​Genesis Photonics (3383.TT), a supplier of LED products including flip-chip and specialty LEDs, has sued Apple (AAPL) in the Taiwan courts for infringing 9 of the company’s patents concerning LED packaging, including mini-LED packaging and mini-LED backlight modules.  The Apple products that the Genesis suit is focused on are the iPad Pro, the iPad Pro Mini and related products, with the suit requesting that all infringement cease and the firm be compensated for the infringement.  The documents specify compensation of $7.55m, which is the minimum necessary for the filing, with the actual amount to be refiled after the number of infringing products is determined.  Genesis expects to file similar documents in other countries.

In March of 2020 we noted that Epistar, now part of Ennostar (3714.TT), who was the holder of considerable IP surrounding filament LED light bulbs, had begun a lawsuit against Lowe’s Home Center (LOW) for infringing five of its patents, all concerning filament LED light bulbs.  Epistar has also sued Adamax (pvt), who settled and is now paying royalties, and V-TAC (6229.TT), who agreed to stop selling the infringing product, but the Lowe’s suit has been in the courts for so long that we expect some of the legal staff has aged out.  That said, on 12/6 a jury in the US District Court – Central District of California, ruled in favor of Epistar in the case and awarded $707,000 for each of the three (of five) patents that it found Lowe’s had violated, for a total of $2.12m.  While this is likely less than the legal bills going back to the original filing in April of 2017, Epistar is now seeking to increase the compensation as the jury found that Lowe’s had intentionally infringed Epistar’s patents.  The bulbs were produced by China based Yankon Lighting (Zhejiang Yankon Group (600261.CH) who was not named in the verdict.

Epitaxial[1] growth is a process by which silicon and III-IV compound devices are produced, with silicon substrates the leading material.  Much has been said about the necessity for high quality wafers on which various devices can be deposited but the underlying demand is what is expected to drive the expansion of the epi-wafer industry over the next few years.  Based on a model developed by Yole, demand in 2019 was for ~7.8m 6” equivalents, driven primarily by power electronics applications, but that will both grow and change by 2025 to ~21.3m 6” equivalents, driven by photonics, traditional LEDs, and Mini/Micro LED demand.


[1] Epitaxy is the deposition of materials on a crystalline substrate.

Epitaxy equipment, ~$692m last year is expected to grow to $1.1b by 2026, roughly an 8% CAGR but there are only a few suppliers of this equipment and over 60% of the market is controlled by the top three suppliers, Aixtron (AIXA.GR), Veeco (VECO), and AMEC (688012.CH).  As the technology for each application develops over the next few years, more specialized equipment could become necessary, which would give other tool vendors a better entry point when competing in this market.  Aixtron’s dominance in the Chinese market has allowed them to grow share by 10% over the 2018 – 2020 period, while both others have lost share, with a portion of those gains and losses a result of the trade war between the US and China. 
As noted smaller players are able to gain share with equipment such as MBE (Molecular Beam Epitaxy), which will be used for some forms of micro-LED production, but for traditional LED and Mini-LED, which use the same basic deposition process, the leaders have yet to be challenged, even by such equipment powerhouses such as Applied Materials (AMAT) and Tokyo Electron (8035.JP), who have been rumored to be entering the MOCVD market for many years.  That said, as device sizes continue to shrink, production techniques tend to move more toward semiconductor processes and that gives semi tool vendors an entry point into the equipment supply chain as it morphs into a semiconductor-like market in 2025 and beyond.  We doubt the big semiconductor equipment players will miss an opportunity to capture some of that potential business.

​Veeco (VECO) and Aixtron (AIXA.GR) are the two main players in the MOCVD (Metal Organic Chemical Vapor Deposition) market, with such tools being the crux of the LED manufacturing business.  Veeco is currently listed on NASDAQ, however Aixtron, a German company listed on the Frankfurt Exchange, terminated their sponsored US ADR program in 2017.  It seems that Citibank (C) has decided to create an ADR program for Aixtron by offering ADRs representing two Aixtron shares, however this is an unsponsored ADR, which means Aixtron will not be reporting results under US rules and is not involved with any aspect of the security.  The Aixtron shares underlying the ADRs are held exclusively by Citibank and are not new or existing shares being offered by the company.  The Citibank ADRs are currently being offered at a premium to their intrinsic value.

