China-based LED makers have ordered a large number of MOCVD sets and were originally expected to start production in the second half of 2011, with consequent large additions of LED capacity likely to push down LED chip prices in the third quarter, according to industry sources in Taiwan. However, the time to bring these new machines into operation will delay due to lack of experienced engineers, the sources pointed out.

In view of large market potential of LED applications as promoted by China's 12th Five-Year Plan, many local governments in China have offered subsidies for procurement of MOCVD sets, causing surging investment in LED production, the sources indicated.

Counting in 6-9 months from placing orders for MOCVD sets to delivery, there will be an estimated 500 new MOCVD sets shipped to China by the end of 2011 and 300 ones of which may come into operation by that time based on three months taken to calibrate machines, the sources pointed out.

Even if 300 MOCVD sets begin production, yield rates are relatively low during initial periods, the sources indicated. Thus, there will not be oversupply of LED chips until the third quarter of 2011 and quotes for LED chips are expected to drop slight on quarter in the second quarter and remain flat in the third one, the sources analyzed.

In the fourth quarter, however, oversupply supply of LED chips may emerge if China-based makers significantly improve yield rates and, as a result, prices will slip, the sources pointed out.