Japan's power rationing may bring business opportunities for Taiwanese light-emitting diode (LED) industries, but the competition from China and South Korea is already driving profits lower.
Amid growing demand, led by Japanese businesses changing to LED lighting in order to meet the government's energy conservation target, Taiwanese companies in the LED sector have shifted their focus from back-lit displays to lighting.
In fact, the Photonics Industry & Technology Development Association has forecast that the production value of LED lighting in Taiwan will grow 32 percent to reach NT$200 billion (US$6.96 billion) in 2012.
However, Taiwanese companies are facing an uncertain future as, according to the Industrial Economics and Knowledge Center (IEK), South Korea is expected to replace Taiwan as the world's largest LED producer this year.
While South Korea is targeting mid- to high-priced brands, Taiwan is up against China in the low-end market.
Moreover, David Su, chairman and president of Lextar Electronics Corp., said profits in this market segment are not as good as in previous new applications such as backlight.
In Japan, this year's fastest-growing market, the prices of leading brands of LED light bulbs have fallen by half since last year.
Additionally, high component costs have eaten into the profits from light bulbs, according to Lin Chih-hsun, an analyst at the IEK. The profit margin for a seven-watt LED light bulb is less than 10 percent, he noted.
Seeking a future in the LED lighting business, Taiwanese companies have chosen two different paths -- contract manufacturing and creation of their own brands.
For contract manufacturers, such as Lextar and Epistar Corp., the risk is that their Chinese rivals could catch up in the technology, despite Taiwan's current two-year lead, Lin said.
But Su believes Taiwanese companies can secure orders from their existing clients by adding value to their products, such as Lextar's system using smartphones or tablet computers to control the light.
As for those who have ventured into their own brands, they are on the lookout for opportunities as leading brands hold less than half of the market share. However, Su said Chinese brands have the competitive edge over Taiwanese companies in terms of production efficiency.
Even though Taiwan entered the LED market earlier than China and South Korea, local industries are now facing the challenge of maintaining their strength and tapping into the emerging lighting business in the coming years. (Business Weekly 1231)(translated by Kay Liu)