​Micro-LEDs are the wave of the future, at least that is what the display industry is promoting, but from a practical standpoint that wave is still a bit offshore.  A recent report by Taiwan based Trendforce indicates that the annual revenue from the production of micro-LED chips for TVs will see a 250% CAGR between 2021 and 2025, reaching $3.4b 4.5 years from now.  With a number of well-entrenched display companies already producing such displays there are those who believe we are on the cusp of a ‘micro-LED revolution’ that will monopolize the display industry and obviate the need for LCD, OLED, quantum dots, and any other form of display technology.  However, before such a revolution takes place there is an enormous amount of technology and process development that needs to take place, which, when examined even or a cursory level, puts those numbers into a more realistic perspective.
As noted, companies like Samsung (005930.KS), LG Electronics (066570.KS), Sony (SNE), and Chinese brand Konka (200016.CH), all have micro-LED ‘product’, along with a few smaller one-off producers, but in most cases that product is sold B2B, with a secondary focus on a ‘;residential’ type product.  The cost for these products is staggering for a number of reasons, the least of which is the number of LEDs that are needed in such retail products, which ranges from 24.89m micro-LEDs for a 4K TV display to 99.53m for an 8K TV display.  As these chips are usually smaller than 100um they are considerably harder to produce and manipulate than typical backlight LEDs and can be as small as red blood cells. 
This presents a number of challenges to those looking to develop realistically priced micro-LED consumer products, especially as there is a necessity for zero defects in such products, quite a challenge when working with that many LEDs and at such small sizes.  Transfer technology is certainly a question, as moving such vast numbers of such small devices falls outside of typical pick and place technology, with a number of transfer processes being researched to bring transfer times to cost effective levels.  But even if that technology is developed and standardized, the inherent defect level, even in the best of micro-LED production and transfer systems would be unacceptable[1].   Each of those defective micro-LEDs would need to be removed and replaced, adding to the time to produce and the cost of such displays.
But that is some of the easy stuff that is already being worked on by both producers and equipment suppliers, while micro-LED producers are trying to find ways to manufacture such small LEDs with uniformity to wavelength (color) and luminance (brightness), which are essential to a retail product.  Having variations in such metrics would make such displays unusable, but that belies a bigger question as to how those metrics are measured as typical equipment used for measuring same does not scale down to the micro-LED level.  That means testing equipment would have to be designed to measure (non-destructively) every micro-LED on a display and some way to compensate for the inevitable variations that would occur must also be designed.
Even the mounting of such small LEDs becomes an issue as typical PCBs do not have the capability for such small connecting points and connection lines.  Even with mini-LEDs, micro-LEDs larger cousins, PCBs are being replaced by processes that deposit the LEDs on a metalized glass substrate, again with new equipment and challenges for mass production.  There are many other issues that face the production and commercialization of micro-LEDs and while we expect the display industry will eventually solve or find workarounds for most or all of such challenges, we find headlines that feature huge CAGRs for Micro-LEDs a bit self-serving.  They probably do help to sell such expensive research reports but they do little to help lay investors to understand the complexities of creating a viable supply chain that can produce Micro-LED products profitably and add to the confusion that some have as to the longevity of existing display modalities.  


[1] For a 4K device with a five 9’s yield, there would be 249 defective micro-LEDs on average.  That would increase to 996 in an 8K display

There have been reports over the last year that high-tech money is no longer flowing to what might be considered ‘older’ technology and is only earmarked for semiconductors and AI.  While we are sure that there are projects that have seen lower funding from local governments, but when it comes to China’s big boys, the funding seems to be available and even ahead of where we would have expected funding to be at this mid-point of the year.
When speaking of LEDs in China, the country’s largest LED chip manufacturer is Sanan (600703.CH), who falls within the top 10 globally, having generated $8.35b last year, growing 13.5% y/y, and while that certainly gives the company status, Sanan is spread across much of China and has to garner favor with each local or provincial government in the regions where it is located or expanding to.   While the ‘elite’ status with the central government gives Sana cache, each subsidy deal has to be worked through with the particular government support group one by one.
That said, since the last day of 2020 Sanan has received the following subsidies, with each allocated to the particular Sanan subsidiary in that region, and while we understand that these subsidies are at the behest of each local or provincial government, we would expect that the rate of endowment established thus far in 2021, would continue through the year, although the largest listed below is for a specific project currently under construction, so the amount of future subsidies could change as the project progresses, in either direction.  Again, Sanan is a company well recognized by all governments as one that is representative of China’s ability to become a global force in the global LED/semiconductor market, and is therefore more likely to get funding than start-ups with a leading edge process, but the idea that subsidies are only going to semiconductor foundry, advanced packaging, or Ai companies is a false one.