Battling to Light Up the LED Market
Everlight Electronics has relied on branding to build a leading position in the domestic LED industry but is now feeling the squeeze as competition heats up.
Battling to Light Up the LED MarketBy Yuan Chou
From CommonWealth Magazine (vol. 507 )
In business for 29 years, Everlight Electronics Co. is now one of the world's leading LED packaging companies. Last year, it moved its base from its old facility in Tucheng, New Taipei City, to a complex more befitting its stature in the Datong Science Park in nearby Shulin.
Visitors to the company's new 66,000 square-meter headquarters are immediately struck by a massive LED lighting fixture patterned after the spiral of a nautilus shell hanging from the lobby's vaulted ceiling. To enter this high-technology fortress, they are required to put on shoe covers.
Yet for all the glitz and formality, the building's offices are strangely empty with nary an employee in sight at 8:30 a.m., when people should be starting their work day.
In fact, the company's workers have congregated on the eighth floor in the new building's employee cafeteria to follow company chairman Robert Yeh's lead in a daily routine of morning exercises.
"Twist the neck. Move your shoulders. Bend your waist," are among the commands blaring from a loudspeaker, which the 800 people in attendance obey.
"The boss says it's important to do some exercises in the morning to have enough energy for work," says Justin Ding, special assistant to the president at Everlight. "He takes random roll calls. Unless somebody says they will be absent in advance, everybody must attend."
Military Management, Fighting Spirit
Everlight Electronics had sales of NT$18.6 billion in 2011, making it one of the world's 10 biggest LED packaging vendors along with global brands Cree from the United States, Nichia from Japan, Osram AG of Germany, and Phillips Electronics from the Netherlands.
Everlight also holds a strong position in one of the key upstream players in the global LED supply chain – Epistar Corporation.
It holds 6 percent of Epistar's shares, and Yeh, who served as Epistar's chairman for 10 years, is now the LED epi wafer and chip producer's vice chairman. With sales of NT$22 billion in 2011, Epistar established itself as one of the world's top three LED epi wafer vendors.
Combine the sales of "upstream" Epistar and "downstream" Everlight, and Yeh suddenly controls the second biggest LED company in the world, trailing only Nichia.
Everlight was able to vault past the more established Lite-On Technology Corp. and emerge as the leading LED brand in Taiwan because of Yeh's ability to control costs, squeeze out profits from narrow margins and optimize the subcontracting business model.
"I'm best at internal management. That's my strength," Yeh says.
He has relied on strict military-style discipline to steel his employees, though perhaps no longer to the extent that he used to. The 8:30 a.m. exercises today are nothing compared to the 5-kilometer runs he led his employees on at 5 a.m. when he was younger.
"Of course we all joined him for the runs," says Ecolighting Inc. president Chuang Shih-Jen with a laugh. Before founding Ecolighting, Chuang was the head of Everlight's R&D and strategic marketing divisions.
The military-style management approach also extends to building mental discipline, symbolized by the sculpture of a pair of fighting bulls standing outside the main gate of Everlight's new facility. Every employee has a booklet reminding them of the qualities of "the fighting bull": teamwork, the courage to stride forward, and an indomitable will.
Yeh's strict military management style has been the secret of the company's past success, but Yeh is now trying to reinvent the company and break away from the constraints that most contract manufacturers, including Everlight, face.
Getting into the Lighting Market
Starting in the third quarter of 2011, Everlight expanded beyond its core backlighting business to jump into the consumer lighting market using its own "Everlight" brand. Two months ago, in August, Yeh gave his first media interview at his home, explaining the thinking behind the transition from contract manufacturer to consumer brand.
"We already had the foundation of being No. 2. How could we reduce ourselves to simply doing contract work for others?" Yeh said, sitting on his living room sofa, his eyes lighting up as he talked about branding. "The whole world has just begun to move into the lighting application stage after specializing in LED backlighting. Everybody is starting at the same time. There's no reason why I should lose the race to anybody."
In one sense, the move came in response to a perceived threat: contract manufacturers are generally just a small cog in putting together finished products and can be replaced at any time. But Yeh also took his leap of faith because he saw an opportunity: the global general lighting market is huge, worth about NT$3 trillion, about 10 percent of which is accounted for by LED lighting.
