LED demand put on hold in 2Q; Taiwan players profitability set to pick up in 2H

---

---

Most LED companies, regardless which segment that they are coming from, records a flat 2Q08 performance amid seasonal weakness. A rapid expansion among global LED makers in 1H08 plus a weak demand that is suppressed by a relatively high price premium upon low performance, oversupply was seen, especially when the industry is in lack of a killer application to spur demand. This explains why LED makers mostly have their sales performance fail expectations in 1H08.

LEDinside estimates that operating margin among upstream epi-wafer maker averaged at 9.9% in 2Q08, down from 10.3% in 1Q08 whereas downstream packaging houses’ OM averaged at 8.6% in the same period, down from 13.1% in 1Q08. The figures show that both upstream and downstream LED players have seen setback in profitability in 2Q08.

Figure 1. LED makers profitability roundup, 2Q08

Inventory turnover throughout the entire LED industry has improved in 2Q08 though. Upstream players have their inventory turnover reduced from 142 days to 128 days and downstream from 83 days to 75 days.

Figure 2. LED makers inventory turn-over, 2Q08 (day)

Demand of LEDs from handset backlighting and other small- and medium-size applications was still dampened by seasonality downturn. LEDinside estimates global handset shipments totaled at 303mn units in 2Q08, representing a mere 2.7% QoQ growth only. As demand lagged behind aggressive LED expansion, corresponding LED ASP has dropped by 10% accordingly. Some Taiwan LED makers, who have a relatively heavy sales exposure to China white-box handset market, have even seen their sales and profit posted a sharp decline due to a serious illegal handset crackdown in China before the Beijing Olympics.

Demand from LED backlighting at NBs have also postponed in 2Q08. Witsview observed that ASPs for CCFLs that are in use in 12- or above size NB have a sharp price erosion in 2Q08, discouraging panel makers to grow deployment in the LED-backlit NB segment. LED penetration in NB is expected to be 8-10% to overall NB only in 2008, versus the originally expected 10-15%. Demand for LED for use in netbook, on the contrary, grew mildly in the same period. When Intel grows its supply of Atom processor, LED demand from the segment should see a boost. When the price plummets of CCFL gone, it is expected that panel makers will resume their incentive for LED backlighting.

LEDinside observes that demand for branded handsets and white-box handset is warming up as 2H is the traditional seasonality upturn for handset. High-luminance LEDs for use in NB LED backlighting and LED lighting applications should see progressive shipments growth in 2H08, implying that LED makers may see an enhanced product mixture to drive an improved profitability.