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“Due to the increasing competition, sapphire suppliers can no longer just specialize in one part of the supply chain,” said Joanne Wu, assistant research manager for LEDinside,
“They have undergone vertical integration and are now able to provide pattern sapphire substrates (PSS) to LED chip manufacturers, bypassing other supply chain participants. As LED chip businesses are themselves facing immense operating pressure, major international manufacturers are now working to raise the yield rate of their 6-inch LED wafer process. They want to widen their lead over their Chinese competitors via product differentiation.”
Price fluctuations in the 4-inch sapphire market are mainly caused by the demand changes in the LED market. Though the 4-inch wafer production has become the market mainstream, their prices are negatively affected by the lower-than-anticipated demand and price pressure in the end market.
Thus, prices of 4-inch sapphire ingots have plummeted with the year-on-year decline in September reaching 45% at around US$8.5~8.8/mm. Both the 4-inch sapphire wafer and PSS markets have seen a 30% year-on-year price drop in the same month, with their average prices respectively at US$18~20.5/pc and US$30~32/pc.
With the LED chip manufacturers migrating from the 2-inch to the 4-inch wafer process, the LED chip industry’s total output is estimated to increase by about 20~30%. Chinese competitors that have migrated to 4-inch wafer production include San’an Opto, Elec-Tech, Changelight, HC SemiTek, Tongfang and Aucksun. Currently, the 4-inch sapphire ingot and sapphire wafer markets are crowded with suppliers.
At the same time, LED chip manufacturers exact more stringent requirements for products. Sapphire suppliers therefore are starting to develop their PSS products in house or collaborating with PSS OEMs. This will allow them to be in a better position to enter LED chip supply chain while avoiding their prices from being cut at every level of negotiation. Overall, the trend of vertical integration in the 4-inch sapphire supply chain will become even more noticeable in the future.
Oversupply is also impacting the 6-inch sapphire market with the South Korean suppliers taking a lead in cutting product prices. The average price of 6-inch sapphire ingots have fallen 30% year on year in September to around US$30~35/mm. In the 6-inch sapphire wafer segment, there is some room for negotiations, and prices are decided by product quality and suppliers’ bargaining power.
The average price of 6-inch sapphire wafers is now at US$ 95~100/pc. Prices of 6-inch PSS products have dropped to an average of US$140/pc this September due to the adoption of micron imprinting technology, a process with much lower cost than the traditional etching technologies.
While prices are continuing their slide in the 6-inch sapphire market, a general increase in the 6-inch LED wafer yield rates may help generate demand. If the 6-inch LED wafer process had the same yield rate as the 2-inch, it could reduce the cost per unit by 69% because of advantages such as greater wafer surface for epitaxy and increased edge utilization rate. Thus, raising the yield rate on the 6-inch LED wafer process will expand the market demand for sapphire and effectively lower the inventory level.
However, migrating to the 6-inch process is also a huge investment involving buying new equipment and overcoming technical hurdles in the backend chip manufacturing process. Transitioning from the 2-inch wafer production to the 4-inch is therefore much more cost effective right now than moving to the 6-inch. Raising the 6-inch LED wafer yield rate will depend on the technological capability of industry participants.
LED chip manufacturers that are presently investing the 6-inch wafer production include Lumileds, Osram Opto, LG Innotek, Epistar, Nichia, Toyoda Gosei and Sharp. Chinese companies such as San’an Opto and Elec-Tech are also doing pilot runs on their 6-inch wafer production.
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