Fast-growing market for high-brightness LEDs in LCD TVs will be restricted by a shortage of key semiconductor materials in the second half of 2010, according to a report.

The paper points out that demand has soared with the rapid penetration of LED backlighting modules in LCD TVs. This has also lead to a soaring demand for capital equipment, especially metal-organic chemical vapor deposition (MOCVD) reactors used to make gallium nitride (GaN) LEDs.

The similar trend is now evident in the supply of consumables, specifically the metal-organic material trimethylgallium(TMG) and sapphire wafers. The demand for TMG already exceeds the available supply, therefore manufacturers need to absorb a 20% price increase in the near term.

The paper also predicts that a shortage of sapphire wafers, upon which most blue and white LEDs are produced, is also likely in the second half of 2010. And Taiwan LED manufacturers in particular need to adjust to the new reality of the supply chain. Historically, they have bargained for the price of these key materials.

However, the balance of power in the LED industry has changed, with competitors backed by huge corporations, such as Samsung and LG, much better positioned to absorb higher material costs and to guarantee their supply in a constrained market.

Capacity expansions already in progress should relieve these constraints by mid-2011. Until then, the average selling price of high-brightness LEDs based on gallium nitride should hold up well, according to the predict.