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Editorial: Rerun: Ramifications of Philips' Buyout of Lumileds, Epistar's Merger Rise and the Fate of Agilent's SPG
 
... It turns out the McDonald Report August 17th column speculating on the shifts underway in the advanced LED manufacturing space caused a bit of excitement and fresh buzz. Given many people might have been on summer vacation, we offer a rerun of that column, below. And don't forget... if...
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Consolidation Not Over at JDSU
CompoundSemi News Staff

September 5, 2005...JDS Uniphase Corporation (JDSU) of San Jose, California USA, in its Q4 fiscal 2005 results posted a year-over-year revenue increase of 3% up to $712.2 million. JDSU CEO, Kevin Kennedy said that this was the first year-over-year improvement in posted revenue since 2001. The company still posted a loss totaling $145.7 million for the fiscal year. This posted loss includes a $62.7 million impairment charge. JDSU reported strong sales in the long-haul and metro-network markets. “Reconfigurable optical add/drop type electrical multiplexers [ROTEMs] and some of the higher end sub systems have been the high growth rates for us,” Kennedy said.

JDSU acquired laser maker, Lightwave Electronics, test and measurements solutions provider, Acterna, and Photonic Power Systems Inc. over the fiscal year. Acterna provided the biggest increase in headcount with an addition of about 1800 employees. The company concluded a year of much consolidation and restructuring. During the fiscal year the company sold its Fuzhou, China, manufacturing facility to Fabrinet. In addition, the JDSU transferred both its Ewing and Mountain Lakes, New Jersey manufacturing facilities to Fabrinet, a key manufacturing partner. The company also reduced manufacturing in Santa Rosa, California, associated with the phasing out of certain display products including high-volume consumer light engines and coated micro display windows.

Mr. Kennedy said, “Clearly we are trying to continue to minimize the amount of North American Manufacturing and in North American have only those things that make sense.” He added that the company will continue to move manufacturing out of North America to Asia and that, “We probably have one more year of significant manufacturing footprint consolidation.” The company plans to reduce its headcount by 550 in its continued consolidation and restructuring in the coming fiscal year. In addition the company will stop manufacturing products at its Santa Rosa, California facility. This will further reduce the head count by about 130 workers. Kennedy mentioned that the company may look to Thailand and Singapore as places for manufacturing. (Ref: Fourth Quarter Fiscal Results )

Accent Releases p-GaN Carrier Concentration Profiling Process
CompoundSemi News Staff

September 1, 2005...Accent Optical Technologies, a private company located in Bend, Oregon USA, has released a new etch process for Electrochemical CV carrier concentration profiling of p-doped Gallium Nitride (GaN). According to the company, achieving a high concentration of holes, also known as positive carriers in p-type GaN is a critical step in producing HB LEDs or UV lasers for next generation DVD players. While Secondary Ion Mass Spectrometry (SIMS) can measure the chemical concentration of the dopant, it does not measure the electrically active carrier concentration. Unlike conventional metrology methods, Accent says their electrochemical vapor (ECV) profiling directly measures the electrically active carrier concentration, which has a direct impact on key performance parameters including forward voltage and contact resistance. Content continues for LIGHTimes SecondPage members...

The LED Supply
Chain Conference
Materials, Epi, Chips and Devices...
June 8-9 Hsinchu, Taiwan

When markets are uncertain, winning companies in growth markets push forward while the incumbent technologies pull back. Now is the time to press the advantage, and knowledge and updated connections are what you need to do it. To help you use your time most efficiently, this 7th Annual international event has been moved to early June as a lead-in for the 2009 Taiwan Photonics Festival later that same week. Senior executives from the key industry players will gather as we examine the complete vertical market, from leading manufacturers and developers of advanced materials and processes, to packaging and packaged devices. Before you meet the crowds, get focused on the key market and technical developments you need to know. Visit www.BlueTaiwan.com for all the details.

