Taiwanese sapphire substrate price raise blocked by growing use of Chinese substrates

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Affected by LED chip’s consecutive price drop and efforts to control costs, Taiwanese chip manufacturers including Epistar, FOREPI, and others are turning to Chinese sapphire substrates. A move that directly contends Taiwanese sapphire substrate manufacturers’ price raise plans, and is expected to impact 3Q13 operations of companies including Crystalwise Technology (CWT), Tera XTAL Technology’s (Tera XTAL) and others.

CWT and Tera XTAL hit hard

Affected by LED chip manufacturers supply adjustment, Taiwanese sapphire substrate manufacturer’s price raise plans were thwarted. Sapphire substrate manufacturers intended to increase prices by 5-10%, but LED chip manufacturers have only allowed an average gain of 2-3%, citing falling chip prices as the main reason, said analysts. Compared to sapphire ingot’s 20% price boost, substrate manufacturers are unable to successfully transfer their costs, and may be unable to improve profits despite of revenue growths in 3Q13.

Taiwanese LED chip manufacturers began to authorize Chinese sapphire substrate products amid soaring substrate prices in 2010-2011, but only a few Taiwanese companies used the Chinese products. Partial use of Chinese sapphire substrates began in 2012, when LED chip manufacturers started to invest and set up subsidiaries in China.

Epistar has completed authentication of Chinese supplier products, and its companies set up through joint ventures in China are already using these products, said the company’s spokesman Chang Shie-Shien.

Epistar refused to comment when factories in Taiwan will be using Chinese sapphire substrates, but pointed out if Taiwanese suppliers continue to drive up prices, they will consider increasing the procurement from Chinese suppliers.

Chinese substrate manufacturers expand

According to FOREPI spokesperson Fu Chen-chen, the company had previously used China’s sapphire substrate products, mainly due to price concerns. If Taiwanese sapphire substrate manufacturers continue the price upticks, the company will not rule out increasing the proportion of Chinese suppliers.

China's sapphire substrate manufacturers are also expanding production capacity, said sources. Although large Chinese manufacturers, such as San'an Optoelectronics and GCL-Poly Energy were the first to announce expansion plans, they have been slow to act. In contrast, small and mid-sized manufacturers in China are fully engaged in expanding production. For example, China’s current number one sapphire substrate manufacturer, Crystaland, monthly CSS production capacity has reached 600,000 pcs per month, trailing right behind Taiwanese manufacturer's CWT’s 1 million pcs per month. Other manufacturers, such as Jiangsu Jeshine New Material, Nanjing Jingjing Photoelectric Science & Technology, and Zhejiang Shangcheng Science & Technology, have an average production capacity of 300,000 sapphire substrates.