LG Bets on LED TV

By “LED TV” I mean LCD TV with a LED backlight. LG is betting big on LED TV, which the company expects will generate 20% of 2010 TV revenues by selling 6.5 million of them. In 2010 that number is expected to jump to 45%. It isn’t just LG; all major TV brands are rapidly replacing CCFL with LED as the light source of choice for their LCD TVs.

In 2010 about 175 million LED TVs are expected to be shipped with Samsung leading the way with 35 million followed by LG and Sony with 25 million each according to DIGITIMES. Most aggressive is Samsung with more than 34% of its LCD TVs expected to feature LED backlights in 2010 increasing to 60% in 2011. There will be incredible demand but unstable supply for LEDs and LG wants to make sure it has more than enough.

Recently LG Display (LGD), Amtran Technology, and Everlight Electronics announced a LED packaging joint venture to be located in Wujiang City, Jiangsu Province, China. Amtran is a major customer of LGD and also builds LCD TVs for Vizio, who has a strategic supply agreement with LGD. Vizio plans to sell 1.5 million LED TVs in 2010 so the joint venture should help all parties involved. Investment toward the LED packaging joint venture will total US$30 million with Everlight’s stake at 60% and LGD and Amtran with 20% each. Volume production is scheduled to commence in December 2010 with an initially capacity of 100 million units increasing to 200 million in 2010.

LG has internal LED chip production and packaging capabilities via LG Innotek, a subsidiary. LG Innotek purchased 50 metal-organic chemical vapor deposition (MOCVD) machines in 2009 and is expected to purchase another 50 in 2010. In the fourth quarter of 2008, Veeco Instruments received orders for four of its fully automated TurboDisc K465 gallium nitride (GaN) MOCVD systems for high bright LED (HB-LED) production for LCD TV backlight applications. MOCVD machines are used to build LED chips by depositing thin layers of atoms onto semiconductor wafers. Based on optimism for the second half of 2010 and LED sales of KRW155.1 billion in the first quarter, LG Innotek expects its LED business to total KRW800 billion in revenues in 2010 representing a significant 174% Y/Y growth.

LG Innotek continues to outsource some of its LED chip production and packaging. It takes considerable time manufacturing the LED chip, packaging it and working with LG Display and others to integrate it into a backlight unit (BLU). According to DIGITIMES, the whole process from setting up new MOCVD machines to LED TV distribution into the sales channel can take up to 10 months. Currently, LG Innotek procures LED chips from Epistar, Formosa Epitaxy, Samsung LED, Seoul Opto Device, and Toyoda Gosei. Chip packaging is sourced from Everlight, Heesung, Seoul Opto Device, and Wooree LED.

I see consolidation accelerating in the LED chip and packaging industries. Major LCD panel manufacturers will be aggressively adding LED chip and packaging capabilities internally, via joint venture or by purchasing companies. But there should be some caution. LED BLU design is changing from direct-lit to four-sided edge-lit, down to three, two and eventually one. When that happens, demand for LEDs will shrink and there will be leftover capacity. On the bright side, with rapidly falling prices LED lighting might finally become affordable.