Apple saved the sapphire industry in 2013 and will transform it in 2014. How will the revolution happen? APPLE SAVED THE SAPPHIRE INDUSTRY IN 2013… The sapphire industry recently ended an 18 month period of depressed pricing and achieved US$936 million in revenue for wafer products. Recovery was helped by an increase in LED demand due to growing adoption in general lighting and a resilient LCD backlight market. But the saving grace was new consumer electronic (CE) applications: camera lens and fingerprint reader covers, mostly driven by Apple in 2013. Overall, the growth in wafer demand will be enough to justify a capacity increase toward the end of 2014. For the longer term, we analyzed opportunities of alternative LED substrates (GaN and Si) but concluded that sapphire will retain > 90% of the market through 2020. After almost 2 years of losses, core prices increased by more than 50% in 2013; tier-1 sapphire vendors are finally selling at prices close to breakeven costs. After a short pause, we expect the uptrend to resume through Q2 and Q3. But leading vendors’ interests are not to increase prices above levels that would allow tier-2 competitors to generate a profit as well. We therefore expect prices to stabilize by the end of the year. Due to strong competition, finishing companies didn’t pass the higher material costs on to their customers. Wafer prices remained stable in 2013 but will go up slightly in Q2-2014. For PSS, which now dominates with 85% penetration rate, prices could increase faster as supply currently falls short of demand in Taiwan. This will continue until leading suppliers increase capacity and emerging players in China ramp up and enter the supply chain later in 2014. Overall, sapphire prices should stabilize by the end of 2014 and start decreasing again in late 2015 as the industry keeps improving its cost structure. Report’s key features • Detailed analysis of PSS manufacturing trends and supply chain • Analysis of new consumer electronic applications: smart watches, camera lens and fingerprint reader covers and display cover • Analysis of the GTAT / Apple partnership: capacity and revenue analysis, display cover manufacturing cost modeling. • Detailed analysis of sapphire use for: LED, SOS, Camera lens & fingerprint reader covers, smart watches, display covers. • Volume & revenue through 2019 for all applications • Supply / demand, company revenue & capacity rankings • Diameter and geographic breakdown, MOCVD capacity • PSS supply chain and manufacturing • Alternative substrates for LED: requirements, status, key player, cost of ownership modeling, penetration rates • Detailed analysis of the GTAT-Apple deal: cost, capacity and revenue model More infromation on http://www.i-micronews.com/reports/Sapphire-Market-LED-Consumer-Electronics/3/422/

1. Sapphire Market 2014:
LED Substrate, Display and Protection
for Consumer Electronics
→
→
Monocrystal
Rubicon
GTAT
→
Core Fabrication
→
Geometry inspection
© 2012• 1
Philips Lumileds
Peregrine Semiconductor
Wafer Slicing
→
→
Lapping
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Diamond polishing
75 cours Emile Zola, F-69001 Lyon-Villeurbanne, France
→
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→
Optical inspection
Apple
Final cleaning
Epitaxy application

2. Core Prices
The 2009-2013 Cycle
To understand the current pricing environment and try to predict future trends, it is necessary to
look back at the previous price cycle:
2008 – Early 2009
Q4-2009
Initial
conditions
Worldwide
Economic Crisis
LED TV: strong
demand hike
• Few sapphire makers
• World economic crisis
affecting all industries
• Most sapphire makers
cash strapped and
unable to invest in new
capacity.
[1]:
Trigger
Unanticipated[1] and strong
demand jump due to
success of first LED TV
models
2010
2011-2012
Short Term
Effect
Mid Term
Effect
Long Term
Effect
Sapphire Shortage
Excess Investment
Price crash + long
depression
• Excessive
capacity
investments (also by
anticipation of general
lighting
applications
growth)
• More than 80 new
companies trying to
enter the market
Excess
capacity
and
slower than anticipated
demand triggers price
crash (8x drop)
• Material shortage 
Dramatic material price
increase (5x)
• High
profits
for
established
vendors
and new entrants,
regardless
of
cost
structure
Massive adoption of LED for LCD TV backlight wasn’t anticipated before at least 2010-2011
© 2012• 2
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2011

3. Sapphire Core and Wafer Revenue
Top 20 Companies
Total: US$XXX m
•
•
•
•
© 2012• 3
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The top 5 vendors captured 35% of
revenue. The top 20 captured 77%.
The 65 remaining companies shared
wafer related revenue of US$XXX m
However, some of those “2nd tier”
are quite successful with non wafer
products. We estimate that those
“other applications” totaled US$XXX
m in 2013.
PSS foundries entered the top 20 for
the first time (Rigidtech, LGS,
Aceplux)

