January 5, 2012 — Barclays Capital forecasts 2012 as a "subdued year" for the light-emitting diode (LED) industry, plagued by overcapacity, average selling price (ASP) pressures, and only gradual growth in LED lighting demand.
Metal organic chemical vapor deposition (MOCVD) tool demand will decrease from around 700 systems in 2011 to about 400 in 2012 and 440 in 2013. Depite the lack of an overall MOCVD tool replacement cycle, there is some economic support for pulling out very early generation, fully depreciated MOCVD tools (e.g. Veeco’s E-300 and K-300, Aixtron’s CCS and G3) and replacing them with the latest Maxbrights and CRIUS II-XL, Barclays predicts, adding that makers in Korea and Taiwan have been seen making this switch.
Tool utilization levels at Korean fabs are hovering between 50 and 60%. Utilization in Taiwan facilities is between 50 and 70%; Chinese LED makers are using less than 30% of capacity, Barclays estimates. Utilization levels at Tier 1 LED makers — Cree, OSRAM, and Lumileds — appear to be higher at ~70-80%.
Top 10 LED themes of 2012, from Barclays Capital:
1) MOCVD tool upgrades could add an incremental revenue stream for equipment suppliers, despite weak capital expenditures from LED makers. The revenue opportunity for upgrades ranges from ~$200K for simple upgrades to ~$1.5M if the customer is reconfiguring the tool and changing the gas chambers.
2) MOCVD tool replacement is unlikely to grow. Gradual improvements in LED fab yields, coupled with slow-growing end-market demand, will delay large-scale expansions. Used/unpackaged tools remain unattractive to Tier 1 and 2 LED makers, though some MOCVD equipment vendors will work with key customers on refurbishing such tools, pulling out contaminated parts, upgrading them, and again placing them under warranty.
3) Gallium nitride (GaN)/Silicon carbide (SiC) power electronics will be a small, growing application for MOCVD equipment. STMicroelectronics (STM), Infineon, Analog Devices and other analog names are buying tools from AIXTRON and Veeco. See also: Power semiconductors to see modest growth in 2012
4) Despite entries from Applied Materials (AMAT counts Samsung, Silan, Toshiba, TSMC, Micron, and IMEC among its MOCVD customers), Chinese companies, and others, the main MOCVD tool suppliers will remain AIXTRON and Veeco, with 90% of the MOCVD market. These 2 will see a boost from the upgrades mentionned in #1.
5) M&A potential exists for the tool makers, though Barclays suggests AMAT is not able to swallow up any large LED tool providers due to its semiconductor-space acquisition, VSEA, of 2011.
6) Incandescent bulb bans will be instated in the US and Europe, though this is not likely to drive 2012 demand, given the available stock of incandescents remaining. LED bulbs will really catch on in Japan.
7) LED component/luminaire price declines will make the payback period for non-residential projects much more attractive. Barclays estimates that LED chip/component ASPs declined 30-40% in 2011, depending on the applications.
8) China LED demand growth will likely fall in-line with the overall market, despite possible government subsidies. There is no sign yet of the speculated 8B Yuan subsidy from the central government being deployed.
9) LED lighting penetration will steadily ramp, with the associated revenue growth for LED component suppliers being more muted due to ASP pressure.
10) China will continue to lag on the LED manufacturing quality front; Korea will make more noticeable advances. The quality of LED output from Chinese players continues to trail the Tier 1 LED makers by several years. Output from the Korean LED suppliers — Samsung, Seoul Semi, LG Innotek — has been improving, reports Barclays. Given Samsung and LG’s vertical integration and aggressive push downstream, they could be meaningful threats to the traditional Tier 1 LED makers Cree, Osram, Nichia, and Lumileds.