Formosa Epitaxy, a Taiwan-based maker of LED epitaxial wafers and chips, plans to install 11 sets of MOCVD sets at its subsidiary in Yangzhou City, eastern China, in the first half of 2011 and 14 additional sets in the second half, but will delay installation of 14 sets if the city government ends the subsidization from July 2011 as rumored, according to the company.

In view of large demand for LED products and market growth potential, local governments in China have offered CNY8-10 million (US$1.2-1.5 million) to subsidize installation of a new MOCVD set, a financial incentive for investment in LED production, according to industry sources in Taiwan.

Under a subsidization agreement with Yangzhou City Government, Formosa Epitaxy has installed 25 MOCVD sets at the subsidiary. However, there is a rumor that the China government, due to worries that China's total production capacity of LED chips will be expanded to an excess level 10-15 times the 2009 capacity in 2014 under the subsidization plan, and therefore has asked local governments to cut or end the financial aid. Thus, Yangzhou City Government will reportedly end the subsidization in July 2011, with Formosa Epitaxy's planned installation of 14 sets in the second half of 2011 to be subject to no subsidies, the sources explained.

A total of more than 330 MOCVD sets were installed around China in 2010, and the number is expected to increase to 700-800 or even 1,000 in 2011, the sources indicated. Including Yangzhou, many local governments have not approved new applications for such subsidy for a few months, the sources pointed out.