Despite a major surplus in the LED market, top suppliers are increasing their capital spending and production because of government incentives and in order to cash in on an expected boom in the lighting business, according to research firm IHS.
Global shipments of metal organic chemical vapor-deposition (MOCVD) equipment, tools that are essential for LED manufacturing, are expected to rise by 17% in 2013, according to IHS senior analyst Alice Tao. This will be the first annual growth for the MOCVD market since 2011, and will represent a major turnaround from the 70% plunge of 2012.
At the same time that growth is being projected, factory utilization rates are increasing for major LED vendors in Asia. In South Korea, for instance, utilization rose to about 75% in the second quarter, up from 60% in 2012. Meanwhile, utilization for some Taiwan and China vendors reached 90% in the second quarter of 2013, the firm said.
The spending and boosting of utilization rates are occurring despite a glut of supply that has plagued the market since 2010. The surplus started when LED suppliers made major investments in capacity in 2010 and 2011, stemming from the efforts of local governments in China to subsidize MOCVD purchasing. Governments are helping fund the procurement of MOCVD by up to 80% of the total price of the equipment.
Many of these vendors also are increasing production in the belief that they can capitalize on upcoming fast growth in the market for LEDs used in lighting.
"The global market for LED lighting is expected to double during the next three years," noted Tao. "The prospect of this massive growth is irresistible to LED suppliers who don't want to be caught short of supply during this expected boom. But given the rising investments in manufacturing equipment, the acute LED oversupply already in existence is expected to continue through 2016."
The supply of LEDs, measured in terms of manufactured die, is expected to exceed demand by 69% in 2013 and in 2014. The glut will decline slightly to 61% in 2015 and then to 40% in 2016, IHS said.
