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Taiwan's Optical Lens Makers Profit from Popularity of PCDs

2011/09/05 | By Steve Chuang

Driven by rising demand due to popularity of smartphones that use optical lenses, Taiwanese optical lens manufacturers are gradually challenging the dominance of Japanese counterparts in the global market in recent years.

Three to four years ago, Japanese makers such as Fujinon and Kantatsu commanded major market shares, a trend that has since been altered by Taiwanese companies as Largan Precision Co., Ltd. and Genius Electronic Optical Co., Ltd. who are supplying smartphone lens for especially Apple iPhones.

Global market researchers say that Taiwan's optical lens industry, driven by steady improvements on production capabilities and capacity coupled with more launches of portable communication devices, is expected to command a 40% global share this year.

Most observers agree that Apple iPhones and iPads have over the past few years driven global demand for optical lenses and modules. Last year, Apple sold about 47 million iPhones, whose 5-megapixel lens modules were supplied by Largan and Genius. Such orders are set to grow even larger for iPhone sales have capped 55 million units in the first seven months and will exceed an estimated 100 million units in 2011, with iPad sales to also exceed 30 million units.

Apple Inspired
Other Taiwanese lens makers are also inspired by the Apple boom to vie for orders from smartphone and PCD customers this year. For example, Newmax Technology Co., Ltd., the globally leading supplier of notebook PC camera lens, has garnered orders from Motorola for 5-megapixel smartphone camera lens, in addition to supplying lenses for Kinect, a controller-free gaming device.

Meanwhile Kinko Optical Co., Ltd., supplier of Canon camera lenses, has also started delivery of portable PC lenses since the beginning of July.

An insider says lens makers in Taiwan must jostle for a slice of the competitive segment driven by surging demand for potentially lucrative PCD devices. With more PCDs equipped with higher-end cameras, institutional investors say that market potential is actually bigger than expected, considering that a 5- and 8-megapixel camera, for instance, uses 4 and 5 optical lenses, respectively; while a low-end VGA camera also calls for 2 optical lenses.

Short-term Lead
Despite growing rivalry, Largan and Genius are expected to keep ahead of the competition in the short term, benefitting mainly from the shared customer Apple.

The two companies are reported to continue supplying lenses for Apple's newest iPhone 5 with an 8-megapixel camera. With relatively higher production yield, Largan, commanding nearly 20% of the global market, will reportedly garner a big order from Apple.

With stronger production capability, Largan has always led development of higher resolution lenses, whose 8-megapixel models has been shipped in volume to HTC Corp., a Taiwanese smartphone maker. Also the company has more capacity than peers on the island, with three plants and over 2,000 workers in Taiwan's central city of Taichung. The fourth plant has just been constructed and will come online in the third quarter of next year, when 600 to 1,000 more workers will be recruited.

Witnessing fast-growing demand for PCD lenses, Largan CEO Lin En-ping says the goal is to scramble for as many orders as possible from not only smartphone and tablet PC customers, but also smart TV, medical instrument and TV game console clients. Plus the company is said to be aggressively exploring the VGA camera lens sector, showing ambition to widen lead over the runner-up, Genius.

Largan has already raised its capital expenditure for the second quarter, which institutional investors estimate to be between NT$1.5 billion and NT$2 billion, a figure the company declines to publicize.

The No. 2 lens maker Genius experienced a boom in 2004 by heavily supplying VGA camera lenses to Motorola, but plunged into operating losses due to a switch defect three years ago, and is noted for its comeback driven by supplying to Apple, whose orders have pushed the lens maker into profitability since last year.

Genius produces nearly all VGA lenses for iPhones and iPads and shares such orders with Largan for iPhone 4 5-megapixel lenses and iPad 2 high-resolution lenses. Apple orders enabled Genius and Largan to command a 28.5% global share last year to emerge as the biggest winners.

For the first half of this year, Largan scored combined revenue of NT$7.577 billion for a 57% growth from a year ago, with EPS of NT$17.09, while Genius reported a 500% increase in first-half combined revenue of NT$3.129 billion. With iPhone 5 and iPad 3 about to be ready for mass production, the two lens makers look set to expand market shares to keep posting more profits.

Volume of Optical Lenses Used in iPhone, iPad, iPod Touch
Year Quantity
2009 25 million units
2010 96 million units
2011 (estimated) 269 million units
2012 (estimated) 603 million units
Source: IBTS Investment Consulting Co., Ltd.