Everlight Faces Bright Future: Chairman Yeh

Despite third-quarter slump, 2011 looks good for LED products

The after-tax profit of NT$3.37 per share earned in the first half of this year by the Everlight Electronics Co., Taiwan's No. 1 light emitting diode (LED) packager with a market valuation of over NT$115 billion (US$3.7 billion at NT$31:US$1), has brightened the view of the future even for the company's conservative-minded chairman, Robert Yeh. But that outstanding profit performance is not all that makes Yeh optimistic about prospects for his company and the global LED industry in general.

Yeh, whose comment on the market outlook is typically a low-key “fairly good,” recently predicted that the global LED industry would experience rapid growth during the next five years, with revenues rising at an annual rate of over 20%. According to the Topology Research Institute of Taiwan, a market research firm, the LED industry's global revenues in 2010 will likely increase 37% from last year, to US$9.6 billion, with Taiwan accounting for around 26% of the overall amount with US$2.5 billion.

Yeh believes that LED TVs and LED lighting will be the major drivers of growth for the LED industry during the next few years. “So far,” he elucidates, “LED TVs have seized barely 20% of the global TV market. I believe that this figure will double next year.” Sales of LED lighting, he feels, will grow at an annual rate of more than 20% over the next five years.

Global shipments of LED TVs have recently slackened, though, sending Everlight's September sales downward at a monthly rate of 14.04%, to NT$1.4 billion (US$45 million). Yeh says that this downturn is only temporary, and that his company has digested inventory and scaled down production at some of its production facilities in Suzhou of Jiangsu Province, China.

“I don't think there is any reason why we should feel pessimistic about next year,” Yeh comments, “because, by the signs we see now, demand for LED chips will remain tight in 2011. Although we've scaled down production at our Suzhou factory, our stringent inventory control will enable us to deliver products within a week after receiving a contract.”

Further, Yeh adds, “Our performance in the fourth quarter will be better than in the third quarter, and our performance in the second half of the year will be slightly better than in the first half.” Third-quarter revenues grew 6.63% over the previous quarter to reach NT$4.7 billion (US$153 million), helping to swell the company's sales for the first three quarters of the year to NT$12.8 billion (US$413 million), up 61.85% from the same period of 2009.

The Importance of Own Brands
In the LED lighting business, the company plans to promote own-brand products that have won quality certification. The recently introduced “EVERLIGHT” and “ZENANO” brands of lighting fixtures to cater to consumers in mainland China, Europe, and North America. “Brand-name operation marks our upgrading from the manufacture of LED packages, lighting modules, and lighting fixtures,” Yeh notes. “In recent years we've constantly considered the lighting fixture business, because the LED backlights [used in display panels] can generate only low margins.”

The company has introduced MR16 lamps, light bulbs, streetlights, indoor lamps, desk lights, and advertisement boxes. Its indoor lamps, advertisement boxes, and streetlights have gone into some new Burger King stores in Europe; its light bulbs and MR16 lamps are now available in Europe, North America; and Japan; and its ZENANO-brand desk lights are ready for volume production.

A recent court ruling in favor of Everlight in a patent case, brought by the Japanese company Nichia in 2005, gives a boost to Everlight's exports to the West and to Japan. Taiwan's Intellectual Property Court has overruled a previous judgment by a district court that found Everlight guilty and ordered it to pay NT$80 million (US$2.5 million) in compensation.

Everlight won Taiwan's Chinese National Standards (CNS) certification for its LED streetlight in August this year, making it the first manufacturer to measure up to the world's first industry standard specifically formulated for LED streetlights. “I think that such government approval is crucial to the industry,” Yeh stresses, “because it gives users peace of mind. For a long time, a hodge-podge of so-called energy-saving lighting products, using LEDs or compact-fluorescent lamps, has somewhat damaged user confidence in them because of the lack of industry standards.”

In mainland China LED, the chairman notes, lighting consumptions is boosted not by government-assured quality but by government subsidies. The mainland's “Ten Thousand Lights in Ten Cities” LED lighting project has not been very successful, and in Taiwan substandard LED traffic lights have damaged the image of the island's LED industry. “Both cases underscore the lack of government commitment to assuring quality inspection,” Yeh stresses.

Yeh suggests that quality inspection should start on the production line and be coupled with verification systems and random checks, so that the quality of both the products and the industry can be improved.

Despite the lack of LED standards in the mainland, Yeh insists that Everlight will work with the mainland's LED manufacturers and make use the mainland's resources to keep South Korean rivals at bay.

Everlight's Quarterly Results

Year	2009				2010
Quarter	1	2	3	4	1	2
Sales	NT$1.9B	NT$2.7B	NT$3.24B	NT$3.29B	NT$3.5B	NT$4.4B
After-Tax Net Income	NT$214M	NT$416M	NT$567M	NT$604M	NT$541M	NT$866M
EPS	NT$0.59	NT$1.14	NT$1.55	NT$1.64	NT$1.3	NT$2.08

Sources: Institutional investors