LED chip prices raised by 5-10%

2021-01-19

While major OEMs such as Apple and Samsung prepare to release their new notebook computers, tablets and TVs fully equipped with mini-LED backlights this year, various companies in the LED supply chain began procuring mini-LED chips ahead of time in fourth-quarter 2020, leading to explosive growth in demand for these chips, which in turn crowded out LED suppliers’ production capacities for other mainstream LED chips, according to the latest investigations by market research firm TrendForce. Given this industry-wide shortage of LED chips, certain suppliers have been raising their quoted price by about 5-10%, it is estimated, for chips supplied to non-core clients and chips with relatively low gross margins.

TrendForce further indicates that companies in the downstream LED supply chain have started to aggressively procure components in order to mitigate the impending price hike on raw materials and shortage of components due to manufacturers’ tight production capacities after the Chinese New Year. However, products of certain serial numbers or specifications are already in short supply at the moment, prompting these downstream companies to raise quotes first for small- and medium-size clients who place relatively low-volume orders. As for tier-one clients who have relatively higher bargaining power, should they reject such a price hike they would then need to wait for more than two months in lead times (significantly longer than the average of two weeks), says TrendForce.

Taiwan-based Epistar is currently shipping about 150,000 mini-LED wafers (4-inch equivalent) per month. As mini-LED chips yield far higher gross margins than traditional LEDs, Epistar has reallocated some of its production capacities from the latter, less profitable products to mini-LED chip manufacturing instead. On the other hand, China-based San’an and HC SemiTek are directly benefitting from Epistar’s order transfers. In addition to persistently growing demand for traditional LED backlights and RGB LED chips for video walls, San’an and HC SemiTek are also shipping several tens of thousands of mini-LED wafers per month (4-inch equivalent) due to the skyrocketing mini-LED demand.

HC SemiTek’s product strategy of focusing on LED chips for display applications is paying off noticeably, says TrendForce. By leveraging its competitive advantage of highly cost-effective products, HC SemiTek’s capacity utilization rates have been fully loaded for two consecutive quarters since Q3/2020. On the other hand, about 400,000 wafers in patterned sapphire substrate (PSS) production capacity was suspended last month due to the fire at the fab of supplier Xuzhou GAPSS OE Technology Co Ltd. This incident led to a 5-10% price hike in key upstream LED chip materials including sapphire wafers and PSS, which will likely further exacerbate the price hike and shortage of LED chips.

TrendForce believes that the structural shortage in the LED industry, which led to a price hike for LED chips, can be attributed primarily to the that fact the industry underestimated the production capacity needed for key parts of the supply chain during the infancy of pandemic-related emerging applications, in addition to the corresponding production capacity squeeze. However, these issues are expected to be resolved within half a year. Also, the downturn experienced by the LED industry in the past few years led to a clearance of excess capacity and subsequently the highly concentrated supply of key materials in the upstream LED supply chain, including sapphire wafers and PSS. As a result, suppliers of these key materials now enjoy increased bargaining power in price negotiations. Given the simultaneous increase in material costs and limited material supplies, TrendForce therefore forecasts a price hike for LED chips.