Sapphire Applications and Market from LED to Consumer Electronics 2014 Report by Yole Developpement


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Apple saved the sapphire industry in 2013 and will transform it in 2014. How will the revolution happen?

The sapphire industry recently ended an 18 month period of depressed pricing and achieved US$936 million in revenue for wafer products. Recovery was helped by an increase in LED demand due to growing adoption in general lighting and a resilient LCD backlight market. But the saving grace was new consumer electronic (CE) applications: camera lens and fingerprint reader covers, mostly driven by Apple in 2013. Overall, the growth in wafer demand will be enough to justify a capacity increase toward the end of 2014. For the longer term, we analyzed opportunities of alternative LED substrates (GaN and Si) but concluded that sapphire will retain > 90% of the market through 2020.

After almost 2 years of losses, core prices increased by more than 50% in 2013; tier-1 sapphire vendors are finally selling at prices close to breakeven costs. After a short pause, we expect the uptrend to resume through Q2 and Q3. But leading vendors’ interests are not to increase prices above levels that would allow tier-2 competitors to generate a profit as well. We therefore expect prices to stabilize by the end of the year.

Due to strong competition, finishing companies didn’t pass the higher material costs on to their customers. Wafer prices remained stable in 2013 but will go up slightly in Q2-2014. For PSS, which now dominates with 85% penetration rate, prices could increase faster as supply currently falls short of demand in Taiwan. This will continue until leading suppliers increase capacity and emerging players in China ramp up and enter the supply chain later in 2014. Overall, sapphire prices should stabilize by the end of 2014 and start decreasing again in late 2015 as the industry keeps improving its cost structure.

Report’s key features
• Detailed analysis of PSS manufacturing trends and supply chain
• Analysis of new consumer electronic applications: smart watches, camera lens and fingerprint reader covers and display cover
• Analysis of the GTAT / Apple partnership: capacity and revenue analysis, display cover manufacturing cost modeling.
• Detailed analysis of sapphire use for: LED, SOS, Camera lens & fingerprint reader covers, smart watches, display covers.
• Volume & revenue through 2019 for all applications
• Supply / demand, company revenue & capacity rankings
• Diameter and geographic breakdown, MOCVD capacity
• PSS supply chain and manufacturing
• Alternative substrates for LED: requirements, status, key player, cost of ownership modeling, penetration rates
• Detailed analysis of the GTAT-Apple deal: cost, capacity and revenue model

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Sapphire Applications and Market from LED to Consumer Electronics 2014 Report by Yole Developpement

  1. 1. Sapphire Market 2014: LED Substrate, Display and Protection for Consumer Electronics → → Monocrystal Rubicon GTAT → Core Fabrication → Geometry inspection © 2012• 1 Philips Lumileds Peregrine Semiconductor Wafer Slicing → → Lapping Copyrights © Yole Développement SA. All rights reserved. Diamond polishing 75 cours Emile Zola, F-69001 Lyon-Villeurbanne, France → Tel : +33 472 83 01 80 - Fax : +33 472 83 01 83 Web: → Optical inspection Apple Final cleaning Epitaxy application
  2. 2. Core Prices The 2009-2013 Cycle To understand the current pricing environment and try to predict future trends, it is necessary to look back at the previous price cycle: 2008 – Early 2009 Q4-2009 Initial conditions Worldwide Economic Crisis LED TV: strong demand hike • Few sapphire makers • World economic crisis affecting all industries • Most sapphire makers cash strapped and unable to invest in new capacity. [1]: Trigger Unanticipated[1] and strong demand jump due to success of first LED TV models 2010 2011-2012 Short Term Effect Mid Term Effect Long Term Effect Sapphire Shortage Excess Investment Price crash + long depression • Excessive capacity investments (also by anticipation of general lighting applications growth) • More than 80 new companies trying to enter the market Excess capacity and slower than anticipated demand triggers price crash (8x drop) • Material shortage  Dramatic material price increase (5x) • High profits for established vendors and new entrants, regardless of cost structure Massive adoption of LED for LCD TV backlight wasn’t anticipated before at least 2010-2011 © 2012• 2 Copyrights © Yole Développement SA. All rights reserved. 2011
