The tie-up signals Cree’s intentions to maintain its competitive edge and market share, said LEDinside research director Roger Chu. “The general trend in the LED lighting market is intensifying price competition, which makes it difficult for leading U.S. and European manufacturers, such as Cree and Osram, to compete with Asian manufacturers,”

Chu said. “It is very difficult for them to compete against Taiwanese and Chinese manufacturers in particular, especially against heavily subsidized Chinese manufacturers.”

For instance, Cree’s product portfolio previously focused on more lucrative but costly high-power LEDs, which are starting to lose their pricing competitiveness compared with low to mid-power LEDs made by Asian manufacturers.

“The industry is shifting towards low or mid-power LEDs with higher cost-performance ratio, Chu said. “Cree is very aware of this trend and has allocated OEM orders to Taiwanese manufacturers.”

To boost its competitiveness, Cree has been cooperating with Taiwanese manufacturers since 2013 and has transferred OEM orders to strategic business partners including Lextar and Epistar, Chu added, “Cree’s investment in Lextar is a strategy to secure an economic LED chip supply from a manufacturer who can fully support them.”

Lextar’s vertical integrated production line covers upstream to downstream products including chips, light sources, package, light modules and luminaires. The company has long been an OEM for Cree and Osram, and currently has 70 to 80 MOCVDs that have reached full utilization rates. Lextar intends to expand production capacity later this year, and a partnership with Cree would help Lextar secure an export market, Chu said.

According to the announced partnership, Lextar will supply sapphire-based LED chips to Cree, largely to be used in blue LED chips, but this cooperation may be expanded to include package or other end products in the near future.

“Since Lextar has a comprehensive production line, Cree might work with them on other downstream products in the near future,” Chu said. “This possibility should not be ruled out.”