Formosa Epitaxy is specialized in LED chip and wafer production, its product lines including blue, green, UV LED chips. Currently, Formosa Expitaxy is not only holding a significant role in the LED backlight market through joint-ventures with the downstream panel makers, but also actively tapping into the lighting market. Recently, it has further forged a strategic partnership with Mitsui&Co., LTD, one of the Japanese largest enterprises, receiving much attention from the LED market and industry. In the increasingly fierce competition in LED industry, Formosa Epitaxy has found out its outlets by means of joint venture and alliance.
Strategic Cooperation with Mitsui&Co., LTD
Mitsui&Co., LTD is one of largest enterprises in Japan with investments all over the world. In light of TV related products, Mitsui is a channel agent to provide Japan-made panels to China’s TV brands as well as Japan-made materials and equipment to China’s LCD makers. Moreover, it is vigorously investing in the green energy industry covering electric vehicles and batteries. Formosa Epitaxy’s well-recognized technology patents and similar management concepts to Mitsui’s are expected to achieve synergies in this cooperation with a win-win result. In the future, Mitsui is likely to enter LED product application market via its investment in Formosa Epitaxy. In return, Formosa Epitaxy can benefit from Mitsui’s TV and panel related channels around the world. Therefore, Formosa Epitaxy formally announced Mitsui to be one of its shareholders in the shareholder meeting on April 19, 2011. As a result, Mitsui got two board seats, being able to help Fomosa with its business strategies and plans.
Formosa Epitaxy has a long-term development plan in the LED backlights, general lighting and automobile lighting fields. In the LED backlight market, FOREPI provides LED backlights to LG and Datong、CPT. However, most panel makers are operated in vertical integration mode, for example, LG Innotek of LG, Samsung LED of Samsung, Chimei Lighting of Chimei, Lextar of AUO all can offer direct chip supply to their own parent companies. Therefore, the relationship with TV penal makers is between friends and enemies each other. It is believed that FOREPI’s panel maker outlets will become more definite and reliable with Mitsui’s assistance.
Mitsui’s channel management adopts layer management model, which means that Mitsui manages large dealers who in turn manage middle dealers who further manage small dealers.
Currently Mitsui and Formosa Epitaxy are cooperating on the following four projects:
(1) Improving Formasa Epitaxy’s relationship with five major LED makers to create new cooperative opportunities
(2) Improving Formasa Epitaxy’s relationship with Japan-based LCD and lighting manufacturers to create new supply opportunities
(3) Improving Formasa Epitaxy’s relationship with China-based LCD and lighting manufacturers to strengthen customer relations
(4) Expanding customers in the lighting area
Strategic Management Transformation for Future Opportunities
Thanks to the increasing inventory of Korean TV brands, Formosa Epitaxy posted outstanding revenues in 2Q and 3Q 2010, of which 60%~70% came from Korea TV brands. In contrast, it faced deficit in 4Q 2010. The main reason was that less-than-expected sales of TV brands in the latter half of 2010 led to inventory adjusted by Korean TV brands. Unsmooth LED backlight shipment, slack season plus currency exchange losses had all contributed to the net loss in the fourth quarter of 2010. After thorough consideration, Formosa Epitaxy was aware of the above reasons for loss and able to see clearer future development and market opportunities. Nowadays, Formosa Epitaxy is actively making transformation in addition to the beginning of mass production in Canyang Optoelectronics. After revenue rebound in 1Q 2011, FOREPI will take the Mainland China as the major market of the lighting and backlight supplies. In terms of FOREPI’s product mix, 85% is backlight application and the rest 15% which goes to the lighting application, which is expected to rise to 25% by the end of 2011.
LED TV Sales will Recover in 2Q and 3Q While Post-disaster Reconstruction in Japan Raises LED Lighting Demand
In light of the LED backlight market, it still takes time for destocking. Thus Formosa Epitaxy believes that TV sales in 2Q and 3Q are sure to go well and panel shipment is expected to warm up in June and July. Meanwhile, due to the quick TV brands’ generation shift, the life cycle of LED backlight specification reduces to less than 6 months and even only 3 months for the Korean makers, which lead to a fierce competition.
On the other hand, in LED lighting market trend, the energy-saving and environment-friendly awareness largely rose in Japan after earthquakes. The LED lighting demand for reconstruction can be expected. Besides, the National Development and Reform Commission in Mainland China is considering about a complete ban on the use of CCFL backlit TVs in 2012. However, the Chinese market has witnessed a great volume of low- and mid-level backlights breaking into the lighting supply chain. As a result, we are afraid that the crowding out effect may lead to another wave of solar industry development. In FOREPI’s opinion, only product quality and channels can maintain the market development.
Expectations and Outlook of Formosa Epitaxy
Formosa Epitaxy expects to implement an international plan to devlop the LED market with the channel agents together. It is believed that it will also strengthen relationship with strategic partners, including lights makers, panel makers, and automakers. Furthermore, FOREPI will continue to develop in cost management, technology development and patents. In terms of business management, Formosa Epitaxy believes more flexibility for employees, they can see Formosa Epitaxy and Canyang as their own business, and achieve the goal together. As for expansion plans, apart from Yangzhou Canyang, FOREPI also evaluates other investment opportunities in view of partner needs and local production base conditions.