LED Makers Hold Mixed Views Toward Integrated Manufacturing

Taiwan's ITRI general director advises LED industry to build industry alliances

When Unimicorn Corp., United Microelectronics Corp.'s (UMC) printed-circuit board subsidiary, announced in late 2010 its investment in LED-luminaire maker NeoPac Lighting (Zhongshan) Ltd., it was the highlight of what many big LED-lighting operators had been competing to achieve: Setting up integrated LED manufacturing to turn out chips and packages as well as lighting modules and fixtures.

The LED lighting industry seems to be disorganized, with Osram using Osram Opto to make chips and devices and Osram Sylvania to make luminaires. Philips Lumileds makes devices for Philips Lighting. Nichia and General Electric (GE) are in an alliance, with Nichia pledging to supply LED devices to luminaire maker GE. Lighting device maker Toyoda Gosei (TG) is partnering with module maker Lexedis and lighting maker Zumtobel; while Cree has acquired lighting manufacturer Cotco of Hong Kong.

Insiders hold differing views on the setting up of integrated manufacturing.

Proponent
A proponent of integrated-manufacturing is the Taiwan-born Ben Fan, chairman and CEO of Neo-Neon Holding Corp., who says that such capacity has reduced the cost of its LED lighting fixtures, to only four-and-a-half times more than traditional counterparts. “Our competitors, Japanese suppliers in particular, are selling products at prices 40 to 50 times those of traditional lights,” he estimates.

Neo-Neon's setting up of integrated LED lighting manufacturing capability has been inspired by a similar effort many years ago, which led to its 2000 success to lead the world in decorative lighting. Integrated production enabled us to cut production cost of decorative lighting by an incredible 90%, Fan recalls. The manufacturing lines were literally all encompassing, able to make mini bulbs, tungsten filaments, semi-finished parts, and even install equipment to make electrical cables,

The company's LED lighting operation, generating over 70% of corporate revenue, includes metal organic chemical vapor deposition (MOCVD) lines to make LED epitaxy wafers, LED packaging lines, ceramic substrate lines, LED module lines and LED lighting assembly lines. Now the company is building distribution channels to sell its own brand-name products.

Integrated Maker
Everlight Electronics Co., Ltd., Taiwan's No.1 LED packager, has grown into an integrated manufacturer after acquiring stakes in Epistar Corp., Taiwan's No.1 LED chipmaker, and introducing own-brand lighting fixtures. Robert Yeh, the chairman, says: “Moving to integrated manufacturing means cost reduction, independent product development and easier operational upsizing.” The company began setting up distribution channels for its branded products early this year.

But when asked whether brand name operation backed up by in-house integrated manufacturing will unsettle its contract buyers, he replied: “In the long run, splitting manufacturing from branding operation as Acer Inc. did would be the best way to prevent competing against customers.”

When asked why Cree seeks to set up integrated manufacturing, Shao Jia Ping, technology director for Cree's China marketing and GM for Cree's eastern China operation, replies with an out-of-industry comparison: “Who else in China's automobile industry can be as competitive as Geely Automobile? Geely is competitive because it has set up integrated manufacturing to make almost everything to build cars.”

Bridgelux
When entering the LED industry in 2008, the Livemore, California-based Bridgelux, reportedly the only supplier of high-power LED devices globally focused on general lighting, decided to specialize in manufacturing and selling LED dies, arrays and modules rather than crossing over into lamp and luminaries, says Keith Scott, the vice president of business development.

The company's decision to focus only on LED devices was based on its view of the market, one that does not present clear justification to move in one direction or another, when Philips bought the luminaire company Genlyte in the United States while operating Philips Lumileds in Europe, and companies like Cree have begun selling luminaires and light bulbs independently.

“We realized that many people in the lighting market have become very apprehensive about the trend to integrate, which some may see as interloping. The lines between various sectors perhaps should be kept to prevent suppliers from becoming competitors. To keep our edge, we have no option but to stop buying LEDs from these guys. In essence, we made a very cautious decision when we entered the LED sector,” says Scott.

