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Epistar Corporation

Manufacturing Prowess + Patents = Global Primacy

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Can a “two-legged” strategy help Epistar Corporation become the UMC of the trillion-NT-dollar LED industry?

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Manufacturing Prowess + Patents = Global Primacy

By Ming-Chun Chen
From CommonWealth Magazine (vol. 369 )

If any LED manufacturer out of Taiwan stands out above the crowd, it is the Epistar Corporation.

In terms of volume, Epistar is currently the world’s leading LED chip manufacturer. With the completion of its highly anticipated merger with Epitech and Highlink, the new Epistar has a production capacity that has leapfrogged past world-beater Nichia.

“When people think of chips and Epistar comes right to mind, it signals great opportunities for Taiwan,” offers Dr. B.J. Lee, president of Epistar.

The new Epistar has set its revenue target for this year at NT$12 billion, an increase of more than 30 percent over the combined 2006 annual revenues of both Epistar and Epitech – NT$6.29 billion and NT$2.8 billion, respectively.

In qualitative terms, the new post-merger Epistar has applied for and received over 800 patents, exceeding the total of all Taiwan’s LED makers combined and putting it on nearly equal footing with global powers Nichia and Osram.

For an LED industry in the process of taking off, patents are the ultimate weapon for achieving supremacy. “All patents are barriers. If you want to be able to sell and advance freely in this industry, you either need to be equipped to negotiate authorization with others or you need to deal with them using patents. Without any patents your development is always going to be limited,” notes Lee.

Production capacity in one hand and patents in the other are Epistar’s two most important competitive factors.

Leaving Mainland Competition in the Dust

One key aspect of the LED industry is the varying distribution of luminous efficiency in each chip, requiring an expansive production capacity as a foundation to enable adjustment of the product structure.

For example, perhaps as little as 30 percent of an LED wafer can be used for the purpose of television backlighting. The remainder of the lower-end products must be consumed on lower cost items like mobile phone buttons or advertising billboards to prevent inventory from piling up.

“Profit needs to be controlled through product mix, which requires a sufficiently high production capacity to enable that kind of distribution,” shares B.J. Lee.

Further, looking at future applications, LEDs could replace other sources of TV backlighting in the next three or four years, at which time the LED industry’s demand for integrated circuits will be as high as the entire world’s current IC production capacity.

Epistar CEO B.J. Lee is confident that with continued efforts in R&D the company can catch up to others; otherwise, it will always be a follower.

The acquisition of Epitech has given Epistar sufficient production capacity to facilitate growth. “When the industry takes off, all I need to do is adjust my product mix and get started,” remarks B.J. Lee.

More importantly, expanding production capacity can shake off the pursuit of Chinese competitors.

In China, technology is rapidly proliferating, and with the low threshold for entering the LED sector, husband and wife teams armed with magnifying lenses are gluing LEDs to boards, acting as micro LED plants.

Patents can help bridge the gap between Epistar and major industry names like Nichia and Osram.

Ever since leaving ITRI, B.J. Lee has been keenly interested in intellectual property, establishing an intellectual property department within a year of Epistar’s founding. Of the company’s approximately current 3000 employees, 14 or 15 specialize in law and intellectual property.

“We expend a great deal of energy developing patents. If we keep working in this direction, I think we can catch the others and stand alongside them; otherwise we’ll always be a follower,” says Lee. The company’s intellectual property arrangements have earned it credibility, as evidenced by the manufacturing orders that major overseas companies send Epistar’s way.

Back in 1999, Epistar’s main product was its 4-element LED. At the time, the only Japanese manufacturer that was able to develop a similar product was Toshiba, but it failed to smoothly achieve volume production. In stepped Epistar, gaining its first overseas order.

The 4-element LED is the only LED technology acknowledged worldwide to be invented in Taiwan. In order to raise brightness, one-half of the world’s ICs, including those from Nichia and Gosei, employ this technology, known as ITO (Indium Tin Oxide, also termed transparent conductive electrodes), and Epistar was the first company to introduce an ITO product. ITO can increase LED brightness by 50 percent.

Manufacturing capacity and intellectual property is a complementary pair helping Epistar expand its capabilities. A full 75 percent of Epistar’s sales are derived from its own brand, resulting from direct sales of standard products to packaging and testing plants. Remaining sales come from OEM products designed for customers, which yield a relatively higher margin of 15 percent.

If it can somehow manage to secure Nichia and Osram – companies with extensive patents – as customers, Epistar will have the chance to go from being the Powerchip Semiconductor of the LED industry to the UMC, establishing itself as a world-class supplier.

Epistar heads into the future armed with a two-legged strategy of continually raising production capacity and deepening intellectual property arrangements. With the pragmatism of an R&D professional, B.J. Lee plans to advance deliberately, one step at a time, toward the objective of becoming the UMC of the trillion-NT-dollar LED industry.

Translated from the Chinese by David Toman


Chinese Version: 製造力+專利 打造全球第一

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