The LED chip market continues to experience oversupply problems.However,in first-half 2012,most tier-one LED firms in Taiwan were operating with full capacity,which has led to the possibility of expanding capacities.LED chipmaker Epistar recently announced the acquisition of Huga Optotech through share swaps.The acquisition will turn Huga into a fully-owned subsidiary of Epistar.In addition,Epistar plans to increase the number of blue LED MOCVD equipment to 210 units.At the same time,a China-based LED firms has been aiming at Epistar's market share.While Epistar plans to expand capacity,the low-and medium-power LED market continues to fall into price competition.
Epistar announced strategic alliance with Huga in May 2010 and acquired more than 50%of Huga's shares through issuance of new shares by end of the same year.In 2011,market demand suddenly collapsed.In second-quarter 2011,Epistar reported loss from investments of NT$130 million(US$4.33 million)and by the fourth quarter,the loss increased to NT$724 million.The goal for Epistar at the time was to think of ways to reduce losses.
Epistar has been issuing orders to Huga trying to increase capacity utilization rates,but effects have been slow.By acquiring Huga,Epistar can increase the firm's efficiency by distributing capacities.The acquisition will allow Epistar to add monthly capacity of150,000 units of epitaxial wafer.According to Digitimes Research,the acquisition will help Epistar to continue dominating the market.However,the market believes Huga is unlikely to return to profitability in 2012.This means in the short-term,Epistar will have to suffer increasing losses.
Competition has been increasing for Epistar as China-based LED chipmaker Sanan enters Taiwan's LED market in 2012.Despite relatively slow in production speed and limited funds,the firm has been adopting price competition and aiming at Epistar.Sanan's 2011 total revenues were CNY1.7 billion(US$267 million)while Epistar reported 2011 total revenues of NT$17.7 billion.In terms of 2011 revenues,Epistar is about twice as big as Sanan.As for capacity,the acquisition of Huga will allow Epistar to have relatively the same number of units of MOCVD equipment as Sanan.
According to studies,in 2012,Sanan's sales in Taiwan may exceed CNY100 million and has been posing as a threat to Epistar's entry-level and medium-tier products.In addition,Huga mainly focuses on low-and medium-power LED chips.Furthermore,Sanan has strong support from China's government,which means the firm is a noticeable competitor to Taiwan-based peers.
With the acquisition of Huga,and other plants in China that are currently under construction,the number of newly-added equipment in Epistar will reach 110 units by 2013.Epistar will have to find customers and make efficient use of these capacities.
Optimistically,Epistar will continue to be the second largest LED chipmaker in the world.On the other hand,Epistar may have to engage in price competitions to fend off competitors such as Sanan.To get rid of price competitions,Epistar need to put in more effort to widen the gap of product qualities.
