Prices of sapphire substrates are expected to drop 10-15% sequentially in the first quarter of 2011, an increase from a previous 5-10% quarterly decrease in 2010, but the decrease will slow down to 5% on quarter in the second quarter of 2011.

LED epitaxial wafer makers indicated that the cost drop will not be too significant in the first quarter as sapphire substrate prices were too high, but expect to see benefits from dropping prices in the second quarter of 2010 and improve product gross margins.

Prices for 2-inch sapphire substrates started to increase from US$10 to US$30-35 in the fourth quarter of 2011 due to the shortage. The prices of 2-inch sapphire substrates have recently dropped below US$30 as market demand turned weak in the fourth quarter of 2010, along with new players from Korean and China joined the market.

LED chipmaker Epistar noted that the company has received several validation request from new suppliers, however Epistar will prioritized its purchase to existing suppliers, but the chipmaker has started to see more room for price negotiation and tight supply is also easing up. Epistar added that overall improvement on its cost will not change in short term though.

LED chipmaker Formosa Epitaxy said that ASPs for LED chips dropped 10-15% sequentially in the fourth quarter of 2010 but the price is stabilizing in the first quarter of 2011. However, it still requires observation on the price change of sapphire substrates, and Formosa expects sapphire substrate prices to drop slightly in the second quarter of 2011 and the third quarter will be the key period for a massive increase of capacity in the market.