  3. 3. Sapphire Core and Wafer Revenue Top 20 Companies Total: US$XXX m • • • • © 2012• 3 Copyrights © Yole Développement SA. All rights reserved. The top 5 vendors captured 35% of revenue. The top 20 captured 77%. The 65 remaining companies shared wafer related revenue of US$XXX m However, some of those “2nd tier” are quite successful with non wafer products. We estimate that those “other applications” totaled US$XXX m in 2013. PSS foundries entered the top 20 for the first time (Rigidtech, LGS, Aceplux)
  4. 4. Revenue Geographic Breakdown Cores and CSS • • Total: $188m • • Total: $361m • • © 2012• 4 Copyrights © Yole Développement SA. All rights reserved. The core market is dominated by XXX with 28% of the total core revenue in 2013. Other leaders are XXX in Taiwan, XXX, XXX and XXX in Korea and Rubicon in the US. XXX remains strong in china but faces increasing competition from newcomers HTOT and Unionlight. In addition, many other material makers in china managed to sell core or blanks into the CE wafer supply chain (XXX, XXX…) The CSS market is dominated by Japan, mostly by sales for its domestic market. Namiki was the #1 worldwide leader in 2013 while Kyocera dropped after loosing a key account in Korea. Korea is the #2 region, also mostly selling in its domestic market. The leaders there are unchanged: Iljin display and Hansol Technology. XXX and XXX remains the leaders in China but are now challenged by Unionlight, XXX and many others.
  5. 5. Alternative Substrates For LED Overview • There are two major candidates: Silicon and GaN. Both aim at displacing sapphire by improving LED cost of ownership (Lumen/$). However the philosophy behind them is different: – GaN wafers would significantly increase epiwafer manufacturing cost but enhance performance (light emitted by unit of chip surface) to levels that would still improve the Lumen/$ figure over sapphire. – Silicon would deliver LED performance similar to sapphire but allow significant cost reduction at the die level by enabling manufacturing in existing, fully depreciated 8” CMOS fabs. Manufacturing Efficiency $ • Higher equipment throughput and yields • Economy of scale GaN-on-Si LEDs → Reduce component cost COST = LUMEN LED Performance • Higher efficiency (lumen/W) • More light per chip (driving current) © 2012• 5 Copyrights © Yole Développement SA. All rights reserved. GaN-on-GaN LEDs → Improve performance to reduce number of packages per System
  6. 6. GaN on GaN LEDs Potential applications (General Lighting) MR16, Spot A19, Bulbs Troppher, Linear fluorescent Streetlight High Bay Decorative Directional beam pattern NA High flux required, Controlled beam shape for roadway lighting High flux required, controlled beam shape Design flexibility Priority is often to maximize energy efficiency rather than initial cost Energy efficiency is important for total cost of ownership Low glow usually preferred over high flux Downlight Illustration Requirements Small form factor, high density of light, focused beam High volume Challenge Thermal Management Omni directional beam pattern, low glare NA Very large surface, diffused light, requires low glare Comment Ideal application for GaN. Currently no satisfying solutions for 50W MR16 Glare and cost of ownership are limiting Can also be build with cost efficient Chip On Board (COB) LEDs More suited for low/mid power LEDs GaN could compete when initial cost is key Solutions based on COB or standard power package already exist NA Opportunity for GaN High Low Medium Low Medium Medium Low © 2012• 6 Copyrights © Yole Développement SA. All rights reserved.
  7. 7. GaN vs. Sapphire: Breakeven Price Analysis • • Simulations were conducted for various 4” GaN wafers price and yield hypothesis in order to estimate the breakeven point with current sapphire based technology. The reference target point is represented by the current cost efficiency of a Flip Chip die built on a 4” Patterned Sapphire substrate. Under those assumption, the breakeven point is <$XXX. We therefore consider that unless the price of 4” GaN wafer reaches this <$XXX target, adoption of GaN on GaN will be restricted to niche markets where the specific performance advantages of GaN (high flux over a small surface) overcome the price handicap. An engineered substrate behaving like a GaN bulk wafer but offered at <$XXX would rapidly offer significant cost of ownership benefits over sapphire and could capture significant market shares. Lumens/$ • © 2012• 7 4” GaN wafer price Copyrights © Yole Développement SA. All rights reserved.