4. Revenue Geographic Breakdown
Cores and CSS
•
•
Total:
$188m
•
•
Total:
$361m
•
•
© 2012• 4
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The core market is dominated by XXX with 28% of the total
core revenue in 2013.
Other leaders are XXX in Taiwan, XXX, XXX and XXX in
Korea and Rubicon in the US.
XXX remains strong in china but faces increasing
competition from newcomers HTOT and Unionlight. In
addition, many other material makers in china managed to
sell core or blanks into the CE wafer supply chain (XXX,
XXX…)
The CSS market is dominated by Japan, mostly by sales for
its domestic market. Namiki was the #1 worldwide leader
in 2013 while Kyocera dropped after loosing a key account
in Korea.
Korea is the #2 region, also mostly selling in its domestic
market. The leaders there are unchanged: Iljin display and
Hansol Technology.
XXX and XXX remains the leaders in China but are now
challenged by Unionlight, XXX and many others.

5. Alternative Substrates For LED
Overview
•
There are two major candidates: Silicon and GaN. Both aim at displacing sapphire by improving LED cost of
ownership (Lumen/$). However the philosophy behind them is different:
–
GaN wafers would significantly increase epiwafer manufacturing cost but enhance performance (light emitted by unit
of chip surface) to levels that would still improve the Lumen/$ figure over sapphire.
–
Silicon would deliver LED performance similar to sapphire but allow significant cost reduction at the die level by
enabling manufacturing in existing, fully depreciated 8” CMOS fabs.
Manufacturing Efficiency
$
• Higher equipment throughput and
yields
• Economy of scale
GaN-on-Si LEDs
→ Reduce component
cost
COST =
LUMEN
LED Performance
• Higher efficiency (lumen/W)
• More light per chip (driving current)
© 2012• 5
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GaN-on-GaN LEDs
→ Improve performance
to reduce number of
packages per System

6. GaN on GaN LEDs
Potential applications (General Lighting)
MR16, Spot
A19, Bulbs
Troppher, Linear
fluorescent
Streetlight
High Bay
Decorative
Directional beam
pattern
NA
High flux
required,
Controlled beam
shape for
roadway lighting
High flux required,
controlled beam
shape
Design
flexibility
Priority is often to
maximize energy
efficiency rather
than initial cost
Energy efficiency is
important for total
cost of ownership
Low glow
usually
preferred over
high flux
Downlight
Illustration
Requirements
Small form
factor, high
density of
light, focused
beam
High volume
Challenge
Thermal
Management
Omni
directional
beam pattern,
low glare
NA
Very large surface,
diffused light,
requires low glare
Comment
Ideal
application for
GaN. Currently
no satisfying
solutions for
50W MR16
Glare and cost
of ownership
are limiting
Can also be build
with cost efficient
Chip On Board
(COB) LEDs
More suited for
low/mid power
LEDs
GaN could
compete when
initial cost is key
Solutions based on
COB or standard
power package
already exist
NA
Opportunity for
GaN
High
Low
Medium
Low
Medium
Medium
Low
© 2012• 6
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7. GaN vs. Sapphire:
Breakeven Price Analysis
•
•
Simulations were conducted for various 4” GaN wafers price and yield hypothesis in order to estimate the
breakeven point with current sapphire based technology. The reference target point is represented by the
current cost efficiency of a Flip Chip die built on a 4” Patterned Sapphire substrate.
Under those assumption, the breakeven point is <$XXX. We therefore consider that unless the price of 4”
GaN wafer reaches this <$XXX target, adoption of GaN on GaN will be restricted to niche markets where
the specific performance advantages of GaN (high flux over a small surface) overcome the price handicap.
An engineered substrate behaving like a GaN bulk wafer but offered at <$XXX would rapidly offer significant
cost of ownership benefits over sapphire and could capture significant market shares.
Lumens/$
•
© 2012• 7
4” GaN wafer price
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8. LED Makers Positioning
Development status
LED makers
committed to Si as
differentiating
technology
Volume
Manufacturing
Established LED makers with
strong sapphire-based
technologies and no internal
CMOS fab capacity
Ramping
Up
Pilot
Established LED makers with
strong sapphire-based
technologies and no internal
CMOS fab capacity.
Have experimented but ruled
out Si in the short/mid term.
Established LED makers with
limited differentiation on sapphire
platform and access to internal
CMOS fab
 Strong incentive for Si
LED startups
committed to Si as
differentiating
technology
R&D
No interest /
Exited
© 2012• 8
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Defensive
Core Strategy
Commitment to
Si platform

