In late 2013, LEDinside team forecasted major company restructure
market trends will continue throughout the year. The trend has been
consistent in 2014, as more lighting manufacturers take necessary
restructure measures to remain competitive in the market, such as
Philips, Epistar or NVC Lighting. Top players restructure decisions in
the fast changing LED industry
landscape further reinforces the trend that large companies will become
even bigger and influential, while smaller manufacturers will find it
increasingly difficult to compete.
Below is a recap of some of the major company restructures, acquisitions, partnerships and bankruptcies in 2014.
Philips spin-off lighting and LED component businesses
A couple of major restructures in the industry were surprising this
year including Philips decision to separate its lighting businesses from
the parent company. Philips announced the spin-off of its LED component
business Philips Lumileds and automotive lighting department into a
stand-alone company on June 30, 2014. Shortly after, the company split
with its traditional lighting luminaire business, which the company has
operated for over a century. The Dutch group’s development focus has
since shifted towards the more profitable medical business sector.
Meanwhile, the new Philips Lumileds and automotive business will
operate under a separate brand in 2015, and complete bourse listing by
April 2015. The new company will be focused on LED components and
automotive lighting products.
LEDinside analyst Figo Wang believes Philips Lumileds decision to
separate its lighting business offers more management flexibility, and
will enable the new company to acquire better funding resources. While
Roger Chu, Research Director of LEDinside noted Philips strategy is a
response to the increasing challenges from the rise of Chinese LED
manufacturers.
Epistar expands production capacity with FOREPI acquisition
Epistar has become the world’s leading LED chip manufacturer in terms
of production capacity, and has the most number of MOCVDs after merging
with FOREPI. Epistar and FOREPI’s announcement on June 30, 2014 came as a
surprise because there were few signs in the industry to suggest such
developments. Epistar acquired FOREPI by issuing 117 million new shares
at a swap ratio of one to 3.448 shares. Taiwan’s second largest LED
manufacturer, FOREPI, has since been delisted from the TAIEX. Since
September 2014, FOREPI has been mostly manufacturing Epistar OEM orders,
with a large portion of its factory production capacity allocated to
OEM orders.
After the merge, Epistar’s MOCVD equipments are well over 500,
surpassing Chinese rival San’an Opto’s 383 machines. As FOREPI’s second
largest shareholder San’an Opto has become an Epistar shareholder with a
3.1% stake in the company, after converting its 19.77% stake in FOREPI
for Epistar shares. However, San’an Opto’s share in the company is not
enough to earn it a seat at Epistar’s board. Due to Taiwan’s financial
regulations, San’an Opto will be unable to interfere with Epistar
management, and banned from headhunting talent from Epistar.
Epistar has been actively expanding its production capacity in 2014 to
meet growing client demands. Prior to its merge with FOREPI, the top
Taiwanese LED manufacturer also acquired the defunct Optodisc Factory in
late June to expand AlInGaP LED production. The top Taiwanese LED
player business strategy this year is one that clearly points towards
large scale manufacturing to bring down costs, and acquire advantages in
economics of scale. The Taiwanese LED industry has also become more
concentrated as a result.
Cree moves into low/mid power LED with Lextar investment
U.S. LED manufacturer Cree, a traditional high-power LED manufacturer,
has finally entered the low and mid-power LED manufacturing with its
investment in Taiwanese LED manufacturer Lextar. The top U.S. LED chip
manufacturer invested a total of NT $83 million to purchase Lextar
stocks at NT$ 30 per share, which will give Cree a 13% stake in the
company. The two companies are expected to complete the investment
arrangements by 2015.
“The trend in the industry is shifting towards low or mid power LEDs
with higher Cost/Performance ratio (C/P),” explained Chu. “Cree is very
aware of this trend and has allocated OEM orders to Taiwanese
manufacturers.” LEDinside analysts believe Cree’s decision to invest in
Lextar is a strategy to cope with rising market competition from Chinese
manufacturers.
