Soaring demands for AlInGaN LEDs for virtual reality (VR) and security applications caused severe chip shortages for Epistar, reported Taiwanese media Commercial Times.

The world’s largest AlInGaN LED supplier’s order visibility reached October 2016, something that has not occurred for several years.

It is estimated the company will reach full production utilization rates by third quarter of 2016, and the Taiwanese company’s blue LEDs utilization rates will reach at least 90%. If orders continue to stream in, Epistar might restart equipment that it removed or shut down.

To meet AlInGaN LED demands, Epistar started production expansions in second quarter of 2016, and added new production capacity to meet supply shortages. It has in total 47 AlInGaN MOCVDs, and the company plans to convert 13 blue LED MOCVDs into AlInGaN LEDs, which is a rare expansion project.

Epistar spokesperson and Chief Financial Officer Rider Chang noted the latest AlInGaN LED demand surge was unexpected, something they have not seen for years. Clients are scrambling for AlInGaN LED production capacity, causing a supply shortage. The company’s full production utilization rates are expected to extend well into third quarter.

The two main drivers behind the rising demands is IR LED sensor applications, especially rising VR applications, where one device normally requires 30-40 IR LED sensors, which stimulated AlInGaP LED usage volume. Additionally, global airports security demands also increased because of terrorist attacks and threats. Moreover, rising demands in smartphones, wearables, industrial sensor demands and others have also spurred AlInGaN LED production capacity. Lastly, reduced pitch distances in small pitch RGB LED displays and increased resolution has resulted in even larger demands for ultra-bright red LED production capacity, the main production capacity of AlInGaN LEDs.

Epistar’s AlInGaN LED revenue share is about 20% to 25%, primarily focused on ultra-bright AlInGaN LEDs. In the past, the product belonged to the niche lighting market, but IR LED price quotes are often several times higher than blue LEDs, which made it the company's main revenue source.

Epistar is a top AlInGaN LED manufacturer and the world’s top ranking red LED manufacturer in terms of market share. The company is one of the few independent chip manufacturers, while Chinese competitors San’an Opto and HC Semitek also have AlInGaN LED products patent issues making it difficult for them to ship their products to international markets.

In addition to its booming AlInGaN LED business, Epistar hiked large sized LED chip prices to meet stringent DLC 4.0 standards, reported DIGITIMES. The higher technical requirements will be implemented as of Sept. 1, 2016, said the sources. In DLC 4.0, luminous efficiency standards for LED lighting products will be raised by 15 lm/W to 25 lm/W from the previous version. Under the new DLC 4.0 standards, the required luminous efficiency for indoor LED light tubes for instance will be raised to 110 lm/W.