As the prospect of adoption in smartphone display covers dwindles, what is the future for the sapphire industry
2015 was a rough year for the LED industry but substrates volumes are reaching historical highs in 2016
The BLU market decreased significantly in 2015 due to a 5% drop in sales of LCD TVs and reduced number of chips per set. Significant increase of 4K TVs with higher LED count were not enough to offset the trend. At the same time, general lighting didn’t grow as anticipated.
LED ASP dropped 30 to 40% Y/Y and certain LED chipmakers took drastic decisions. Epistar, which until recently was the worldwide capacity leader, stopped 125 of its oldest and less efficient reactors and froze more than 25% of its capacity.
A major glut of inventory at all levels of the supply chain prompted a dramatic drop in sapphire wafer sales in Q3 and Q4-2015.
MOCVD utilization rates have since recovered, especially in China where capacity keeps increasing and companies like San’an or HC Semitek prepare for global dominance. In Taiwan, Epistar resumed investments and ordered multiple new high productivity MOCVD reactors in order to ramp capacity up again with more cost effective tools. By July 2016, sapphire wafer shipments had reached an all-time high.
In this report you will find a detailed update of MOCVD capacity per region with a ranking of epi companies as well as LED substrate volume and revenue forecast.
Consumer electronic applications are stalling and now mostly captive
Two years after the demise of GTAT, adoption in cover glass appears increasingly unlikely, although activity has not stopped completely and glimpses of hope remain. Including LEDs for display backlight, Apple represents close to 20% of sapphire consumption. Camera lens covers could see a boost with the likely introduction of a dual camera iPhone model this quarter and a lens diameter increase on its single camera models. Sapphire lens covers also appear in models from Xiaomi, Huawei and HTC but adoption remains sporadic and decided on a model to model basis.
It seems likely now that Apple will start ditching the home button on the 2017 iteration of its iPhones. This will put a serious dent on optical wafer demand for consumer applications.
Smartwatches sales were disappointing in 2015, including for the highly anticipated Apple Watch that shipped only 10-12 million units with the sapphire models representing only a small fraction. Sales of sapphire for the Apple Watch stopped in March 2015 and haven’t resumed since.
Apple relies exclusively on Biel and Lens for the sourcing of sapphire components. Both companies are now essentially fully integrated from sapphire growth to the final products. Suppliers that were shipping cores, bricks or optical wafers into the Apple supply chain have seen this revenue stream dried completely.
In this report, you will find an analysis of recent trends in consumer electronic applications and display covers as well as detailed forecasts of sapphire volume shipments for those applications
The sapphire industry is still plagued by overcapacity and rapid price declines
Demand for LED is increasing but won’t provide enough volumes to sustain the close to one hundred sapphire makers competing in the market. Up to 30 companies have stopped their sapphire-related activities over the last 18 months. The most prominent were OCI, DK-Aztek, HQC, Shangcheng etc. Many more have frozen most of their capacity and China counts dozens of “zombie” companies kept alive by political will.
Capacity increased again over the last 12 months, although the pace is abating, thanks to a reduction in the number of new projects and significant attrition. But continuous excess supply combined with the significant drop in LED wafer demand in Q3 and Q4-2015 led to an acceleration of ASP decrease over the last 12 months. Prices for cores and wafers have dropped 50 to 70% over the last 2 years. Four inch wafers have been hard hit and 2” cores now sell for no profits, as a fall-off of 4” and 6” manufacturing and for the sole purpose of absorbing fixed cost.
The 2” core market is disappearing as the LED industry transitions to larger diameters and optical wafers are now a captive market. Suppliers need to find new applications for the parts of the boules that are left over after extracting 4” or 6” cores. For now, those are often sold by the kg at low prices for the manufacturing of small optical and mechanical parts.
With strong price pressure and an increasing fraction of the market being captive, revenue of sapphire companies have dropped 20% in 2015 despite a volume increase of 20% across all applications.
Unless strong signals emerge soon to indicate that the display cover opportunity could finally materialize in 2017, many more companies will disappear within the next 12-18 months. While this situation is critical for many players, on the longer term, the market will finally be weeded out of its weakest players. The survivors could emerge stronger and the overall industry healthier. Despite a slight reshuffle in the ranking, the top 5 companies by revenue in 2015 remained the same as in 2014. But 2 newcomers from China, TDG and JeShine appeared in the top 20.
On the way to industry maturity, new applications such as microLED displays could emerge. While they won’t represent an opportunity of the same scale as display covers, they could offer nice upsides to the companies that can capture them.
In this report, you will find a detailed analysis of company revenues per region and product type as well as the update on capacity for crystal growth, finished and PSS wafers with all major changes and information on dozens of existing and emerging players.
Objectives of the Report
The report provides a detailed analysis of the status and prospect of the sapphire industry for: LED, camera lens & fingerprint reader covers, smartwatch & smartphone displays:
- Trends and drivers in established and emerging applications
- LED chip manufacturing industry evolution
- Sapphire supply & demand: will global capacity decrease? Where are prices headed? Impact on revenue. Who will survive?
- Identify and know the key players (established and emerging)
- Geographic trends and specificities
- Technology trends: crystal growth, wafer diameters, PSS.
- Emerging applications
- Status of the sapphire industry and evolution vs. 2015
- 2015 wrap up: winners and losers, casualties and survivors
- Is there still a future for sapphire display covers? What will happen to the industry if this opportunity never materializes?
- How much can LED demand sustain the industry?
- Is China going to completely dominate?
- How much longer can sapphire prices go down?
- Could new applications emerge? Augmented reality or microdisplays?