That may seem minimal, but it translates to a potential NT$10 billion market in Taiwan alone, where Everlight products have already gained a 60 percent share. Liu Pang-yen, Everlight's spokesman and Production Business Group general manager, estimates that the company's revenues from lighting products totaled NT$750 million in the first six months of the year, accounting for about 8 percent of its total revenues.
Squeezed by Customers, Rivals
Everlight's launch of its own brand formally signaled the arrival of "LED Lighting Year One" in Taiwan.
"This clearly was a watershed moment," says one industry analyst. "Through our surveys of distribution channels, we found that last year before June, monthly sales of LED bulbs were figured in the hundreds. After that, they were figured in the 10,000s."
Everlight successfully invigorated the market, but the company quickly faced a pincer attack from both its customers and rivals.
Seeing their Taiwanese contractor entertaining ambitions of building its own brand, major overseas brands began pulling their orders away from Everlight and also filed complaints against the company for patent infringement.
"This is a common problem facing all of Taiwan's vendors," says Bruce Cheng, the founder of Delta Electronics Inc., a power supply specialist that has also entered the consumer lighting market. "The thing we're most afraid of is that our contracting orders will be sacrificed before we can establish our brand."
In May, Everlight actually scored a victory against Nichia in a patent battle – the Japan Patent Office ruled against Nichia on the complaint it brought against Everlight.
But there are still many more patent battles to fight. "Dealing with these costs money. Whether you're on the attack or being attacked, you have to spend a lot of money," Yeh says, his voice tinged with a sense of weariness.
At the same time, Everlight's competitors have sensed the opportunity and are gearing up to contend aggressively for a piece of the pie. Big manufacturers Delta Electronics and Nan Ya Photonics Inc. are among those who have joined the fray.
Delta Electronics has joined with President Chain Store Corp., the operator of 7-Eleven convenience stores, to sell co-branded LED light bulbs. Nan Ya Photonics, a part of the Formosa Plastics Group, completed Taiwan's first fully automated LED bulb light production line in March to dramatically lower costs and ensure greater quality consistency, establishing itself as a formidable rival.
According to Photonics Industry and Technology Development Association statistics, there are already 30 companies in Taiwan that are pushing LED lighting brands, and cheap LED bulbs costing just over NT$200 have already appeared, stoking fears that the domestic market could soon face turbulence caused by cutthroat competition.
"Most consumers do not have much understanding of LED bulbs, and product labels lack norms," says Nan Ya Photonics president B.J. Wu. "The market is truly chaotic right now. Major brands are all facing high risks."
Though many rivals are taking up the chase against Everlight, Yeh seems unperturbed. "A lone player can't make this market big," he says laughing. "A lot of people getting into it is an affirmation of the product."
Yet while Everlight is the uncontested LED lighting leader in Taiwan, it has not been nearly as successful in cracking open overseas markets. Everlight's brand established for the European market, "Zenaro," has less than a 1 percent market share.
Industry insiders disagree over whether Taiwan's domestic market alone is enough of a driving force to sustain a company's own brand.
Overseas Woes Cause Rethink of Brand Strategy
Nan Ya Photonics' Wu says that his company's goal in promoting its own brand domestically is to gain visibility and attract overseas OEM orders. "Demand in Taiwan is not strong enough to keep our production line busy," he says.
Ecolighting's Chuang warns, however, of the peril of branding in the lighting market, where each link in the supply chain is narrowly defined. "Building a consumer brand usually takes decades, and the competitors are all companies that have been around for over a century," he says. "To subvert the existing order, you have to be sufficiently strong. If you make your intentions known too early, you will have tough sledding afterwards."
At its investor conference at the end of August, Everlight announced that it was changing its brand strategy, abandoning its ambitions to exclusively sell its own branded lighting products for a dual-track strategy in which it will also accept OEM orders.
But Yeh insisted his brand strategy has not changed.
"Contracting jobs are done simply to expand production capacity and lower costs," he says. "We do not see contracting as our main business anymore. We have consistently made branding our main business.
Even sitting at home, Yeh also feels the heavy responsibility of guiding the direction of the LED sector's overall development in Taiwan. "Taiwan cannot remain in the contracting era," he says. "I don't want consumers to just know that Everlight is selling LED lights. I hope even more that Taiwan's LED lights can carve out a spot for themselves in global markets."
Translated from the Chinese by Luke Sabatier