Alfalight Releases 25W Pump Module for Fiber Lasers

August 31, 2005...Alfalight has released a 25 W pump module for fiber laser and amplifier configurations. The Combined Power Module II (CPM-II) reportedly has precision wavelength control through integrated temperature stabilization. The device is ideal at pumping lasers at 976nm. Ron Bechtold, vice president of sales and marketing for Alfalight commented, “This pump source simplifies the development of high-performance fiber lasers and amplifiers by incorporating wavelength control, advanced protection circuitry, higher output power and high reliability. As a result, users can focus on the other aspects of their fiber laser system design and not the pump performance.” Company News Release

Microsemi Release InGaP HBT Power Amplifier for Wireless Devices

August 31, 2005...Microsemi has expanded its portfolio to include a new indium gallium phosphide (InGaP), hetero-junction bipolar transitor (HBT) power amplifier for wireless devices. The LX5511 provides power gain up to 28 dB when operating in the 2.4-2.5GHz frequency range. The device falls between the company’s other models, the LX 5510B at 19dB and the LX 5512E at 32dB. It features active bias, power detection, on-chip input/output matching. In addition it consumes little power and can therefore be used for portable applications.

The LX5511 has a 3.3 V power supply and a built in heat sink inside a 16-pin micro-lead package. James J. Peterson, Microsemi President and Chief Executive Officer. Said, "Microsemi's InGaP HBT technology provides superior high-gain power amplifier solutions for all the IEEE standards being designed into current and next-generation wireless LAN systems," Company News Release

 

MII Files its 300th Patent Application Worldwide
Scott McMahan

August 31, 2005...Molecular Imprints Inc. (MII), which specializes in imprint lithography and is headquartered in Austin, Texas USA, has reached a significant milestone, filing its 300th patent application worldwide. With over 40 patents allowed or issued, the company is establishing what it believes to be the largest nano-scale and 3D imprint patent portfolio in the world, based on published patents. This is an impressive feat for most any company. What makes the the accomplishmet even more phenomenal is that the 300 patent applications worldwide average to about 3 patent applications per employee in the company with just over 100 employees. The company’s patented Step-and-Flash Imprint Lithography system uses micro imprints made in an epoxy-like material that hardens at room temperature under UV-light to make semiconductor and compoundsemi structures. (Ref: article). The company says that its S-FIL system can reach scales, resolutions, and throughputs never before possible. The technology has attracted considerable attention and has received numerous accolades including EE Times’ Annual Creativity in Electronics (ACE) award for “Most Promising New Technology.” (Ref: article). The company said their technology can also be used for create other nanotechnology structures.

In early August, the company announced what at first glance might seem an unlikely partnership with two companies, XAAR and of Cambridge, UK, a supplier of industrial printheads, inks, and peripheral equipment, and Vivid a subsidiary of XAAR. S.V Screenvasan, MII chief technology officer (CTO) said, “These two companies are leaders in fluid dispense technology and will continue to provide the pioneering work for our nanolighography system.” Company News Release

AXT Appoints Industry Veteran as VP of Global Sales and Marketing

August 29, 2005...AXT, a manufacturer of compound semiconductor substrates has appointed industry veteran, John J. Cerilli, as vice president of global sales and marketing. Mr. Cerilli most recently served as director of sales and marketing at MOCVD equipment supplier, Aixtron AG. According to AXT, his 29 years of experience in the semiconductor industry comes from a variety areas within the semiconductor industry including: marketing research services, new business development, capital equipment sales, customer service, wafer fab operations, technical recruiting and training.

“One of our key areas of focus is to strengthen our sales efforts both domestically and internationally and to explore additional opportunities that may exist both within our current customer base and with new customers," said Phil Yin, chief executive officer. "As such, I am thrilled to welcome John to AXT. I have known him for many years and I believe that his experience, knowledge of the industry and extensive contacts will drive AXT's revenue growth and help the company to regain its former position as a leader in the compound semiconductor substrate market." Company News Release

