Exclusive Interview with VEECO’s General Manager of Greater China - Justin Wang: Phenomenal Growth Momentum of the Chinese Market in the Coming Year

Widespread application of LED backlight in LCDs has led to a short supply of upstream chips in 2009. As a result, chipmakers are actively expanding production capacity and making large-scale equipment purchases, witnessing industry-wide prosperity.

LEDinside recently conducted an exclusive interview with Justin K. Wang, General Manager of Greater China at VEECO Instruments Inc, to gain in-depth knowledge about the company’s future plans and LED market trends in the coming year. Having had extensive experience in international corporations including Intel and Tokyo Electron, Mr. Wang brought new perspectives to the LED industry.

VEECO’s Development Focuses on LED & Solar Equipment

VEECO is a world-renowned provider of metrology and process equipment solutions, with three major business segments: LED & Solar Equipment, Data Storage Equipment and Metrology Equipment. Due to development of the green energy industry driven by popularization of energy saving and carbon reduction concepts, LED & Solar division has become VEECO’s main source of revenue, accounting for 44% of its 2009 2Q earnings.

Strengthening after-sale services and customer relationship

In an effort to boost its competitiveness against MOCVD equipment giant AIXTRON, Wang pointed out that VEECO currently holds 20-23% market share in global MOCVD supply, with around 80 percent of total shipment centered in Asian regions. In order to narrow the gap with its competitor, Wang highlighted the improvements in after-sale services after he took post. In order to enhance satisfaction and confidence in its products, VEECO’s new software engineers will visit its clients to solve any program problems they may encounter in equipment operation. In doing so, this helps to strengthen the communication with its clients, and feedbacks from clients will also be factored into the R&D of new equipments. In addition, a new facility has been established in Singapore for more convenient service to Asia clients.

LED backlight to stand the test; LED lighting grows steadily

Since LED backlit TVs took the world by storm, LED backlight has jumped into the limelight and become the strongest driver behind the growth of the LED industry. According to Wang, notebooks and netbooks will inevitably switch to LED backlight because both segments pursue energy efficiency and ultra slimness. However, opinions still differ on the adoption of LED backlight in TVs. Under current economic downturn, price is still a primary factor when consumers make their purchase decisions; therefore, whether the strong demand for LED TV is an indication of its widespread acceptance or simply a short term fad, it remains to be seen in the sales figures during the Christmas holidays.

LED lighting applications, on the other hand, is a steadily growing segment. Many countries have enforced policies that regulate the use of fluorescent bulbs, which creates tremendous domestic demand in the LED industry. Among others, Chinese market has been the focus because of the LED Lighting Program, 10,000 lights in 10 Cities. As an important project of LED lighting demonstration constructions in China, the program aims to install a million LED lighting fixtures in 21 cities in the country, and is expected to boost the growth of Chinese LED manufacturers.

The orders increased by over 35% this year; the growth momentum of Chinese market in the coming year should not be underestimated

As a LED manufacturing equipment supplier, VEECO witnessed over 35% order growth this year, reflecting the boom in the LED industry. Wang indicated that the current growth momentum, with demand for LED TV as the core driver, is expected to extend till the latter half of 2010. The orders from China will take effect as early as the beginning of next year, he added. Meanwhile, Taiwanese clients are relatively conservative in their strategy for 2010, though the whole industry appears fairly healthy, he said.

Among VEECO’s core products, the K465 can produce 45 2” wafers per run, and the 4 inch, which will be the mainstream next year, can produce 12 wafers per run. The migration from 2” to 4” configuration is gated by the sapphire cost, 4 inch sapphire is still priced at 7 times that of the 2 inch sapphire. As soon as the price gap narrows to less than 5 times, the 4 inch equipment configuration will likely replace current 2 inch ones to become the mainstream of the market.

According to Wang, despite the rapid growth of LED applications in backlight and lighting, from the perspective of long-term, renewable energy, the next wave of growth in LED industry will involve solar energy.

Follow the semiconductor business model to improve MTBF and reduce COO for improving production value

The future development directions of MOCVD equipment will mirror the business model in the semiconductor segment, Wang predicted, and follow the criteria below:

1. Prolong MTBF (Mean Time Before Failure): the standard MTBF in semiconductor segments is 250 hours, (the equipment is down about once in ten days), while current LED equipment is down on once a day or every other day, causing trouble to manufacturers. Therefore, the issue of increasing tool uptime is important. Thus the MTBF is one of the indicators in determining the tool’s maturity for production.

2. Prolong MTBC (Mean Time Between Clean): prolonging the MTBC will extend the operation uptime and improve the stability of the equipment. Currently, the MTBC of VEECO’s equipment has reached 100 production cycles, which is about one clean per month.

3. Reduce MTTR (Mean Time To Repair): If a problem cannot be solved within 7 minutes, it would be regarded as an equipment malfunction. In order to minimize its impact on production efficiency, goal is to solve the malfunction of the equipment in 4 hours. Therefore, expert system and certain artificial intelligence will be a incorporated in the future equipment designs.

4. Reduce COO (Cost Of Ownership): Currently, in addition to the cost of the MOCVD equipment, the maintenance cost of the equipment accounts for 30-40% of the overall cost of ownership. In order to reduce the maintenance cost, the use of components certificated in Taiwan rather than imported products should be a trend in the future.

As the main function of LED is light emission, the application of LED is very diversified Wang said. Therefore, he believes this segment will eventually become a mature industry as the semiconductor industry.

Insights from LEDinside

2009 and 2010 will undoubtedly be years of prosperity for upstream equipment providers. However, the robust market demand has led to delays in equipment delivery, which an issue of concern among LED manufacturers. Considering that the lead time is stretched to 6 months, LEDinside estimates that the strained supply of LED chips would not be eased till early 2010.

Looking at the upstream MOCVD market, although VEECO’s current market share is behind that of leading German company AIXTRON, the tight equipment supply this year has helped VEECO secure orders in Chinese and Korean markets, narrowing the gap with AIXTRON. On the other hand, the promising opportunities in the LED market have attracted global leading equipment providers, such as Applied Materials, to enter the MOCVD equipment segment. Therefore, the bottleneck in LED chip production capability should not be a cause of concern in the long run.

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