Underselling Competition Drives Taiwan's LED Makers into Auto and Explosion-proof Lighting

Underselling competition, which inevitably forces makers saddled with relatively higher overhead as wages, plant rental, land acquisition cost, hydro and power bills to develop products with higher margins, technical and startup thresholds, is driving Taiwan's LED makers into high value-added applications as LED auto lamps and explosion-proof lights, according to Taiwan's market consultants.

LEDinside points out that despite typically time-consuming verification for LED auto lamps, the compound annual growth rate (CAGR) for the market as whole will rise around 9 percent between 2014 and 2018, with daytime running light (DRL) and hi/low beam light sectors projected to post growth rate of 21 percent and 48 percent, respectively.

The consultant points out that compared with other applications, LED auto lamps command higher gross margin.

Citing statistics from market research organization ElectroniCast, the nonprofit Photonics Industry &Technology Development Association (PIDA), LEDinside estimates global market for LED explosion-proof lights to soar to US$248 million by 2020 in revenue from 2013's US$151 million, which was up 7.3 percent from the previous year.

PIDA executives feel that Taiwan's LED makers can exceed their business growth limit by differentiating products on the market and betting on the potential of products they select to develop. They suggest the manufacturers choose explosion-proof lamps as the entry into the high-end LED lighting market.

LED lighting is increasingly used as explosion-proof solutions in industries that tend to see more frequent explosions, such as petrochemical, chemical, mining, semiconductor, shipbuilding, foods-processing, and pharmaceutical, mainly due to LED's low-power consumption and relatively cooler operation and heat generation, according to PIDA.

The island's LED makers who have begun moving upmarket from traditional lighting applications include Everlight Electronics Co., Ltd., Epistar Corp., and Lextar Electronics Corp.

Everlight, the world's No.1 LED packager with revenue topping US$1 billion in 2014, will put aside NT$4.7 billion (US$151.61 million) for output expansion and R&D this year as part of its plan to invest NT$30 billion (US$967.74 million) in five years.

Epistar, reportedly the world's No.1 LED chipmaker by production capacity, estimates its production to run at up to 70 percent capacity beginning March this year mostly due to the completion of de-stocking cycle at lighting distributors and increased demands from auto-lamp and explosion-proof lighting makers.

Lextar, Taiwan's sole integrated LED maker, plans to spend NT$1.4-1.5 billion (US$45.16-48.38 million) this year on expansion, a reduction from 2014 when a relatively larger expansion was done. The investment includes spending on R&D on auto lamps and explosion-proof lamps.

The company has regained growth momentum this quarter due to the completion of de-stocking cycle and deliveries of mid-power LED chips contracted by Cree. Industry executives predict the company's revenue for Q1, 2015 to rise 10 percent from the final quarter of last year and its production to run at full capacity in Q2 or Q3 this year.

(KL)