LED Industry’s Major Movers and Shakers in 2014

In late 2013, LEDinside team forecasted major company restructure market trends will continue throughout the year. The trend has been consistent in 2014, as more lighting manufacturers take necessary restructure measures to remain competitive in the market, such as Philips, Epistar or NVC Lighting. Top players restructure decisions in the fast changing LED industry landscape further reinforces the trend that large companies will become even bigger and influential, while smaller manufacturers will find it increasingly difficult to compete.

Below is a recap of some of the major company restructures, acquisitions, partnerships and bankruptcies in 2014.

Philips spin-off lighting and LED component businesses

A couple of major restructures in the industry were surprising this year including Philips decision to separate its lighting businesses from the parent company. Philips announced the spin-off of its LED component business Philips Lumileds and automotive lighting department into a stand-alone company on June 30, 2014. Shortly after, the company split with its traditional lighting luminaire business, which the company has operated for over a century. The Dutch group’s development focus has since shifted towards the more profitable medical business sector.

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Meanwhile, the new Philips Lumileds and automotive business will operate under a separate brand in 2015, and complete bourse listing by April 2015. The new company will be focused on LED components and automotive lighting products.

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LEDinside analyst Figo Wang believes Philips Lumileds decision to separate its lighting business offers more management flexibility, and will enable the new company to acquire better funding resources. While Roger Chu, Research Director of LEDinside noted Philips strategy is a response to the increasing challenges from the rise of Chinese LED manufacturers.

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Epistar expands production capacity with FOREPI acquisition

Epistar has become the world’s leading LED chip manufacturer in terms of production capacity, and has the most number of MOCVDs after merging with FOREPI. Epistar and FOREPI’s announcement on June 30, 2014 came as a surprise because there were few signs in the industry to suggest such developments. Epistar acquired FOREPI by issuing 117 million new shares at a swap ratio of one to 3.448 shares. Taiwan’s second largest LED manufacturer, FOREPI, has since been delisted from the TAIEX. Since September 2014, FOREPI has been mostly manufacturing Epistar OEM orders, with a large portion of its factory production capacity allocated to OEM orders.

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After the merge, Epistar’s MOCVD equipments are well over 500, surpassing Chinese rival San’an Opto’s 383 machines. As FOREPI’s second largest shareholder San’an Opto has become an Epistar shareholder with a 3.1% stake in the company, after converting its 19.77% stake in FOREPI for Epistar shares. However, San’an Opto’s share in the company is not enough to earn it a seat at Epistar’s board. Due to Taiwan’s financial regulations, San’an Opto will be unable to interfere with Epistar management, and banned from headhunting talent from Epistar.

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Epistar has been actively expanding its production capacity in 2014 to meet growing client demands. Prior to its merge with FOREPI, the top Taiwanese LED manufacturer also acquired the defunct Optodisc Factory in late June to expand AlInGaP LED production. The top Taiwanese LED player business strategy this year is one that clearly points towards large scale manufacturing to bring down costs, and acquire advantages in economics of scale. The Taiwanese LED industry has also become more concentrated as a result.

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Cree moves into low/mid power LED with Lextar investment

U.S. LED manufacturer Cree, a traditional high-power LED manufacturer, has finally entered the low and mid-power LED manufacturing with its investment in Taiwanese LED manufacturer Lextar. The top U.S. LED chip manufacturer invested a total of NT $83 million to purchase Lextar stocks at NT$ 30 per share, which will give Cree a 13% stake in the company. The two companies are expected to complete the investment arrangements by 2015.

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“The trend in the industry is shifting towards low or mid power LEDs with higher Cost/Performance ratio (C/P),” explained Chu. “Cree is very aware of this trend and has allocated OEM orders to Taiwanese manufacturers.” LEDinside analysts believe Cree’s decision to invest in Lextar is a strategy to cope with rising market competition from Chinese manufacturers.

