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Next fab wave: LEDs

April 08, 2010 // Mark LaPedus

Next fab wave: LEDs

Needless to say, fewer semiconductor fabs are being built these days, and even the solar market has cooled a bit. So what's the next big thing for fabs? Try LEDs.

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Rising LED demand for lighting apps and TVs has semiconductor titans like Samsung and TSMC jumping into the market, and is fueling sales growth for equipment makers from Aixtron to Veeco. An investment banking firm has just upgraded its forecast for Veeco, and Applied Materials Inc. is looking to enter the LED tool market.

Predictably, lead times for LED gear, such as metal-organic chemical-vapor (MOCVD) deposition systems, are already extending and "may bring uncertainty to capacity expansion plans," Clark Tseng, an analyst with SEMI Taiwan, states in a new report.

On the bright side, the LED market entry of chip giants such as Samsung Electronics Co. Ltd. and foundry leader Taiwan Semiconductor Manufacturing Co. "is good news for the consumer," said Dean Freeman, an analyst with Gartner Inc.

"Although the LED industry has existed for many years, LEDs are in their infancy as a commodity product; as a result, costs are extremely high. The high costs are due to inefficiencies in the process, small scale and a lack of industry standards," Freeman said. "With two of the leading semiconductor manufacturers now bringing their size and manufacturing science to the LED market, it is likely LED pricing will begin to decline, thus making lighting and other LED products more affordable for the consumer and potentially accelerating adoption."

"LED expansion and new facility projects have mushroomed all over the world," SEMI's Tseng said. "Even in the downturn of 2009, the SEMI opto/LED fab database recorded seven new LED fabs coming online. And we expect to see at least five new opto/LED fabs in 2010 and six more in 2011, respectively. Most of these new projects are located in China and Taiwan. There will be new lines coming from Japan, India and Russia as well."

SEMI tracks 91 LED fabs and 89 opto-related plants worldwide. Its database shows Japan as having the largest number of opto/LED fabs. The regions with the most LED fabs are Taiwan (40 percent), Japan (23 percent) and China (22 percent), according to SEMI.

"With all these new LED investments emerging, leading player Nichia [of Japan] is poised to maintain its leadership in LED industry," Tseng said. "Nichia announced plans to quadruple their LED production with the setup of its new fab, which is currently under construction and is expected to come on stream in early 2012."

In South Korea, Samsung is the one to watch. Samsung LED reportedly "plans further expansion by installing an additional 50 MOCVD tools, which would bring its total to an estimated 150 MOCVD tools by year end," Tseng said. "The strong internal demand for LED-backlit modules is propelling their fastest-ever LED capacity buildup plan."

Taiwan is also moving full speed ahead in LEDs. "While Taiwan enjoys the largest-capacity share of LED manufacturing, Epistar and many other Taiwanese LED epitaxy/chip makers still plan to expand their capacity this year to meet the rising demand," said Tseng. "This demand, according to industry sources, is 20 to 30 percent above existing LED supply. New MOCVD tool additions this year in Taiwan are expected to exceed 100 units."

Taiwan's LCD players are among the companies expanding into LEDs. "AU Optronics' LED subsidiary, Lexstar, is planning a fast expansion this year after its recent merger with Lighthouse, an LED packaging company also under AUO," the SEMI analyst said. "New Chimei Innolux Corp. will continue their investment along the LED supply chain, where they already have Chi Mei Lighting Technology, for epitaxy, and GIO Opto and Advanced Optoelectronic Technology, for packaging."

But for now all eyes are on a new LED player in Taiwan: Chip foundry giant TSMC, which recently held a groundbreaking ceremony for an R&D center and wafer fab to develop and manufacture LEDs for lighting

The TSMC fab is located in Hsinchu Science Park and will be built in two phases. Investment in plant and equipment for the first phase is expected to reach NT$5.5 billion ($170 million), and equipment move-in is scheduled for the fourth quarter, with volume production in the first quarter of 2011.

"The LED facility is initially expected to have between 10 and 12 MOCVD reactors, which would be capable of producing more than a billion LED dice per year," said Gartner's Freeman. "However, the LED market is not without pitfalls. There is significant know-how required to build an LED, and some of the IP is tightly held.

"TSMC will need to attract the right engineers, as well as determine which IP is needed to successfully build this new business. If it is successful, TSMC's size and manufacturing know-how give it the potential to quickly become a major player in the LED space."

Meanwhile, chip foundry rival United Microelectronics Corp. (UMC) and Taiwan-based LED supplier Epistar Corp. have formed an LED chip joint venture in China.

Tool makers such as Aixtron and Veeco, which both make the MOCVD reactors that are critical to LED production, are seeing a new wave of growth.

"We are increasing our 2010 estimate for MOCVD tool shipments at Veeco from 210 tools to 221. Our estimates for 2011 go from 233 tools to 241," Daniel Amir, an analyst at Lazard Capital Markets, said in a recently released report. "We believe Veeco's order momentum is increasing in China ([from]10 players, mainly Sanan and Rainbow), Korea (Samsung and LG Innotek), Taiwan (AUO, Huga, Arima) and North America (Lumileds and Osram)."

The firm raised its estimates for Veeco's first quarter "to revenue of $166 million and EPS [earnings per share] of $0.48 from $164 million and $0.46 previously," Amir said.

One of the big drivers is LED TVs. "The LED TV rollout is beginning for many TV vendors that are entering the market. There has been a bevy of announcements relating to TV launches in time for the World Cup in June," said Amir.

"B&O [Bang & Olufsen] and AOC [Admiral Overseas Corp.] announced their LED TV lineups. We believe that announcements out of these and other fringe TV brands exemplify the expanding reach of LED in LCD TVs," he said.

Amir said Lazar believes "the only gating factor to LED penetration in LCD TVs is supply, which has been constrained and will continue to be so until new capacity reaches full productiona process that can take six months or more from the time of a tool delivery."


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