Due to falling LED chip prices, market observers believe Taiwan-based LED chipmaker Epistar will need to rely on AlGaInP LED sales to increase the firm's profit margin while it is unlikely for Formosa Epitaxy to return to profitability until third-quarter 2013.
After the acquisition of Huga Optotech in 2013, Epistar's capacity will increase by 30%. Despite the fact that new orders for lighting may fill up the capacity, the industry is likely to stay in oversupply. The low profit margin for blue LEDs and the effect of the acquisition will determine Epistar's 2013 performance.
Epistar has the world's largest AlGaInP LED capacity and according to market observers, Epistar's sales of AlGaInP LED accounted for 35% of total 2012 sales mainly for outdoor billboard and lighting applications. Market observers added that AlGaInP LED prices have been relatively stable and the gross margin has been healthy, and hence the sales of AlGaInP LED are likely to help Epistar's profit growth in 2013.
Market observers added that Epistar will need to restructure Huga's capacity before the acquisition, and therefore the firm is likely to see profits in the second quarter of 2013.
Formosa Epitaxy has been focused on blue LEDs and due to rapid price fall, the firm has been suffering from price competition. However, due to the cooperation with China-based Sanan Optoelectronics, the firm has obtained orders from China-based LED packaging houses to supply backlight products for large-size TVs. In addition, Formosa Epitaxy has also obtained lighting OEM orders from Europe-, US- and Japan-based firms through its Japan-based strategic alliance partner, Mitsui & Co. Formosa Epitaxy believes LED lighting revenues will account for 30% of total revenues in 2013.
Market observers believe due to rapid fall of blue LED prices, it is unlikely for Formosa Epitaxy to see profits in the first half of 2013. The firm is likely to return to profitability in the third quarter of 2013, said the observers.
