Many sources point to a current shortage of LED chips. DIGITIMES has reported Epistar not being able to fully supply demand even though the company is running at full utilization. Demand is higher by 30-40%. In recent talks with a major LED chip supplier the company indicated a doubling of LED chip manufacturing capacity in the second half of 2010. iSuppli also reported that the LED shortage will last throughout 2010 and into 2011. Where is all of this LED demand coming from?
LED demand is coming from two primary sources: general lighting and backlight units (BLUs) for LCDs. I will focus on LCDs in this article. LED as a light source for LCD BLUs offers many advantages. LED is green and does not include mercury, a carcinogen, that is in CCFL BLUs. LED also offers enhanced durability, reliability, instant-on, and slimmer designs. The slimmer designs not only offers design flexibility but just as importantly leads to smaller and lighter packaging, which in turn leads to considerable savings in transportation and storage. Displays in mobile phones have completely shifted to using LED as the light source for many years. Now we see LED penetration in BLUs used in notebook PC LCDs to rapidly move toward 100%. But these applications are not the main source of demand for LEDs as they require on average less than 100 LED chips per LCD. The biggest source of LED demand comes from LCD TVs: a large 40-inch or 50-inch class LCD TV can require hundreds if not thousands of LED chips in its BLU. Approximately 2.5 million LCD TVs using LED BLUs were shipped in 2009. That number is expected to grow 10x to 25 million in 2010 with opinions reaching as high as 39 million. By 2014 some estimate total sales of LED-backlit LCD TVs to reach 100 million.
I mentioned a leading LED chip company doubling manufacturing capacity by the second half. This and other LED chip suppliers expand capacity by adding more systems, usually MOCVD (Metal-Organic Chemical Vapor Deposition) systems that grow LED materials into LED chips. Major MOCVD system suppliers have experienced substantial growth in sales in the first quarter and the second quarter looks just as upbeat. It takes roughly 4-6 months lead time to build the systems and another 3-4 months for LED chip manufacturers to customize and ramp to volume production. Because of the strong demand for LED, LED suppliers are rapidly adding manufacturing capacity all the while doing their best not to build out too much. Fortunately the LED suppliers have not established an OPEC-like consortium to manage global supply of LEDs. What I see happening is a probable over-supply situation in 2011 due to intense competition by LED suppliers. That’s not necessarily a bad thing as LED prices will in all likelihood tank and in turn lead to a significant increase in LED adoption for LCD BLUs. Personally, I would like to see products such as LG’s LE9500 come down in price significantly in the near future.