LED Market Lightens Up Sapphire Wafer Prospects

The sapphire wafer market has undergone a downturn in recent quarters, but future prospects are looking bright based on LED lighting growth. One of the top global sapphire suppliers, Rubicon Technology Inc., based in Illinois, which makes crystalline sapphire substrates and products for the LED, RF-IC, semiconductor and optical industries, reported Q3 revenue of $10.6M on Monday, down 38 percent on $17M year-on-year, but up 28 percent versus $8.3M last quarter. Rubicon announced that the short-term rise in revenue was due to 2- and 4-inch core products increasing from $1M to $6M. However, this rise was partly offset by revenue for 6-inch sapphire wafers falling about 50 percent from $6.1M in Q1 to $3.2M, mainly due to a temporary slowdown in the 6-inch sapphire-on-silicon (SoS) market associated with high inventory levels for RF products in various communications and mobile device applications. The overall revenue growth compared to earlier this year was elevated by the improving LED general lighting market. Furthermore, the slowdown in 6-inch sapphire wafer is stagnating across-the-board factory utilization rates for its various services, contributing to overall revenue losses. On the bright side, a recent market research report has indicated this trend will be reversed.

Displaybank released a report earlier this month on the cost-competiveness of LED chips. According to the report, it will be more profitable for LED chips to be fabricated on higher-price, larger, 6-inch sapphire substrates versus 4-inch by as early as 2015 due to favorable economic and supply chain conditions. In 2012, the 4-inch sapphire ingot/substrate lost its price premium compared to the 2-inch product, and the 6-inch product had to lower its margin because of excess supply in 2013. However, large price fluctuations of this nature are not expected to occur after 2014. What’s more, LED manufacturers are expected to convert their production lines over to 6-inch or 8-inch substrates in the next year amid the falling prices of 6-inch sapphire substrates and enhanced yield rates.

The Displaybank report conducts a thorough analysis on the supply price history, trends and forecast of raw materials associated with packaged LEDs across the entire LED value chain. The key materials include: sapphire ingot, substrate, LED chip, frame packaging (PCB, lead frame, ceramic), phosphor (YAG, silicate, nitride) for color filtering and encapsulation from air contamination. The report compares the production cost and selling price of packaged LEDs by application, analyzes the margin and cost structure, and forecasts for the cost and price over the next seven years. However, it is very difficult to project the LED lighting market out more than three to five years amid the quickly changing dynamics of the industry, which has outperformed most past estimates.

Besides the primary gallium nitride (GaN)-based LED lighting market strategy of fabricating them on sapphire substrates, there are several companies developing technology using the GaN-on-silicon wafer approach due to its lower inherent cost associated with cheaper silicon substrates. Azzurro Semiconductors, headquartered in Dresden, Germany, has helped take GaN-on-silicon epitaxy to the next level, which also includes power control and high-frequency device applications. This company formed a new business unit on Monday to facilitate its patent licensing capability in this regard. Azzurro’s new strategy is to license technology to LED companies globally, as opposed to focusing on manufacturing products like most of the industry. The company has already used its template wafers to quickly streamline the conversion process for customers from GaN-on-sapphire to GaN-on-Si layers. However, a recent study by Lux Research predicted that upstart GaN-on-Si LEDs will only grow to 10 percent of the market by 2020, as sapphire will continue to reign the as king substrate material.

When it comes to patents and IP licensing, there is a true top dog across the high-tech realm. The leading IP development company is InterDigital, which is subsequently the most profitable company in the US, with a net income of $937,255 per worker, according to Bloomberg’s just-released visual compendium of data. This company does not like to be referred to as a patent troll, but the name has stuck due to their immense revenues generated from lawsuits annually. Similar to the top chip design firm, ARM, based in the UK, which dominates the market for processor chips in mobile devices, InterDigital does not manufacture any products; but rather directs its 200 or so engineers to generate IP, often related to microelectronics and communications, that is estimated to be worth billions of US dollars.


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