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GTAT’s abrupt bankruptcy shocks industry

Perhaps, the most unexpected announcement of the year was GTAT’s decision to file for Chapter 11 bankruptcy protection from U.S. courts on Oct. 6, 2014. Despite having approximately US $85 million of cash, the company went ahead with the bankruptcy filing. The announcement sent tremors throughout the industry, with few financial analysts even seeing it coming. Reports indicated Apple pressured GTAT to pay back loans earlier than scheduled, and delayed paying the last $139 million instalment to the sapphire manufacturer were cited as some of the reasons leading to the bankruptcy.

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GTAT appeared to have a bright future ahead with Apple’s support after signing an exclusive 5-year sapphire supplier deals, which is believed to be worth $578 million in November 2013. GTAT was rumored to becoming a sapphire supplier for Apple iWatch, iPhones and tablets, but what appeared to be a lucrative deal ended being “oppressive” and “burdensome”, according to GTAT CEO Thomas Gutierrez. The unveiling of company documents at the bankruptcy court later suggested Apple had repeatedly changed the sapphire specs, making it difficult for GTAT to meet the agreed production volume targets.

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The company shares lost 92% of its value and plunged to $0.80 just one day after the announcement, eventually GTAT was delisted from NASDAQ on Oct. 16, 2014. The company is now trading on pink sheets. To pay off the remaining US $ 429 million loans to Apple, GTAT will need to sell 1,738 sapphire furnaces out of the 2,036 furnaces. The company’s furnaces are valued at $200,000 to $290,000. Despite laying off 890 employees from its Arizona plant, the ailing sapphire manufacturer will continue operations to meet client orders.

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GTAT’s situation highlights the difficulties many sapphire manufacturers face, as the novel material aims to find a larger market application. Another U.S. sapphire manufacturer Rubicon also reported revenues declined by $6.5 million during third quarter this year, with a large $5.5 million attributed to lower two-inch core sales. The sapphire industry continues to be one that is struggling to find its place in the market.

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ETI and NVC Lighting’s messy merge

Top Chinese LED manufacturers Elech-Tech International (ETI) and NVC Lighting’s merge has been so dramatic, it would have made the perfect script for a “business gangster” soap opera. NVC Lighting’s former CEO Wu Changjiang’s iron grip on the company’s leadership position, and refusal to give up power even after being ousted by the company board led to a series of conflicts throughout August 2014 and gave competitors a chance to grab the company’s distributors.

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What was supposed to be a peaceful transition in July turned ugly in early August 2014, Wu refused to abide to the board’s decision to remove him from CEO position, and appointing NVC Lighting CEO Wang Donglei as the new successor. Wu’s supporters barricaded office doors to prevent Wang’s employees from obtaining crucial documents and company seals, leading to a violent conflict between the two sides on Aug. 11, 2014. The incident ended with the hospitalization of three of Wu’s staff. This was just the start of several other incidents headed by Wu to retain power and influence, which some Chinese reports noted was closely related to China’s corporate culture where the founder often is viewed as emperor of the company, and board members have little influence.

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Despite having less than 2% stake in the company he founded, Wu instructed factory workers at its Wanzhou plant to secretly ship and sell products thorough abnormal sales channels in mid-September, which once again resulted in conflicts between Wu and Wang supporters. Wu’s misappropriation of company assets was largely driven by gamble debts that had skyrocketed to RMB 400 million (US $64.99 million), said Wang.

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The power struggle between Wu and Wang raged on, with Wu’s largest supporter base Wanzhou factory, which constitutes 25% to 30% of the company production even being temporarily from Aug. 8. To halt damages, NVC Lighting Board even froze all of Wu’s assets in the company in September. The company did not regain physical control over the factory till early November. By the time the company managed to get the situation under control, the series of incidents had hurt the company, and it even lost a large number of distributors to competitors.

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To conclude, some of the movers and shakers, this year’s winning business strategy goes to Epistar with its successful acquisition of FOREPI, while the biggest loser of the year has been GTAT with its abrupt bankruptcy announcement. Industry insiders have projected Apple might be turning to Taiwanese sapphire manufacturers to obtain material supply.

(Author: Judy Lin, Chief Editor, LEDinside)

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