After LED chipmaker Formosa Epitaxy brought in strategic investor Japan-based Mitsubishi in 2010, the Taiwan-based company has moved from upstream chip production to LED lighting assembly, which has begun limited shipments in the first quarter and volume will increase in the second quarter. Mitsubishi, which controls a 15% stake in Formosa Epitaxy, is expected to gain two seats on Formosa Epitaxy's board.
The reason Taiwan-based LED companies have not had a larger market share of Japan's LED lighting market is largely due to patent limitations, according to industry sources. Companies such as Delta Electronics and CCET were able to break into the Japan market via LED light bulb contract manufacturing for Japan-based vendors. The Formosa Epitaxy and Mitsubishi alliance is a different business method. Mitsubishi was able to use its vast resources to open up sales channels for Formosa Epitaxy, which established a LED lighting module assembly line for Mitsubishi, but LED component sourcing is determined by Mitsubishi.
Formosa Epitaxy indicated that gross margins for LED module production for Mitsubishi is lower than the 40% enjoyed by its LED chip making operation. However, with the synergy created via Mitsubishi's suppliers, Formosa Epitaxy's contract manufacturing business should contribute to both revenues and profitability. The companies expect contributions from their partnership to begin in the second quarter.
Mitsubishi participated in Formosa Epitaxy's new share issue on December 27, 2010. Mitsubishi purchased 74.69 million of the 90 million shares issued at NT$36.44 a share (US$1.23).
The Mitsubishi business group has a wide variety of business interests in Japan. Formosa Epitaxy expects its partnership with Mitsubishi to bring opportunities in large-size monitors, LED lighting, automobile applications and government projects.
Formosa Epitaxy's consolidated revenues could reach NT$7 billion, according to analysts, adding that LED chips for lighting applications will represent 30%. The new LED lighting assembly line could account for 10% of revenues as well.