  8. 8. LED Makers Positioning Development status LED makers committed to Si as differentiating technology Volume Manufacturing Established LED makers with strong sapphire-based technologies and no internal CMOS fab capacity Ramping Up Pilot Established LED makers with strong sapphire-based technologies and no internal CMOS fab capacity. Have experimented but ruled out Si in the short/mid term. Established LED makers with limited differentiation on sapphire platform and access to internal CMOS fab  Strong incentive for Si LED startups committed to Si as differentiating technology R&D No interest / Exited © 2012• 8 Copyrights © Yole Développement SA. All rights reserved. Defensive Core Strategy Commitment to Si platform
  9. 9. Cost Simulation Results The simulations show a potential cost reduction of -38 to 45% at the die level vs. a 4” sapphire vertical LED: January 2013 Notes: • Front End = epitaxy + Si carrier preparation + wafer processing + bonding + epi substrate removal • Back End 0 = Probe test + scribing  include yield costs (cumulated cost of all the rejected die) © 2012• 9 Copyrights © Yole Développement SA. All rights reserved.
  10. 10. 2010-2014 GaN MOCVD Capacity Evolution Geographic Breakdown (K, CH, JP, TW, US…) Total MOCVD capacity increased 270% in the last for year, with China taking the lead since 2012. However, we estimated that only 70% of the reactors present on Chinese soil are operating. Million TIE/month Feb. 2014 © 2012• 10 Copyrights © Yole Développement SA. All rights reserved. Note: based on physical location of the reactors (i.e: reactors at Chinese branches of Taiwan based LED makers are counted in China)
  11. 11. Wafer Diameter Trends: Thousands TIE/month Geographic Breakdown © 2012• 11 Feb. 2014 See comments next page. Copyrights © Yole Développement SA. All rights reserved.
  12. 12. PSS Supply Chain Overview • The PSS supply chain is highly fragmented with multiple players and products moving along 5 different possible channels: 1 2 3 4 Sapphire Maker PSS Foundry 1 Sapphire Maker with internal PSS capabilities Sapphire Maker 1 LED Makers LED Makers 3 2 Sub-contracting 1 Sapphire Maker 5 PSS Foundry LED Makers 1 2 Sub-contracting PSS Foundry © 2012• 12 LED Makers LED Makers with internal PSS Capabilities 1 Sapphire Maker 2 Copyrights © Yole Développement SA. All rights reserved. 3
  13. 13. PSS Adoption Trends Volume Breakdown and Adoption Rate per Region • • PSS adoption rates varies by region with China, Korea and Japan leading with more than XX%, followed by Taiwan at XX%. US and Europe are trailing at XX% and XX% respectively due to the prevalence of vertical LED structures amongst the local LED makers. However, Philips Lumileds (US) started using small volumes of PSS in 2013. Total: XXm TIE per month © 2012• 13 Copyrights © Yole Développement SA. All rights reserved.
  14. 14. PSS Capacity In Taiwan Overview Note: all capacities in TIE per month Total Volume Processed internally by LED makers: xxk TIE • XXX is the only Taiwan based LED maker that processes a large fraction of its PSS needs internally. Total: xx m Total Capacity: xxk TIE • Leading foundries are: Rigidtech, XXX, XXX and XXX. • Multiple smaller foundries have emerged during the PSS shortage in 2012. We believe that most could disappear in the next 12-18 months. Total Capacity: xxk TIE • Most sapphire makers are now vertically integrated and have some internal PSS capacity. • Leaders are: Crystalwise, Crystal Applied Technology, Tera Xtal (ACTC), Procrystal. • Following the merger with SAS, Crystalwise is now the largest PSS producer with a total capacity of 350k. • Crystal Applied Technology has been outsourcing PSS to foundry partner XXX but is now setting up in-house capacity in China. © 2012• 14 Copyrights © Yole Développement SA. All rights reserved.
