Chinese MOCVD equipment makers to challenge top foreign brands

TAIPEI, TAIWAN: US manufacturer Veeco and German company Aixtron that have long possessed China's LED epitaxal wafer MOCVD market, will be facing "war declarations" issued by Chinese manufacturers, according to a report by Chinese newspaper The National Business Daily.

HC Semitek announced on Nov. 12, 2013, that the company's "Domestic MOCVD equipment R&D/industrialization of ultra bright LED" application was authorized by Ministry of Industry and Information Technology (MIIT), and received RMB 6 million ($990,000) to purchase related equipment and materials.

This project is being implemented by Jiangsu Huasheng Tianlong Photoeletric Co. Ltd subsidiary Tang Optoelectronics Equipment (Shanghai) Corp. Ltd (TOPEC). China's top MOCVD equipments are just as good as international giants Veeco and Cree, said Zhang Wei, VP of TOPEC. He went on asking the industry to give trust Chinese manufacturers a bit more and give more opportunities.

Veeco and Aixtron have seen huge profits from Chinese market as the country's LED industry rapidly develops over recent years. "More than 90 percent of market share is in their hands, this is clearly a disadvantage for the development of China's LED industry," said Steve Chen, chairman of TOPEC.

Chinese MOCVD equipment has a 60 percent global market share, Chen added. The equipments generally account for 40 to 50 percent of LED epixtaxal manufacturing costs, thus domestic equipment manufacturing is a clear advantage to the entire LED supply chain.

At the same time, the future outlook for Chinese MOCVD equipment makers is pessimistic due to market monopolization by the two large international companies.

Serious MOCVD oversupply issues

China's LED industry began crazily expanding in 2009. Massive government subsidies spurred upstream epitaxal wafers serious oversupply situation.

"Judging from the total number of MOCVD equipment, there are definitely oversupply issues," said Ye Guokuang, Marketing director of Guangdong Deli Optoelectronics Co. "China's LED epitaxal wafer industry has purchased 1,000 MOCVD equipment but at least 350 of these have stopped operations. In addition, the remaining 650 units only have a utilization rate of 80 percent. Therefore, industry outsiders tend to base MOCVD utilization rates of 50 percent as the most accurate description."

Behind the MOCVD equipment shopping spree is the embarrassing reality of Veeco and Aixtron's gold dig in China.

Since 2009, stimulations from government policies and backlight applications have caused Chinese LED industry development to expand rapidly. Due to technical flaws in Chinese MOCVD equipment manufacturing and lack of market control, Veeco and Axitron were able to clinch 90 percent market share.

"Aixtron was the global market leader in 2009 with its 68 percent market share, while Veeco only had 25 percent market share," said Chen. "However, Veeco was able to obtain breakthrough development and realize large scale epitaxal wafer production. By 2012 Veeco was able to overtake Aixtron, with market share soaring to 65 percent. The two companies have swapped positions."

The Chinese market has clearly become the two companies major battlefield in obtaining industry leadership position. Public statistics revealed, China's domestic LED epitaxal wafer leaders San'an Opto, Elec-Tech International (ETI) and Nationstar are the main forces behind MOCVD equipment procurements. Combined these companies have purchased more than 100 MOCVD units. According to incomplete statistics, the Chinese government has subsidized about RMB 1 billion for these equipments.

"A large portion of our subsidies have been snatched away by Americans and Germans," said Chen. "They (Veeco and Aixtron) might not be aware that this situation is actually unhealthy for the Chinese LED industry development."

Difficult for Chinese domestic markets to storm into

Guangdong Real Faith Enterprise Group Co.,Ltd (Real Faith Group) announced as early as Jan. 8, 2010 that it had launched in-house MOCVD equipment R&D, the first domestically made equipment in China. Regrettably, the MOCVD equipment is still stuck in its initial phase.

HC Semitek has also recently announced its application for MOCVD subisides under the "2013 electrocommunication industry development fund guide" was approved by the Chinese government. As the cooperative party of the project, Chen noted China's domestic production of MOCVD equipments requires more industry and government policy support.

According to understanding, there are 13 MOCVD equipment R&D and manufacturing companies in China. Some of these companies have achieved a certain level of competitiveness. A few of them have even reached the same level of production capacity and costs as Veeco, and few have even more advantages. However, it will still take some time before Chinese MOCVD equipment makers can compete with Veeco and Aixtron.

"We have sold a couple of equipments to HC Semitek and Epitop, and are currently in talks with ETI and other clients," said Chen. "We have already met our RMB 60 million sales revenue target as of this year, and our goal next year is to reach RMB 150 million sales revenue." It will be a very long process before China made MOCVD equipment can acquire market share.

"First of all, there are very few supportive government policies that are actually implemented. Secondly, it will take a lot of time before market trust and recognition is nurtured. Furthermore, LED epitaxal wafer manufacturers production technologies are based on current equipment design. They will need to make redesigns in this aspect if they want to introduce new Chinese MOCVD equipments. This itself is also a risk."

In response to this, reporters interviewed many LED epitaxal wafer manufacturers. Having contacted some Chinese MOCVD equipment makers recently, some have been trying to convince others to try out their equipment, a listed LED company chairman secretary that refused to be named commented. Until these China made MOCVD products successfully pass market tests in the future, the listed LED epitaxal wafer company, though, has no plans in the short term of purchasing these products.

Moreover, there are signs of excessive stockup of inventory in the Chinese MOCVD equipment market. From the short term perspective, an explosive market adoption is highly unlikely. Domestic Chinese companies need to be able to endure low market season in the future.

Worth noting, Chinese manufacturers activities have alerted Veeco. The US manufacturer has implemented price cuts to secure its market monopoly position.

Early this year, Veeco lowered prices of its four chamber MOCVD equipment from $ 7.5 million to $ 5.7 million, according to Chen. In July, the company cut prices again to $ 4.6 million per unit. "If we initiate price wars with Veeco, we will surely lose our shirts," commented Chen. "Therefore, domestic MOCVD makers can only put their hope in technological breakthroughs to bring clients higher product value."