9. Cost Simulation
Results
The simulations show a potential cost reduction of -38 to 45% at the die level vs. a 4” sapphire
vertical LED:
January 2013
Notes:
• Front End = epitaxy + Si carrier preparation + wafer processing + bonding + epi substrate removal
• Back End 0 = Probe test + scribing  include yield costs (cumulated cost of all the rejected die)
© 2012• 9
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10. 2010-2014 GaN MOCVD Capacity Evolution
Geographic Breakdown (K, CH, JP, TW, US…)
Total MOCVD capacity increased 270% in the last for year, with China taking the lead since 2012.
However, we estimated that only 70% of the reactors present on Chinese soil are operating.
Million TIE/month
Feb. 2014
© 2012• 10
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Note: based on physical location of the reactors (i.e:
reactors at Chinese branches of Taiwan based LED
makers are counted in China)

11. Wafer Diameter Trends:
Thousands TIE/month
Geographic Breakdown
© 2012• 11
Feb. 2014
See comments next page.
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12. PSS Supply Chain
Overview
•
The PSS supply chain is highly fragmented with multiple players and products moving along 5 different
possible channels:
1
2
3
4
Sapphire Maker
PSS Foundry
1
Sapphire Maker with internal PSS capabilities
Sapphire Maker
1
LED Makers
LED Makers
3
2
Sub-contracting
1
Sapphire Maker
5
PSS Foundry
LED Makers
1
2
Sub-contracting
PSS Foundry
© 2012• 12
LED Makers
LED Makers with internal PSS Capabilities
1
Sapphire Maker
2
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3

13. PSS Adoption Trends
Volume Breakdown and Adoption Rate per Region
•
•
PSS adoption rates varies by region with China, Korea and Japan leading with more than XX%, followed by
Taiwan at XX%.
US and Europe are trailing at XX% and XX% respectively due to the prevalence of vertical LED structures
amongst the local LED makers. However, Philips Lumileds (US) started using small volumes of PSS in 2013.
Total:
XXm TIE
per
month
© 2012• 13
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14. PSS Capacity In Taiwan
Overview
Note: all capacities in TIE per month
Total Volume Processed internally
by LED makers: xxk TIE
• XXX is the only Taiwan based LED
maker that processes a large
fraction of its PSS needs internally.
Total:
xx m
Total Capacity: xxk TIE
• Leading foundries are: Rigidtech, XXX,
XXX and XXX.
• Multiple smaller foundries have
emerged during the PSS shortage in 2012.
We believe that most could disappear in
the next 12-18 months.
Total Capacity: xxk TIE
• Most sapphire makers are now vertically integrated and have some internal PSS capacity.
• Leaders are: Crystalwise, Crystal Applied Technology, Tera Xtal (ACTC), Procrystal.
• Following the merger with SAS, Crystalwise is now the largest PSS producer with a total capacity of 350k.
• Crystal Applied Technology has been outsourcing PSS to foundry partner XXX but is now setting up in-house capacity in
China.
© 2012• 14
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15. Evolution of Peregrine Ultra CMOS Technology
STeP2: 500 nm.
Epi on 6” Sapphire
Technology Scaling
STeP3.5: 350nm.
Epi on 6” Sapphire
Technology Scaling
STeP4: 350 nm.
Epi on 6” Sapphire
Technology Scaling
STeP5: 350 nm.
Bonded on 6” Sapphire
UltraCMOS
Best commercial GaAs: 224
Technology Scaling
+ Substrate
improvement
STeP8: 250 nm.
Bonded on 6” Sapphire
Technology Scaling
6” sapphire & 8” SOI wafers
(Peregrine)
© 2012• 15
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STeP10: 130 nm
Epi on 8” eSI-SOI

16. Definitions and Metrics for Material Capacity
Two Inch Equivalent
•
The TIE metric was a convenient way to gage and compare capacity from one vendor to another. However is
not applicable to non wafer products like cell phone display covers and other shapes:
–
–
•
•
Square shapes lead to potentially higher utilization rates
Different orientations possible
The example below illustrates how for a boule with a given geometry, the potential material usage varies
depending on the geometry and orientation of the parts to be extracted.
We chose to still report capacity in TIE for better comparison with historical data. However, one should keep
in mind that a given TIE capacity can lead to different volumes if the company serves non wafer applications.
© 2012• 16
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17. Material Capacity Growth
Top 20 manufacturers.
•
•
•
•
•
© 2012• 17
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The top 3 remains unchanged and
represent 26% of the total capacity.
The top 20 represent 77%.
There are now 9 Chinese companies
in the top 20.
Procrystal capacity = XXXk in Taiwan
+ XXXk in new facility in China.
However, some of the capacity in
CN might stem from furnaces
transferred from Taiwan.
The GTAT capacity reported is for
the Salem, NH facility. Although, we
believe those furnaces are currently
essentially used for process
development. Capacity at the new
Mesa, AZ is NOT included here.