  15. 15. Evolution of Peregrine Ultra CMOS Technology STeP2: 500 nm. Epi on 6” Sapphire Technology Scaling STeP3.5: 350nm. Epi on 6” Sapphire Technology Scaling STeP4: 350 nm. Epi on 6” Sapphire Technology Scaling STeP5: 350 nm. Bonded on 6” Sapphire UltraCMOS Best commercial GaAs: 224 Technology Scaling + Substrate improvement STeP8: 250 nm. Bonded on 6” Sapphire Technology Scaling 6” sapphire & 8” SOI wafers (Peregrine) © 2012• 15 Copyrights © Yole Développement SA. All rights reserved. STeP10: 130 nm Epi on 8” eSI-SOI
  16. 16. Definitions and Metrics for Material Capacity Two Inch Equivalent • The TIE metric was a convenient way to gage and compare capacity from one vendor to another. However is not applicable to non wafer products like cell phone display covers and other shapes: – – • • Square shapes lead to potentially higher utilization rates Different orientations possible The example below illustrates how for a boule with a given geometry, the potential material usage varies depending on the geometry and orientation of the parts to be extracted. We chose to still report capacity in TIE for better comparison with historical data. However, one should keep in mind that a given TIE capacity can lead to different volumes if the company serves non wafer applications. © 2012• 16 Copyrights © Yole Développement SA. All rights reserved.
  17. 17. Material Capacity Growth Top 20 manufacturers. • • • • • © 2012• 17 Copyrights © Yole Développement SA. All rights reserved. The top 3 remains unchanged and represent 26% of the total capacity. The top 20 represent 77%. There are now 9 Chinese companies in the top 20. Procrystal capacity = XXXk in Taiwan + XXXk in new facility in China. However, some of the capacity in CN might stem from furnaces transferred from Taiwan. The GTAT capacity reported is for the Salem, NH facility. Although, we believe those furnaces are currently essentially used for process development. Capacity at the new Mesa, AZ is NOT included here.
  18. 18. Focus on China Overview • Since 2009, we’ve tracked a total of 93 companies active or planning to enter the sapphire market. • We believe that at least 10 projects have already pulled the plug or stopped before construction started. Among the highest profile where GCL Opto, SKT and Kanglan which initially targeted a combined capacity of more than 2.5 million TIE per month. • Most of the new entrants rely on growth technologies acquired abroad (GTAT, ARC Energy, Thermal Technology and multiple Eastern European Kyropoulos vendors). However there are now credible equipment manufacturers in China. • There are more than 80 LED epitaxy companies in China. More than half of them are likely to disappear within the next 2-3 years. But strong leaders are emerging (Sanan, ETI, Epilight, Yangzhou Zhongke Semiconductor, Nationstar, Tsinghua Tongfang, HC Semitek, Silan Azure..) © 2012• 18 Copyrights © Yole Développement SA. All rights reserved. Leading Companies: • Crystaland, Aurora, Silian • Emerging: Unionlight, HTOT, Saifei, Shangsheng, TDG Core, NJ-Crystal, Crystal Optech etc…
  19. 19. Supply vs. Demand: Scenario #2: Adding Display Cover to CE & LED Note: excludes 80% of Apple need considered captive at the GTAT Mesa facility © 2012• 19 Copyrights © Yole Développement SA. All rights reserved.
