December 28, 2011 — Maxim Group, in its equity research on light emitting diode (LED) sector companies, finds that competition and demand strategies will push LED prices lower in the near future, and the capital expenditures surge of 2010-2011 is giving way to a tool spending downturn.
LED prices are poised to drop ~30% per year in response to demand elasticity strategies meant to drive market penetration. Another price-reducing factor is LED maker competition; LED makers will need to take their production costs lower to maintain profitability. Maxim Group asserts that higher efficiencies, transitions to larger (6") wafers, and lower-cost materials will improve production costs.
Technology and intellectual property (IP) rights are the LED maker’s barrier to price-only-based competition in key markets of Europe, the US, and Japan, as LED technology is still in its nascent years, notes Maxim Group.
LED manufacturing equipment companies will see a drought in new orders in 2012 and 2013. This downturn follows a burst of capex for LED makers in 2010 and 2011. While LED lighting growth will likely eventually drive a reinvestment cycle, Maxim believes metal-organic chemical vapor deposition (MOCVD) tool orders at Aixtron (AIXG) and Veeco (VECO) are likely to fall (45-50%) in 2012.