18. Focus on China
Overview
•
Since 2009, we’ve tracked a total of 93 companies
active or planning to enter the sapphire market.
•
We believe that at least 10 projects have already
pulled the plug or stopped before construction
started. Among the highest profile where GCL
Opto, SKT and Kanglan which initially targeted a
combined capacity of more than 2.5 million TIE per
month.
•
Most of the new entrants rely on growth
technologies acquired abroad (GTAT, ARC Energy,
Thermal Technology and multiple Eastern
European Kyropoulos vendors). However there are
now credible equipment manufacturers in China.
•
There are more than 80 LED epitaxy companies in
China. More than half of them are likely to
disappear within the next 2-3 years. But strong
leaders are emerging (Sanan, ETI, Epilight,
Yangzhou Zhongke Semiconductor, Nationstar,
Tsinghua Tongfang, HC Semitek, Silan Azure..)
© 2012• 18
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Leading Companies:
•
Crystaland, Aurora, Silian
•
Emerging: Unionlight, HTOT, Saifei,
Shangsheng, TDG Core, NJ-Crystal,
Crystal Optech etc…

19. Supply vs. Demand:
Scenario #2: Adding Display Cover to CE & LED
Note: excludes 80% of Apple need
considered captive at the GTAT Mesa facility
© 2012• 19
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20. Apple Sapphire Wafer Supply Chain
Overview
Material
(Cores)
Slicing
Polishing
XXXXXXXX
Laser Cutting
Coating
Assembly
Partially vertically
integrated
30%
XXXXXXX
XXXXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXX
70%
XXXXXXXXXXX
XXXXXXXXX
XXXXXXXX
© 2012• 20
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XXXXXXXX
XXX

21. Smart Watches and Sapphire
•
Sapphire has been used in luxury watches since the 1930’s. Todays, most “luxury watches” watches have
sapphire windows obtained by the Verneuil method[1].
However, the Verneuil method is limited in size (1-1.5“ diameter max) and “Smartwatches” have rather
large displays. This provides opportunity for non alternative bulk growth technologies to capture this
market despite their higher cost.
Some smartwatch models announced at the CES 2014 feature a sapphire display cover. However, the
current market leader, Pebble announced it’s new flagship model will use Gorilla Glass.
•
•
Feb. 2014
The Wellnes Watch by Wellograph features a
sapphire display cover (source: company)
[1]
This market is discussed in details in our “Touch Screens, Displays, Semiconductor, Defense & Consumer Applications of Sapphire” report
© 2012• 21
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22. GTAT Mesa Revenue Model
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1-2015
Q2-2015
Q3-2015
Q4-2015
# of furnaces operating
(Average over the period)
Monthly furnace capacity
Quarterly output (million pieces)
Total Annual (million pieces)
ASP (US$)
Revenue (US$m)
Finishing yields
Total display covers (Million Units)
Total annual # of display covers
•
If all iPhone use sapphire by 2015, output might be insufficient to cover 100% needs.
 Might use 2nd supplier (would be reasonable for risk mitigation)
• Due to exclusivity, GTAT opportunities in sapphire outside of Apple will be quite limited.
© 2012• 22
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23. Unionlight Technology Co. Ltd (CN)
元亮科技 集团
•
Capacity/Capability (Q1-2014)
–
–
•
The company has developed an in-house Kyropoulos-type of growth
technology called TSTGT (Top Seeded Temperature Gradient
Technique) that features CZ-like seeding and diameter control
procedures.
As of Q4 2013, the company grows 100 kg boule but is currently
upgrading the technology to 150 kg by mid 2014 and is currently
developing 300kg systems.
Sapphire Revenue (estimates):
–
–
Source: Atlas website
Xinjing Sapphire boules: 18, 35 and 80kg
(source: company)
2012: US $XX million
2013: US $XX million
Xinjing Sapphire capacity expansion plan (source: company)
© 2012• 23
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24. Compound Semiconductors reports from YOLE
Bulk & freestanding
GaN
Graphene
New!
New!
Sapphire for
Electronics, Car,
Defense…
SiC Market 2013
Diamonds
New!
LED Packaging
Status of the LED
Industry
New!
III-V Epitaxy Substrates &
Equipment Market
New!
Sapphire CoSim+
LED Front End
Manufacturing
Technologies
© 2012• 24
GaAs Wafer Market &
Applications
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UV LED MARKET

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REPORTS
CONSULTING
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26. For More Information…
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27. Our Offices & Contact Information
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• Yves Devigne, Europe Business Development Manager,
Cell: 33 6 75 80 08 25 - Email: devigne@yole.fr
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• Michael McLaughlin, Business Development Manager,
Phone: (650) 931 2552 - Cell: (408) 839 7178 - Email: mclaughlin@yole.fr
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• For custom research: Yutaka Katano, General Manager, Yole Japan & President, Yole K.K.
Phone: (81) 362 693 457 - Cell: (81) 80 3440 6466 - Fax: (81) 362 693 448 - Email: katano@yole.fr
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