-dumping investigation and delivered a 7% yearly increase, slightly lower than the overall industry growth rate.

Looking forward, PIDA expects most Taiwan makers will act aggressively on merger deals as a way to cope with the rapidly changing solar energy business and price slashing competition with China makers. For example, Sino-American Silicon Products (SAS) not only merged with Sunrise Global Solar Energy in addition to Aleo Solar, a German high-efficiency monocrystalline module producer, but also invested in downstream solar panel manufacturer, Accu Solar, at the beginning of this year. SAS plans to expand production capacity of monocrystalline solar cells to 850MW.

Furthermore, Motech Industries has also announced a merger with Topcell Solar International, after which Motech will have an approximately 3.0GW production capacity. If including the capacity of Motech's Kunshan plant, to expand from 600MW to 1GW, Motech's total production will surpass the world's No. 1 maker Hanwha Corporation (3.28GW) and No. 2 maker Yingli Solar (3.0GW) all at once. Motech's monocrystalline solar cell production will also ramp up from 200MW to 450MW.

ICT suppliers are penetrating into biophotonics market

According to PIDA, the Taiwan biophotonics industry generated a production value of NT$46.6 billion in 2014, which is expected to increase to NT$57.5 billion by 2017, a 7% CAGR. In terms of sector distribution, photo sensing accounts for 47% of the production value, medical imaging 23%, and phototherapy 30%.

As biophotonics is still at an early stage of development, high growth can be expected in the future with CAGR estimated to be 6-7%. Contact lenses in the phototherapy sector will show the most obvious growth with production value increasing from NT$12.2 billion in 2013 to NT$13.8 billion in 2014, up 13% on year.

There will be more and more ICT suppliers investing in the biophotonics market for the high profit margin and opportunities arising from consumables for daily disposable contact lenses. PIDA thinks product features will be deciding factors for the outcome of the competition. If ICT suppliers are able to make breakthroughs in healthcare, medical technology, or other biomedical fields, the biophotonics market can also be a star in the making for the photonics industry.

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