LEDs Emerge as Next Battlefield

By Kim Yoo-chul
Staff Reporter

At a time when the flat-screen television market has sustained growth despite the recession, leading consumer electronics majors are gearing up to foray into a new category ― light-emitting diode (LED) technology.

Although the global consumer electronics industry is in "defensive mode" due to slowing demand for electronics products, hit by the bad economy, "Green IT" is growing in importance, especially in the area of energy saving electronic consumer products.

Meanwhile, stocks of LED-related companies have been rallying in recent months.

South Korea's Samsung Electronics has allocated massive budgets solely for LEDs, while LED chip- and equipment-related players are ready to strengthen overseas tie-ups for patents.

Analysts and watchers say the time is still not ripe to yield immediate profits as the market is in the initial stages of development.

But they said Korean players would be the winners once the economic downturn eases.

LEDs consume less power than current mainstream backlight technology, commonly called "cold cathode fluorescent lamps," or CCFL, used in flat-panels _ a key component for TVs.

They also take up less space and are more environmentally friendly as they don't contain mercury.

But they cost 30 to 40 percent more than LCDs, cited as a main drawback for further expansion by players, experts say.

Samsung: Joint Venture, Strategic Push

Samsung Electronics, the world's biggest producer of flat-screen TVs, has been strategically pushing the LED TV market by unveiling new product line-ups.

To internalize its LED business for more efficiency, Samsung Group plans to launch a new 50:50 LED joint venture with Samsung Electro-Mechanics in April.

Samsung officials say time is crucial to lead and expand the market, as its global flat-screen leadership has reached a level that its rivals can't threaten any time soon.

"Massive investment and speedy decisions were key drivers for Samsung over a decade for the top spot in the global TV market. Now, we are challenging ourselves for the future," Samsung Electronics spokesman Kim Se-hun said.

Kim added a joint venture ― a combination of Samsung Electronics' marketing power and Samsung Electro-Mechanics' chip supplement ― could create more synergy when LED-related products become more affordable.

"So far, Samsung has secured some 3,000 LED TV-related patents, helping us to run the new business stably," Yoon Boo-keun, president of the company's visual display division, said.

LEDs are used in LCD TVs to illuminate their displays, while LCDs are "transmissive" displays, meaning they don't generate their own light and need a separate illumination source or backlight.

Analysts and industry watchers were positive about patents, citing a recent patent partnership in LED chips with Samsung Electro-Mechanics and Japan's Toyota Gosei.

"The profitability and growth prospects of Samsung Electro-Mechanics' LED business are stable. The cross-alliance with the Japanese company eased worries over potential patent disputes," Morgan Stanley wrote in a note to clients.

"We maintain 49,000 won of Samsung Electro-Mechanics' target price," it said, adding sales networks of Samsung Electronics will help the component affiliate with further sales.

"Taking into account Samsung Electro-Mech's fundamentals and that its parts-making business is doing very well compared to its struggling Japanese peers, I'd say the shares could go up further," said Park Sang-hyun, analyst at HI Investment & Securities.

Samsung Electro-Mechanics is up some 40 percent from late October, according to data from Korea Exchange (KRX).

"As the manufacturing process for LEDs is similar to that of semiconductors, the joint venture would benefit from Samsung Electro-Mechanics' LED technology and Samsung Electronics' chip making capabilities," Jung Tae-jin, a spokesman of Samsung Electro-Mechanics, said.

Samsung Electronics is the world's biggest producer of memory chips ― NAND flashes and DRAMs.

Samsung forecasts the global LED market will grow by about 20 percent annually over the next five years, from $5.2 billion in 2009 to $12.7 billion in 2013, citing research firm studies.

Market research firm iSuppli said LED sales will rise about 3 percent this year, while the overall semiconductor market is expected to drop by 10 percent.

LG: Taps Market, Separate Approach

Like Samsung Group, the nation's third-biggest conglomerate, LG Group, has also been raising its budgets for the LED businesses of its affiliates ― LG Display for chips and LG Innotek for backlights.

LG hopes to internalize the LED business for better management and efficiency, but the two separate units are currently pushing for separate approaches, focusing on their strengths.

"We will internalize the LED business. But affiliates should strengthen competitiveness first," said an LG Group spokesman.

LG Group is set to hire some 4,000 college graduates this year, most of whom are to be tasked with research & development (R&D) in such areas as LED- and solar-related segments.

In January, LG Display signed a partnership deal with Nasdaq-listed Cree Inc. to secure supplies of LED chips for its flat-screen devices.

LG Display officials said it has secured some 700 LED-related patents and added the deal is in the initial stages to internalize LED-related technologies via outsourcing.

Cree, which manufactures semiconductor materials and devices, is leading the LED lighting moves and setting the stage to make incandescent light bulbs obsolete through the use of eco-friendly lighting.

LG Display, currently focusing on small- and mid-sized panels for IT functions, forecasts some 30 percent of notebook computers will have LED backlights.

Big players in notebook PCs such as Dell, Acer and Apple have been promising to introduce LED-type notebook computers.

As the global flat-screen market has been showing signs of relief on the back of the effects of output cuts by LCD makers, LG Display is planning to increase LED-backlighting panels' share of its total notebook PC LCDs to 50 percent.

LG Innotek is also seeing a larger share in the LED module market by forging a technology tie-up with another Japanese company.

"As the market grows, more litigation disputes might come from Japanese companies. Now, the nation's LED industry needs to form an alliance to develop key technologies and tackle possible patent woes from rivals," said an official from LG Innotek.

Innotek CEO Huh Young-ho earlier set this year's targets to secure as many stable clients as possible in its module business and to solidify business structures by expanding its footsteps to system-related segments.

Chances for Small Companies

In addition to larger firms, local LED equipment makers are taking a chance in the promising market. Smaller firms have disadvantages for further expansion due to a lack of a cash-raising capability.

In the market, where Japanese firms account for up to 70 percent, owning key technologies and driving the business seemed to be tougher for them.

However, Seoul Semiconductor recently settled years of litigation with a Japanese company and entered a cross-licensing arrangement.

The South Korea-based manufacturer of LED application products and Nichia have just entered into a cross-license agreement covering LED and laser diode technologies, permitting the companies to access all of each others' patented technologies.

Nichia is a Japan-based manufacturer and supplier of LEDs and phosphors.

Stocks of the semiconductor maker rose 5.71 percent to end at 28,700 won on the nation's main bourse, Monday. Its total values have exceeded 1.46 trillion won, according to the KRX.

"South Korean LED-related companies have strong merits in terms of technology for more shares. Signs of recession will be short-term," said Byun Joon-ho, an analyst at KB Investment & Securities.

The LED-related companies aren't concerned about possible support from the South Korean government because deciding to massively invest in next cash cows is totally dependent on interests from makers.

"Government support doesn't matter. Companies will voluntarily invest in the LED business according to their business needs. What I want to say is it's urgent for South Korean players to secure original technologies in LEDs," said an analyst at Daewoo Securities who asked not to be identified.

The South Korean government earlier claimed that it will be a strong supporter of the LED business, claiming it would invest 540.1 billion won, or $402.3 million, in the next five years, to accelerate eco-friendly segments such as LEDs.

yckim@koreatimes.co.kr