GTAT’s abrupt bankruptcy shocks industry
Perhaps, the most unexpected announcement of the year was GTAT’s
decision to file for Chapter 11 bankruptcy protection from U.S. courts
on Oct. 6, 2014. Despite having approximately US $85 million of cash,
the company went ahead with the bankruptcy filing. The announcement sent
tremors throughout the industry, with few financial analysts even
seeing it coming. Reports indicated Apple pressured GTAT to pay back
loans earlier than scheduled, and delayed paying the last $139 million
instalment to the sapphire manufacturer were cited as some of the
reasons leading to the bankruptcy.
GTAT appeared to have a bright future ahead with Apple’s support after
signing an exclusive 5-year sapphire supplier deals, which is believed
to be worth $578 million in November 2013. GTAT was rumored to becoming a
sapphire supplier for Apple iWatch, iPhones and tablets, but what
appeared to be a lucrative deal ended being “oppressive” and
“burdensome”, according to GTAT CEO Thomas Gutierrez. The unveiling of
company documents at the bankruptcy court later suggested Apple had
repeatedly changed the sapphire specs, making it difficult for GTAT to
meet the agreed production volume targets.
The company shares lost 92% of its value and plunged to $0.80 just one
day after the announcement, eventually GTAT was delisted from NASDAQ on
Oct. 16, 2014. The company is now trading on pink sheets. To pay off the
remaining US $ 429 million loans to Apple, GTAT will need to sell 1,738
sapphire furnaces out of the 2,036 furnaces. The company’s furnaces are
valued at $200,000 to $290,000. Despite laying off 890 employees from
its Arizona plant, the ailing sapphire manufacturer will continue
operations to meet client orders.
GTAT’s situation highlights the difficulties many sapphire
manufacturers face, as the novel material aims to find a larger market
application. Another U.S. sapphire manufacturer Rubicon also reported
revenues declined by $6.5 million during third quarter this year, with a
large $5.5 million attributed to lower two-inch core sales. The
sapphire industry continues to be one that is struggling to find its
place in the market.
ETI and NVC Lighting’s messy merge
Top Chinese LED manufacturers Elech-Tech International (ETI) and NVC
Lighting’s merge has been so dramatic, it would have made the perfect
script for a “business gangster” soap opera. NVC Lighting’s former CEO
Wu Changjiang’s iron grip on the company’s leadership position, and
refusal to give up power even after being ousted by the company board
led to a series of conflicts throughout August 2014 and gave competitors
a chance to grab the company’s distributors.
What was supposed to be a peaceful transition in July turned ugly in
early August 2014, Wu refused to abide to the board’s decision to remove
him from CEO position, and appointing NVC Lighting CEO Wang Donglei as
the new successor. Wu’s supporters barricaded office doors to prevent
Wang’s employees from obtaining crucial documents and company seals,
leading to a violent conflict between the two sides on Aug. 11, 2014.
The incident ended with the hospitalization of three of Wu’s staff. This
was just the start of several other incidents headed by Wu to retain
power and influence, which some Chinese reports noted was closely
related to China’s corporate culture where the founder often is viewed
as emperor of the company, and board members have little influence.
Despite having less than 2% stake in the company he founded, Wu
instructed factory workers at its Wanzhou plant to secretly ship and
sell products thorough abnormal sales channels in mid-September, which
once again resulted in conflicts between Wu and Wang supporters. Wu’s
misappropriation of company assets was largely driven by gamble debts
that had skyrocketed to RMB 400 million (US $64.99 million), said Wang.
The power struggle between Wu and Wang raged on, with Wu’s largest
supporter base Wanzhou factory, which constitutes 25% to 30% of the
company production even being temporarily from Aug. 8. To halt damages,
NVC Lighting Board even froze all of Wu’s assets in the company in
September. The company did not regain physical control over the factory
till early November. By the time the company managed to get the
situation under control, the series of incidents had hurt the company,
and it even lost a large number of distributors to competitors.
To conclude, some of the movers and shakers, this year’s winning
business strategy goes to Epistar with its successful acquisition of
FOREPI, while the biggest loser of the year has been GTAT with its
abrupt bankruptcy announcement. Industry insiders have projected Apple
might be turning to Taiwanese sapphire manufacturers to obtain material
supply.