Monday, December 10, 2012

New sapphire apps can trigger an investment cycle!

Too many new entrants on sapphire for LED market with unrealistic capacity plans. Most underestimated the technical challenges! Prices are likely to remain low through 2013. Many new entrants will fail in 2013-2014: rationalization (M&A, bankruptcy, attrition). In the long term, vertical integration is desirable to avoid margin stacking, said Eric Virey, senior market and technology analyst, LED Materials and Sevices, Yole Developpement. He was presenting a seminar on how new sapphire applications can trigger an investment cycle.

According to him, adoption of CFL and LED stretches the replacement cycle and cannibalizes lamp volume sales. As for LED manufacturing capacity, with respect to nitride MOCVD reactors, 2009 and 2010 saw increases in Taiwan and Korea in late driven by LCD display market. The years 2010-2012 saw phenomenal increase in China. Government subsidies are likely to build up epitaxy capacity in the mainland, which should be more than $1.5 billion.

Currently there are ~110 companies with epitaxy capacity. Many will likely disappear! The current excess MOCVD capacity will be fully absorbed by mid-2014. The MOCVD reactor installation will resume mid-late 2013. The global MOCVD utilization rate is 61 percent. There is wide variability between leaders and tier 2 players in China. The Q4-2012 LED sapphire consumption was worth 3.9 million two inch equivalent per month.
As for companies in sapphire wafer, 130+ companies are involved in the sapphire substrate (established or development stage). Less than 30 currently are deriving meaningful revenue from LED substrates. The capacity is ~80 percent higher than demand. It could get worse in 2013! Prices are likely to remain low. Many new entrants will disappear, and others will scale back. A few will succeed.

Conditions for survival through 2013 include, having a lot of cash, be qualified in supply chain, achieve <$4/mm cost (2” basis), and serving other market could be a plus.

As for wafer price trends, the finished wafers following similar trends. The 6” is now offered for <$200, but price can vary significantly based on specifications. There are said to be simulated 4” core cost structure for various manufacturers.

Sapphire for LED market
There are too many new entrants with unrealistic capacity plans. Most underestimated the technical challenges! Prices are likely to remain low through 2013. Many new entrants will likely fail in 2013‐2014. Vertical integration seems desirable in long term to avoid margin stacking.

Silicon on sapphire (SOS) market
The SOS market is essentially driven by one company: Peregrine Semiconductor. There is strong differentiation and patent portfolio. SOS is well positioned in term of performance, footprint and cost of ownership. However, other technologies keep improving (SOI, GaAs). There are also IP infringement lawsuits against RFMD, Motorola Mobility, HTC, etc.

There are strong cell phone industry macro-trends such as LTE, carrier aggregation, diversity/MIMO, etc. Currently, Peregrine has ~35 percent market share for antenna switches in smartphones. This could increase to >50 percent.

Tunable modules could boost performance while reducing footprint and energy consumption. Other players on tunable modules include Paratek (now RIM) has a different tunable capacitor technology. It is based on a dielectric material: barium strontium titanate (BST). In high volume production for mobile phone antenna tuner applications via two licensees. It is already in some Samsung Galaxy S2s, 3 LTE phones and tablets.
There is strong momentum for SOS. Digitally tuned capacitor (DTC) and power amplifier (PA) penetration will be from 2013 and ongoing.

Sapphire for non-substrate apps
As cost come down, more and more applications open up to sapphire. Camera lens cover is already a reality in iPhone 5. Other OEM are said to be investigating. There could be display covers on some high end phones. However, Gorilla glass, which is over $3/unit today, is totally unrealistic for sapphire.

Year 2013 looks to have a depressed short term outlook for LEDs. Many new entrants underestimate the technical challenge. They need to look at the  technical expertise an opportunity for differentiation! There could be an emergence of three to five strong leaders in 2013-14, plus, a few regional players. Post 2014, cell phone display could transform the industry!

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