LEDinside: Cree, San'an JV Will Impact Asian LED Supply Chain

U.S. LED maker Cree Inc. on Tuesday reported a fiscal third-quarter loss that missed expectations. Shares of Cree further plunged 11% on Wednesday. Cree also announced that it is forming a joint venture with San’an Optoelectronics Co., Ltd., China’s largest maker of LED epitaxial wafers and chips, to produce and deliver to market high-performing, mid-power lighting class LED packaged products. The news caused quite a stir in the LED industry.

LEDinside estimates that, after losing market share in the mid-power LED segment due to a lack of competitive products, Cree is eager to tap into this market to secure its leading position. The move will also lead to changes in patent cross-license agreements between the world’s top five LED manufacturers, which will further impact members in the Asian LED supply chain. 

Under the agreement, Cree will own 51 percent of the joint venture, while San’an will own 49 percent. The new joint venture, Cree Venture LED Company, Ltd., will be located in Hong Kong and focus on making mid-power packaged LED components. This offers an opportunity for Cree to expand its LED portfolio, while San’an can utilize Cree’s comprehensive sales channel to boost its mid-power business. More importantly, Cree will receive royalties from the joint venture on its patent portfolio. 

Cree’s decision is indeed driven by the continuous growth in the mid-power LED market. In addition, demand for high-power LED products increases at a much slower pace than that for mid-power ones. According to LEDinside’s statistic, mid-power LEDs have become a mainstream product in the LED package sector, showing strong growth in the market over the past three years. It is projected that mid-power LEDs will comprise 47% of the global lighting market in 2017. Also, the market value for LED chips in general lighting will reach US$6.127 billion in 2017. Apart from mid-power LEDs, filament LEDs, COB LEDs also experience strong growth. 

Moreover, LEDinside learned that Cree and San’an have been discussing potential cooperation for quite some time. However, after the U.S. blocked Philips' sale of Lumileds to Asian buyers, it is highly unlikely that a similar deal can get the green light. In addition, Cree’s SiC (silicon carbide) technology is widely used in military and aerospace applications, which can raise national security concerns. 

Thus, LEDinside believes forming a joint venture is the best option for Cree and San’an. With this agreement, San’an can leverage Cree’s patent portfolio to extend its international reach, while Cree can ramp up production capacity and better serve the broader needs of the LED market, creating a win-win situation. Considering the tightened regulations and a more cautious attitude toward cross-border mergers and acquisitions, a joint venture is likely to be viewed more favorably by governments.

However, Cree already has various Asian OEMs for making LED chips and packages. The new joint venture is expected to have an impact on these Asian partners as well.  

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