  20. 20. Apple Sapphire Wafer Supply Chain Overview Material (Cores) Slicing Polishing XXXXXXXX Laser Cutting Coating Assembly Partially vertically integrated 30% XXXXXXX XXXXXXXXXXXX XXXXXXXXXX XXXXXXXXXXXXXX XXXXXXXX 70% XXXXXXXXXXX XXXXXXXXX XXXXXXXX © 2012• 20 Copyrights © Yole Développement SA. All rights reserved. XXXXXXXX XXX
  21. 21. Smart Watches and Sapphire • Sapphire has been used in luxury watches since the 1930’s. Todays, most “luxury watches” watches have sapphire windows obtained by the Verneuil method[1]. However, the Verneuil method is limited in size (1-1.5“ diameter max) and “Smartwatches” have rather large displays. This provides opportunity for non alternative bulk growth technologies to capture this market despite their higher cost. Some smartwatch models announced at the CES 2014 feature a sapphire display cover. However, the current market leader, Pebble announced it’s new flagship model will use Gorilla Glass. • • Feb. 2014 The Wellnes Watch by Wellograph features a sapphire display cover (source: company) [1] This market is discussed in details in our “Touch Screens, Displays, Semiconductor, Defense & Consumer Applications of Sapphire” report © 2012• 21 Copyrights © Yole Développement SA. All rights reserved.
  22. 22. GTAT Mesa Revenue Model Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1-2015 Q2-2015 Q3-2015 Q4-2015 # of furnaces operating (Average over the period) Monthly furnace capacity Quarterly output (million pieces) Total Annual (million pieces) ASP (US$) Revenue (US$m) Finishing yields Total display covers (Million Units) Total annual # of display covers • If all iPhone use sapphire by 2015, output might be insufficient to cover 100% needs.  Might use 2nd supplier (would be reasonable for risk mitigation) • Due to exclusivity, GTAT opportunities in sapphire outside of Apple will be quite limited. © 2012• 22 Copyrights © Yole Développement SA. All rights reserved.
  23. 23. Unionlight Technology Co. Ltd (CN) 元亮科技 集团 • Capacity/Capability (Q1-2014) – – • The company has developed an in-house Kyropoulos-type of growth technology called TSTGT (Top Seeded Temperature Gradient Technique) that features CZ-like seeding and diameter control procedures. As of Q4 2013, the company grows 100 kg boule but is currently upgrading the technology to 150 kg by mid 2014 and is currently developing 300kg systems. Sapphire Revenue (estimates): – – Source: Atlas website Xinjing Sapphire boules: 18, 35 and 80kg (source: company) 2012: US $XX million 2013: US $XX million Xinjing Sapphire capacity expansion plan (source: company) © 2012• 23 Copyrights © Yole Développement SA. All rights reserved.
  24. 24. Compound Semiconductors reports from YOLE Bulk & freestanding GaN Graphene New! New! Sapphire for Electronics, Car, Defense… SiC Market 2013 Diamonds New! LED Packaging Status of the LED Industry New! III-V Epitaxy Substrates & Equipment Market New! Sapphire CoSim+ LED Front End Manufacturing Technologies © 2012• 24 GaAs Wafer Market & Applications Copyrights © Yole Développement SA. All rights reserved. UV LED MARKET
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  26. 26. For More Information… Please take a look at our websites: Yole Développement corporate website News Portal - free online registration to our publications Our Offices & Contact Information Sister company; expert in teardown & reverse costing analysis Separate Yole business unit dedicated to financial services Follow us on © 2012• 26 Copyrights © Yole Développement SA. All rights reserved.
  27. 27. Our Offices & Contact Information Europe Office • Yves Devigne, Europe Business Development Manager, Cell: 33 6 75 80 08 25 - Email: • David Jourdan, Headquarter Sales Coordination & Customer Service, Tel: 33 472 83 01 90, Email: USA Office • Michael McLaughlin, Business Development Manager, Phone: (650) 931 2552 - Cell: (408) 839 7178 - Email: • Jeff Edwards, Sales Associate, Yole Inc., Cell: (972) 333 0986- Email: Japan Office • For custom research: Yutaka Katano, General Manager, Yole Japan & President, Yole K.K. Phone: (81) 362 693 457 - Cell: (81) 80 3440 6466 - Fax: (81) 362 693 448 - Email: • For reports business: Takashi Onozawa, Sales Asia & General Manager, Yole K.K. Email: Korea Office • Hailey Yang, Business Development Manager Phone : (82) 2 2010 883 - Cell: (82) 10 4097 5810 - Fax: (82) 2 2010 8899 - Email: © 2012• 27 Copyrights © Yole Développement SA. All rights reserved.