Thinking from Nichia: Taiwan’s LED red supply chain’s way to break through

In the past 10 years, with the support of the mainland government, the mainland LED industry has used different subsidy programs and protective measures to nurture companies such as Sanan Optoelectronics and Mulinsen Optoelectronics that are capable of entering the international market. Sanan Optoelectronics, for its part, not only received subsidies from the government for the purchase of metal-organic chemical deposition (MOCVD) machines, but also conducted large-scale talent poaching in Taiwan, and even further invested in Taiwan's epitaxial epitaxy factory.

Among them, Sanan Optoelectronics invested to acquire a 19.9% stake in Canyuan Optoelectronics in 2013. After Epistar Optoelectronics acquired Canyuan Optoelectronics in 2014, Sanan Optoelectronics converted to own a 3% stake in Epistar Optoelectronics. After Epistar Optoelectronics acquired TSMC Solid State Lighting in 2015, Sanan Optoelectronics still owns about 2.8% of Epistar Optoelectronics, with significant spillover effects.

Mainland manufacturers are actively opening up territories to compete for alliances and core patents

In addition to Sanan Optoelectronics, the mainland industry has also actively carried out international mergers and acquisitions in the past few years. Among them, on March 31, 2015, Beijing Jinshajiang Venture Capital announced the acquisition of Royal Netherlands for $3.3 billion. The acquisition of 80.1% of the shares of Lumileds, a subsidiary of Philips, is expected to be officially completed in the third quarter of 2015 after obtaining approval from relevant regulatory authorities. This business unit will include the original LED business and the automotive lighting division spun off from the Philips Group. This move has really shocked the global LED industry.

It is worth noting that through this acquisition, the mainland LED industry will be able to break through the existing patent barriers of traditional LED manufacturers such as Nichia, Osram, Toyoda Gosei, and Cree. However, amidst the ebb and flow of this competitive situation, what is worrying is the increasingly heavy competitive pressure on Taiwan's LED industry.

Thinking about how to break through the red supply chain based on Nichia’s experience

Beijing Jinshajiang Venture Capital’s acquisition of Lumileds is just one example of mainland companies using capital to compete for the international market and break through the patent wall, but for Taiwan’s LED industry, which is mostly small and medium-sized enterprises, this is undoubtedly a powerful shock bomb.

Therefore, if Taiwan’s LED industry wants to break out from the existing competitive pressure and difficulties, it may further learn from Nichia’s experience in continuous R&D innovation and laying out core patents.

The time when Nichia developed blue LEDs based on gallium nitride (GaN) materials happened to be the germination period of gallium nitride materials. Through the collaboration of employees at the time, the 2014 Nobel Prize winner in physics, Professor Shuji Nakamura of Santa Barbara University, and other Nichia employees, a series of patents on materials, structures, packaging and applications were developed. In particular, patents on white LEDs blocked the market development of global LED manufacturers. After many subsequent patent litigations, the patent cross-licensing situation among the five major manufacturers was formed, which also caused patent obstacles for LED manufacturers on both sides of the Taiwan Strait to develop the white light-emitting diode market.

Although it is often said in the industry that Nichia's patents will expire one after another, it is believed that there will be a peaceful life after that, and it will no longer be restricted by Nichia's patents. However, people from all walks of life have ignored that Nichia continues to use patent continuity and division cases to continue to extend the scope and validity period of patents. At the same time, it continues to actively develop new materials, new technologies, and new products, and lay out new core patents.

In terms of new materials, new technologies and new products, Nichia cooperated with Japanese chemical company Kaneka Corporation to develop thermosetting resin, and added titanium dioxide (TiO2) as the reflector cup material. At the same time, it developed a new bracket structure and new process on its own, completing the development and mass production of EMC (Epoxy Molding Compound, epoxy molding resin) products. It is a different series from the original products that used plastic reflector cup brackets. Nichia mainly develops mid-power LED products with high heat dissipation, low yellowing, and high adhesion of thermosetting resin and metal electrode heat dissipation. It does not aim to enter the low-price, low-power indicator light market.

During the development process, Nichia has also laid out core patents related to EMC-type LED materials, bracket structures, LED polycrystalline and electrical structures, LED light mixing technology, and new EMC processes. This will form a patent technology obstacle for the next round of backward manufacturers to develop light-emitting diodes.

Nichia spares no effort in the development of new technologies and the layout of core patents, which demonstrates its ability and persistence in basic research innovation and is its strongest advantage in facing the pressure from other emerging competitions.

From this point of view, although Taiwan’s LED industry has been under pressure from the red supply chain competition from the mainland LED industry in recent years, the best way to break through the red supply chain siege is still through R&D innovation and core patent layout.

For enterprises, they must continue to invest in the R&D and innovation of key technologies, rather than just following and improving other people's technologies; for the government, the most important thing is to support high-risk innovative technology companies, and to expand the industrial technology plan and small enterprise innovation R&D plan in the industry's specialist plan, and reward and invest in companies to develop truly breakthrough innovative technologies and convert them into core patents. In addition, it is necessary to support the establishment of patent technology funds to acquire innovative technology companies from all walks of life or the core patents they have applied for. At the same time, the government must also establish a patent resource sharing platform so that these core patents with market influence can be authorized to be implemented by domestic manufacturers.