Epistar's Lee Upbeat About Corporate Future Regardless of Weak Share Price

The chairman looks with favor at potential of the agricultural lighting segment

Compiled by KEN LIU

Although Epistar Corp. share price has plunged below its net or book value on the Taiwan stock exchange or TAIEX, from about NT$53.77 per share to around NT$40 due to overselling by foreign institutional investors who can often sway stock prices with their dominant holdings and massive daily trades, the company's chairman, B.J. Lee, remains optimistic about operational outlook of the world's No.1 light emitting diode (LED) chipmaker by revenue.

He forecasts corporate earnings for this year to outperform that of last year due to new products to generate about 10 percent of the company's sales this year, coupled with the company's patented technologies to set up exclusive hurdle to keep competitors, namely mainland Chinese manufacturers, from easy clearing and entry into its turf.

Lee points out that the recent overselling of his company's shares by foreign institutional investors were mostly triggered by the March 31 sale of Philip's LED subsidiary, Lumiled, to mainland Chinese venture capital firm Go Scale Capital. The deal worries Epistar's investors that Lumileds' 600-plus patents on LEDs could help to level the playing field for Epistar's mainland Chinese competitors like San'an Optoelectronics Co., Ltd., who would then be able to cross technological barriers to sell products worldwide.

Lee does not think the acquisition of Lumileds will impact his company for at least a year and predicts foreign institutional investors to buy back shares in his firm after seeing the company's revenue for this June rise.

Epistar's share price had twice fallen below net value, once each during the 2001 Internet bubble and the 2008 global financial turmoil.

He predicts global demand for LEDs to increase 30 percent this year mostly due to anticipation that prices will slump around 20 percent, which unfortunately will also further squeeze profitability at LED makers.

Although uncertainty remains for the LED industry in the long term due to varying governmental policies related to offering buyer incentives, emerging technologies, and eco-awareness among consumers, Lee predicts the market to continue growing the next few years in anticipation that LED will replace 50 percent of traditional light sources (incandescent and fluorescent) in three years from the current 10 percent, and as high as 70-80 percent in seven to eight years.

Such rising demand will mostly be driven by potential applications involving LED bulbs and tubes, not to mention commercial lighting, according to Lee.

The said applications include smart lighting, medical lighting, and agricultural lighting. Although commercial lighting and residential lighting are now the most popular LED applications, Lee predicts people to begin placing higher importance on LED agricultural lighting over the next five to 10 years when food shortage becomes an exigent, global issue. He says agricultural lighting enables farmers to grow crops on stacked cultivation shelves indoor to achieve output higher than on typical farm land, in effect describing the traditional greenhouse with upgraded lighting and layout.

He suggests Taiwanese LED makers to develop turnkey agricultural-lighting solutions instead of just individual lamps, especially given Taiwan's advanced LED and agro-science technologies. Delta Electronics Co., Ltd., for instance, provides turnkey systems including lighting and cultivation chemicals.

Currently mainland Chinese makers supply the majority of LED light bulbs, which Lee says threatens Taiwanese manufacturers in this supply chain, and suggests Taiwanese manufacturers should use mechanized production to make the bulbs at home and develop smart lighting. By doing so, he thinks Taiwanese manufacturers can reduce production cost of bulbs and master the technologies to integrate sensor controller and driver chip into a bulb, thereby retaking the lead in the LED light bulb market.

To attain this goal, he says Taiwanese LED makers along the supply chain as packagers, sensor-controller makers, and driver-chip makers need to consolidate. Epistar, for instance, has been vigorously integrating after combining with chipmakers United Epitaxy Co., Ltd., South Epitaxy Corp., Huga Optotech Inc., and Formosa Epitaxy Inc.

Lee thinks that to make LED lighting more popular, LED makers will further cut prices in the short term, and then adopt automation to make business more profitable once such lighting becomes more prevalent.