The global LED market value recorded a CAGR (compound annual growth rate) of 20-30% during 2010-2012, but most of Taiwan-based LED makers did not see substantial growth in revenues, and this was possibly because they worked separately in upstream LED chipmaking, midstream packaging and downstream applications, said chairman Frank Chien for Taiwan-based LED epitaxial wafer and chip maker Formosa Epitaxy. Viewing that the LED backlight market is approaching saturation and will begin to shrink as soon as 2014 while LED lighting is taking off in 2013, Taiwan-based LED chip makers and packaging houses as well as end-use product makers should be vertically integrated to enhance competitiveness in the global LED lighting market, Chien said.
Global market value for LED chips will grow from an estimated US$1.95 billion in 2011 to US$4.768 billion in 2015 at a CAGR of 25%, while LED packaging will increase from US$8.271 billion to US$19.461 billion at a CAGR of 24%, Chien cited survey companies' forecast as indicting. However, market value for LED backlights is on the decline because the number of LED chips used in the same type of device is decreasing due to continually increased brightness of LED chips and average selling prices have continually dropped, Chien indicated. In contrast, global demand for LED lighting will hike from US$6.078 billion in 2011 to US$30.9 billion in 2015 and further to US$46.1 billion in 2017, equivalent to a CAGR of about 50%, Chien noted.
The fast growing global demand for LED lighting poses serious challenge to Taiwan-based LED makers, for they have production and innovation capabilities but lack retail channels which are crucial to marketing of LED lighting products, Chien said.
Cree extended from LED chip production to packaging through acquiring Hong Kong-based LED COTCO in 2007 and has further stepped into LED lighting products. Cree's revenues from LED chips have somewhat shrunk since 2010 but those from LED lighting modules and products have increased significantly, Chien said.
Philips saw the proportion of its lighting revenues for LED lighting rise from 13% in 2010 to 16% in 2011 and 22% in 2012, and the proportion in 2013 is expected to rise to 30% or higher, Chien indicated. Meanwhile, Philips has kept merging with or setting up joint ventures with LED lighting companies to expand its LED lighting business operation, such as acquisition of Optimum Lighting in 2011 and Indal Outdoor Lighting in 2012, Chien said.
Cree and Philips are two examples of international vendors' tapping the global LED lighting market through vertical integration, Chien said. For the LED industry, integration can be of four types: the first is horizontal integration among fellow makers to increase market shares; the second is for LED chip makers to acquire LED packaging houses or LED lighting product makers to increase sale of LED chips such as the Cree case; the third is strategic cooperation among LED chip makers, packagers and lighting product makers/vendors; the fourth is for LED chip makers to form strategic alliance with own-brand LED lighting vendors, Chien indicated.
For Taiwan-based LED makers, the fourth type of integration is especially worth considering, Chien suggested. International vendors with well-known global brands have not yet dominated all of the regional markets, and therefore Taiwan-based makers can seek strategic alliance with vendors who operate well-known regional brands, Chien said.