Sensors Unlimited's Chairman Honored
CompoundSemi News Staff

August 29, 2005...Sensors Unlimited’s chairman, Greg Olsen was named “Innovator of the Year 2005” by Princeton Regional Chamber of Commerce in Princeton, New Jersey USA. He is the world’s third private space explorer and first space tourist since the Columbia tragedy, according to Space Adventures Ltd. Olsen is scheduled to launch to the International Space Station this October 1, 2005 on the Soyuz TMA-7 orbital spaceflight mission from the Baikonur Cosmodrome in Kazakhstan. (Ref: April 1, 2004 news and editorial "Greg Olsen's Great Adventure")

Sensors Unlimited, Inc. began as a research and development startup and sold itself to Finisar in in October of 2000 for approximately $700 million (ref: Oct. 18, 2000 news) and bought back its independence two years later for only approximately $6.1 million in an unprecedented "restart" strategy (ref: Oct. 8, 2002 news). Greg Olsen has been at the helm of Sensors Unlimited since its original founding. The company has gained fame as the leading global supplier of highly sensitive near-infrared detectors, cameras and systems made with indium gallium arsenide (InGaAs). Dr. Olsen plans to conduct remote sensing and astronomy research projects incorporating his company’s shortwave infrared (SWIR) imaging technology while in flight. According to Sensors Unlimited, their imaging products are critical to a variety of industries, including biomedical, military, security, scientific, industrial, historical art inspection and telecommunications. Company News Release

Emcore Wins Contract for Satellite Solar Panels; Temporarily Reopens City of Industry Facility
CompoundSemi News Staff

August 26, 2005...Emcore Corporation headquartered in Somerset, New Jersey USA, has received an $8 million contract to produce solar cells for a large geosynchronous communications satellite. The company says that the contract also contains options for additional solar panel deliveries through 2007. Emcore reportedly plans to resume production of solar panels at its City of Industry, California facility which was earmarked for closure in April and then shut down in July of this year (Ref: article). Because of time constraints and certain production capabilities, the City of Industry facility was chosen over the company’s Albuquerque, New Mexico photovoltaics facility.

Emcore will continue to manufacture other solar panels at its Albuquerque facility. The company plans to extend the capability of its Albuquerque facility to produce high power solar cells for geosynchronous satellites during fiscal 2006. Once this is accomplished the company says it will cease operations of its City of Industry facility. The extended closure schedule is expected to reduce the shutdown costs for the facility. New shutdown costs estimates remain to be determined. These costs depend in part on whether or not the described customer exercises its purchase options.

As of August 1, Emcore projected the total shutdown costs for the City of Industry facility to be about $3.4 million, of which $1.54 million was expected to go towards restructuring and severance charges. (Ref: Form 8-K of US Securities and Exchange Commission filings).

TDI Demonstrates InN on Sapphire Waffers
LIGHTimes Staff

August 25, 2005...Technologies and Devices International, Inc.(TDI), a privately held corporation in Silver Springs, Maryland USA, has demonstrated InN epitaxy with its hydride vapor phase expitaxy (HVPE) technology on 2-inch sapphire substrates. According to the company, the indium nitride (InN) on sapphire substrates and aluminum nitride (AlN) on silicon carbide (SiC)substrates can be used in blue and UV LEDs. Dr. Vladimir Dmitriev, president and CEO of TDI said that the development of the InN on sapphire substrates was funded as part of the Department of Energy (DOE), Solid State Lighting program (not to be confused with the Next Generation Lighting Industry Alliance that the DOE recently started). Content continues for LIGHTimes SecondPage members...

Apples to Oranges Comparison of LED Market Predictions
LIGHTimes Staff

August 25, 2005...The fledgling solid state lighting industry is still years away from enjoying maximum installation of advanced LEDs in general lighting applications, as two different research firms have recently predicted. Where we are now and where we will be four or five years from now are apparently vastly different for analysts at Strategies Unlimited (Ref: our Aug. 17 coverage) and iSuppli (Ref: EETimes Aug. 24 article). iSuppli of El Segundo, California USA predicts the expansion of the LED market for general lighting from their 2005 estimate of the market of $144 million to $874 million by 2010. Strategies Unlimited of Mountain View, California USA, regarded as the traditional leading market analyst firm in the compound semi and solid state lighting fields has recently released it's latest HB LED market numbers. While the two firms' numbers are not direct "apples to apples" comparisons, there is some agreement in their prediction for the adoption of HB LEDs for general lighting. Content continues for LIGHTimes SecondPage members...

