LED makers enjoy bright prospects

LED makers in Taiwan are expanding production as multiple new markets open up for the tiny light sources.

Analysts report that LED backlights for phones and LCD screens are still showing increasing demand, and energy efficient LED arrays as a replacement for traditional light bulbs are on the horizon.

LED backlights are currently the main growth driver for Taiwanese LED makers. LED backlights are placed behind LCD screens in mobile phones and other portable products to illuminate the screen.

They are gradually replacing cold cathode fluorescent lights in this role, as they use significantly less power, and are smaller and lighter and more durable.

Small devices typically use white LEDs, although larger screens often use a combination of red, blue and green to maintain colour consistency, a major challenge for LED backlight makers.

Taiwanese vendors will expand their share of the global market for LEDs used in mobile handsets this year, and are looking ahead to new markets for their products, according to analysts from KGI Securities.

Sales of LED and other non-traditional backlights will more than triple each year, jumping from below one per cent of the backlight market to 3.5 per cent in 2007, and almost nine per cent in 2008, according to US-based research firm DisplaySearch.

The next major growth driver is in larger LCD screens for portable devices, and eventually for domestic LCD TVs.

Even in fixed applications, where power is not a critical issue, LED backlights can save space and reduce product operating temperature.

Among the largest new markets for LED backlights are 7in LCD panels used in products such as ultra mobile PCs and small tablet PCs, portable video players and in-car PCs.

Manufacturers have cited high power consumption due to the lack of LED backlights as a key factor in the lukewarm reception of Microsoft's handheld ultra mobile PC concept. 

"While 7in panel application is progressing fast, the notebook and TV [LED backlight] segments have yet to overcome design and cost problems," said analysts Yvonne Lu and Andrew Lin of KGI Securities in a research briefing.

The booming backlight market is supercharging revenue growth for LED vendors. For example, Epistar, one of Taiwan's largest LED makers, will double its sales to around US$210 million this year, KGI predicts. 

This should be followed by a further increase of over 40 per cent to top US$280 million in 2007.

Taiwan's major LED product vendors are seeking financing to expand capacity as fast as possible. Among them is Epistar customer and affiliate Everlight, which is offering almost $50m worth of five-year convertible bonds to investors. 

However, observers note that Taiwanese LED makers are hampered by a lack of basic technology patents, which are controlled by Japanese, US and European firms.

"Everlight lacks control of a key technology and has relied on patents issued from Munich-based Osram GmbH for white LEDs," noted local credit rating agency Taiwan Ratings, in a recent assessment of the firm. 

"Everlight's weak internal technology resources leave the company in a relatively vulnerable position to cope with rapid technology changes in the industry."

Despite these cautionary notes, Taiwan Ratings had a generally positive outlook on the manufacturer, awarding it a stable long term corporate credit rating.

"Everlight's main competitive advantage is its low cost, underpinned by good operating efficiency, low cost production in Taiwan and China, improving product technology, and secure LED chip supply through Epistar Corporation," the firm reported.

The holy grail for white LEDs, and firms like Everlight and Epistar, is the illumination market. Eventually, super-bright white LEDs and LED arrays are expected to switch off traditional light bulbs for good.

However that is still at least three to four years in the future, observers believe. "Illumination market LED use still has a long way to go," said Lu and Lin.

"Initially, LED will be used in the auxiliary illumination market, but will not be applied in general illumination until 2010."

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