Tough ride for LED equipment vendors ahead, Yole Developpement warns

May 03, 2012 // By Christoph Hammerschmidt
Against the background of a significant over-investment in LED manufacturing equipment over the past two years, high-tech market research company Yole Développement expects a short down-cycle starting this year. Nevertheless, the trend towards energy-efficient lighting will continue, and thus the equipment market will rebound, beginning mid 2013.

In its recent study on LED packaging, the market researcher gets granular on the market development for the time frame between 2009 and 2016. According to Yole, no LED manufacturer wants to get caught short of capacity when the general lighting market scheduled to reach $20B by 2020 takes off. Thus, an unprecedented investment cycle started toward the end of 2009 and will extend through early 2012. This cycle initiated in Korea is now essentially fueled by subsidies and other incentives in China, as the country is aggressively trying to position itself as a future leader in solid state lighting. New entrants are investing massive amounts of money in order to displace existing manufacturers. This will lead to a world averaged overcapacity that will briefly exceed 50% for some tools (ie: capacity utilization rate of <50%) by mid-2012

This in turn will cause a 12-18 month down cycle corresponding to the absorption of this overcapacity as well as some consolidations that will bring the industry back to more usual utilization rates of 80%. This down cycle will extend through mid-2013. Then Yole expects a new investment cycle to kick in to respond to further increasing demand for general lighting. This might lead to another shorter excess investment to be absorbed in 2016.

Since packaging typically accounts for up to 60% of the packed LED total cost, it represents the largest single opportunity for cost reduction. For this reason, Yole expects more than $2 billion will be invested during the 2011-1016 time frame in new equipment for LED packaging. This needs to be seen against the background that LED packagers mostly are using retrofitted equipment form the IC industry and relying on existing technologies to improve the LED cost of ownership. These circumstances have allowed LED manufacturers to benefit from the experiences and earlier R&D efforts in the chip industry but it also constrained the LED industry into a space defined