Scott stresses that Bridgelux is very clear about where it stands, that it's best for the company to engage in LED devices, not lighting products. “We sell LED dies, arrays, and modules and believe that's where we belong,” he adds.

But Scott thinks cross-sector development can help Bridgelux as luminaires manufacturers to work closely with device-dedicated manufacturers for fear of succumbing to a contradiction, one resulting from a strategy that is supposed to enhance efficiency, profitability but in fact can threaten competitiveness.

Major Reason
Although some maintain that the major reason for setting up integrated manufacturing is to help LED manufacturers keep costs down, but Scott thinks otherwise. “We believe when our competitors cross industry lines into luminaire and bulb manufacturing, they are deluding themselves, without realizing that production is very costly due to very low volume. They simply can't compete against established makers even if they survive beyond five years and achieve adequate volume, while the big leaguers continue to benefit from much lower costs,” he notes.

Scott believes the existing luminaire manufacturers like Cooper Lighting in the United States have the lowest cost structure for partnering with contract suppliers of light sockets, light ballasts, and finished parts, whether in China or not. And his company supplies light sources and, possibly, modules. “When we combine all these elements together, we are making lighting systems at very low cost. We believe this is the best combination,” he says.

Chipmaker Seoul Semiconductor Co., Ltd. of South Korea has set up packaging operation, but is cautious towards the integrated manufacturing trend. According to James Kim, a marketing manager of Seoul Semiconductor's Greater China operations, the company has discussed internally whether to set up an in-house lighting-fixture business for its LED modules. “After considering that to engage in lighting fixtures would pit us against big players as Cree, Osram and Philips, we decided to keep the status quo and work with Posco ICT's LED lighting business on lighting fixture,” Kim notes. Posco ICT is a subsidiary of Pohang Iron and Steel Co. (POSCO), the world's No.3 steelmaker.

Kim says that it would be a steep uphill battle for LED manufacturers to take on established lighting manufacturers without commanding a considerable share of the end-product market. So far, Seoul Semiconductor's modules like its proprietary “Ariche” alternating current (AC) LEDs have gone into GE's and Philips' luminaires.

Two Goals
President Michael Hsing of ProLight Opto Technology Corp., a seasoned LED packager, says that setting up integrated manufacturing in LED industry typically has two goals: Keep cost down and expand sales. Cost is the priority for those trying to move upstream while raising sales is the primary goal for those trying to move downstream, he says.

Hsing offers a different view that trying to achieve integrated manufacturing is not only to acquire manufacturing ability. An integrated manufacturer must possess all-round production capacity. LED packagers can venture into the luminaires sector without having to cross a high technical threshold, but faces the immediate problem of not having distribution channels held by established lighting makers, a downfall that has prevented any newcomer from achieving success so far, he stresses.

In the competition with the development, Hsing says, packagers must have advantage in cost and technology. “It's still too early to say whether or not integrated-manufacturing development will be the winning trend, but the development would fizzle out if the manufacturers are not strong in every aspects,” he analyzes.

Expert Suggestion
Y.J. Chan, General Director of Electronics & Optoelectronics Research Laboratories (EOL) under the government-backed Industrial Technology Research Institute (ITRI), suggests that Taiwan's LED industry should develop integrated manufacturing capability, whether through alliances among individual manufacturers or in-house expansion. Local LED manufacturers will continue to be limited as contract suppliers as long as they remain one-trick ponies, as Taiwan's IC chipmakers, as he underlines an age-old problem.

Chan says that division-of-labor does not lend itself to development with the LED-lighting industry as it does with the IC chip-making sector for the LED-lighting sector has yet to devise interface and specification standards for upstream, mid-stream and downstream devices as the IC chip making sector, as well as being not as mature as the IC chip-making sector. Summing up the scenario only as a seasoned expert can, Chan says that “LED lighting is a complicated system that calls for various professionals with different specializations to literally integrate the various parts, technologies into a lighting product, assuring compatibility, durability and perhaps even easy end-user installation, likening the process to art as much as the science of illumination, concluding that the likelihood of success in integration is slim as long as local manufacturers continue to work individually.