U.S. LED manufacturer Cree utilized its monopoly in high power LED chip technology to develop ceramic package LEDs, just shortly after China’s LED package industry ventured into the display backlight market in 2008. Cree went on to dominate the outdoor lighting market and other high end applications, while setting new luminous efficacy records.

Having secured market positions in the backlight display market, Chinese LED package manufacturers skilled at imitating advanced foreign technology, quickly set their sights on high power lighting market. Eager to claim market share in this area, many healthy financed manufacturers invested heavily in high power ceramic LED package production lines, despite a single production line cost reaching RMB 10 million. There were a total of 20 ceramic package production lines after 2011, some classical examples included listed companies Lightning Optoelectronic, Nationstar, Honglitronics, and Refond. Yet, the stark reality has been most high power LED ceramic package production lines have been idle, even though these products can still be found on the market over the last four years. Only a few manufacturers have received handsome government subsidies, while the majority of ceramic package manufacturers’ profits can be omitted. China’s ceramic package industry has become a source of heartache for early advocates.

What caused this outcome? Industry insiders have identified the following four factors:

1)      Chinese manufacturers have poor brand image, and are not recognized in domestic or international markets.

A copied product will always just be a replica. Chinese consumers and clients usually think duplicated products are less reliable than the original. Cree and other international manufacturers, for instance have been developing high power ceramic packages for years, and have already built up a reputable brand image among consumers. Cree has already become the synonym for high power ceramic package, and its market position in China’s LED package industry is almost untouchable in the short term. To illustrate, China’s outdoor lighting applications, landscape lighting and other government pilot projects usually will use Cree LEDs. Especially, since these lighting projects emphasize the importance of lighting. In contrast, Chinese LED package manufacturers, even listed companies are almost unknown in the high power lighting industry. Domestic consumers do not recognize their products, so imagine how difficult it will be to sell the products on international markets, such as in U.S. or Europe.

2)      Low yield rates caused by immature package technology

Learning is a process, even if manufacturers have purchased the needed equipment it is not the same as possessing the actual technology. This is the hard learned lesson of a ceramic package advocator in China, who has experienced years of hardship. Early ceramic package’s technology adaptors faced a myriad of technology barriers including chip electrode positioning, eutectic bonding, phosphor powder coating, silicon glue molding, chip slicing, optical measurement and other difficult technical procedures. Some of the issues included inaccurate positioning, hollowed out eutectic bonding layer, and cracked chips when under pressure. Other issues also greatly raised reliability risks, and caused high failure rates that continued to bog down manufacturers.

3)      Imports lead to high LED chip and substrate costs

Even if manufacturers successfully headhunt talent, it is not equivalent to acquiring the needed services. This has been a hard learned lesson for Chinese manufacturers. Even if Chinese manufacturers successfully headhunt engineers from Cree’s technology team, the new members did not bring with them excellent raw material services. This issue is most evident in LED chip and substrate raw material sources.

High power LED chips used in core components tend to take up more than 50% of raw material costs, and can seriously impact LED package prices. Currently, high power LED chips have been in the control of Cree and other European and U.S. manufacturers. These products are manufactured in small volumes, and are retailed at high prices. The products also tend to only have a single raw material source, which has long bothered Chinese LED package manufacturers. Whether it is developing sample LED chips or mass production, the delivery periods can be extremely long. High prices have also continued to limit ceramic package production scale. Technology limitations and potential patent infringement risks have caused San’an Opto and other large Chinese LED chip manufacturers to focus on small power LED chips in recent years. Unable to meet high power LED chip market demands, LED package manufacturers almost completely rely on high power LED chip imports. This greatly limits vendors negotiation power against foreign manufacturers when it comes to high power LED chip import volume and quality.

Furthermore, Taiwanese LED manufacturers control LED chip and matching eutectic bonded ceramic substrates, such as Tong Hsing Electronic Industry. Prices, delivery time, poor services, and communication issues have also plagued Chinese LED package clients. Many Taiwanese manufacturers insist on prepayments before shipping products, and it is very difficult to return products. This has been challenging for LED package manufacturers that are accustomed to delaying payment.

These key raw materials come from a single source, and has forced Chinese package manufacturers into a bad negotiation position. Even though Chinese manufactured phosphor powder, silicon glue, and other raw material prices have dropped, key LED chip and substrate prices have remained the same. This is very different from low to mid power LED light source price drops. High raw material prices, and failure rates have resulted in China’s high ceramic package costs and at a disadvantage compared to large international manufacturers. Additionally, consumers do not trust these products reliability. Lack of recognition for Chinese products, and single ceramic package light sources have made it difficult to promote these products.

4) Emerging EMC package trend integrates mid and high power LED package

Aside from the above listed factors, the emergence of Epoxy Molding Compound (EMC) technology has also made the industry question the future of ceramic packages. EMC lead frames used in mid-power LEDs have become increasingly popular, mainly since mid-power LEDs have become mainstream products since 2013, spurred by high LED lighting demand growths, increasing direct-type LED backlight wattage. EMC leadframes have become a major focus in the industry, and have high heat resistance, UV resistance and high current conductivity. The product is also small, and yellowing resistant and mainly targeting the 0.5W to 2W powers. This is a huge threat to ceramic package in the high power market.

A major promoter of EMC package has been Japanese LED package manufacturer Nichia, who has leading production capacity and technology. There are major market strategic reasons behind Nichia’s decision to promote EMC package, which are aimed at its top two competitors Cree and Everlight. Cree’s mainstream product is high-power ceramic package LED products, while Everlight’s has been Surface Mounted Devices (SMD) LEDs made from polyphthalamide (PPA) or PolyCyclohexylene-dimethylene Terephthalates (PCT) material. Nichia’s EMC LED is able to compensate ceramic package’s high costs, and SMD LED’s inability to be applied in high power applications. The new innovative EMC package technology has been successful in countering competitors Cree and Everlight strategy.

Based on the above market strategy, Nichia has been actively promoting its EMC products in 2013. The company claims it has launched PCT and ceramic substrates to dominate the market, and its 757 series EMC lead frames has received widespread market attention. Observant Chinese LED package manufacturers have been active learners, and even though their market strategies are different from Nichia’s, many quickly invested large sums of money in EMC technology. Just one year after Japanese manufacturers promoted EMC package. With these manufacturers all expanding mid-power EMC production capacity, the ceramic package industry was quickly put on the backburner.

From this perspective, is the Chinese ceramic package industry stuck in a quagmire? This will require further analysis.

(Author: Dr. Chaohui Wu, CTO, Kechenda Electronic Technologyhttp:// Translator: Judy Lin, Chief Editor, LEDinside)