DVD Format Talks Delayed Indefinitely
CompoundSemi News Staff

August 24, 2005...Wired News reported that Sony and Toshiba have failed to agree on a single next-generation DVD standard and have suspended talks indefinitely. Junko Furuta, Toshiba spokesperson said that the higher capacity Blu-ray disks would be more difficult to integrate into laptops and car navigation systems. The two sides of the debate focus on the choice of Sony’s Blu-ray DVD format or Toshiba’s HD-DVD format as the one, next-generation DVD standard. Both sides are developing products with their respective formats. Toshiba says it will come out with HD-DVD players by the end of the year, and Sony’s game console, Playstation 3 with the ability to play Blu-ray disks, will come out in the spring 2006.

Both the HD-DVD and Blu-ray formats utilize blue lasers which have a shorter wavelength than the red lasers used in current DVD and CD devices. This allows more information to be stored. The HD-DVDs reportedly have a capacity of 15Gb. Whereas Sony has had conflicting reports about its capacity. The Blu-ray disks’ reported capacities have ranged from 25 GB, (the most recent claim) up to 50Gb. Many media companies are taking sides in the issue. Recently movie maker, Lions Gate Entertainment announced that their entire movie library will be made available in Blu-ray format.

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Commentary & Perspective...

Rerun: Ramifications of Philips' Buyout of Lumileds, Epistar's Merger Rise and the Fate of Agilent's SPG

August 29, 2005...It turns out the McDonald Report August 17th column speculating on the shifts underway in the advanced LED manufacturing space caused a bit of excitement and fresh buzz. Given many people might have been on summer vacation, we offer a rerun of that column, below. And don't forget... if you've been out of touch for a few weeks at a time, simply click on "recent headlines" in our features box to catch up on what you might have missed. Next week Jo Ann will be doing her monthly review of her CS Stock Portfolio, so... stay tuned.

After an especially quiet summer in the news department, mid-August brought forth major stories that will likely shift the landscape of the compound semi-based solid state lighting (SSL) industry supply chain. Philips will buy Agilent's share of Lumileds, Agilent's SPG group was purchased by two huge equity investment groups, and Epistar will merge with UEC. Building on the current facts, speculation now centers on what Philips will actually do with Lumileds, when SPG will be ready for an IPO, and if the rise of a larger Epistar equates to expanding what's come to be known as "The Big 5" to "The Big 6". As topping all this, Strategies Unlimited has released it's latest HB LED report (ref: company news release) on the demand side of the business with the promise of the follow-on supply side study due out in a couple of months. No less than 40 companies were interviewed, bringing this columnist to the conclusion that the advanced LED business continues to boom and that the SSL industry is getting so big, it's getting difficult for even the experts to keep track!

First, let's tackle Lumileds' news. Reading back in my own June 14th speculations of Who Might Buy Agilent's SPG Group (which co-owns Lumileds) and Why?, danged if I didn't hit it right on the head predicting that Philips would scoop up the rest of Lumileds. Agilent, formerly part of Hewlett Packard, was the mother of this highly regarded JV and when the deal is done, they will have cut the umbilical cord in exchange for close to one billion American dollars. That makes the value of Lumileds at about $2 billion with the company's Dutch father figure, Philips, owning all but the 3.5% that's owned by Lumileds employees. Mom and Dad had kept their offspring on such a tight leash that it wasn't until last December that the world finally found out just how much income the little tyke was earning for for them (ref: Dec. 23, 2004 news and Jan. 16, 2005 McDonald Report).

Let's leap ahead and look at what could happen if Philips decided (as I heartily recommended in June at the conclusion of my column) to allow Lumileds the freedom they've always wanted and deserved and let it go for an Independent Public Offering (IPO). Philips would likely hold on to a fair chunk of stock, employees would gobble up their share, people like you and I would get in on the action, and lots of people would make money. Most important of all, Lumileds customers wouldn't worry that Philips would be keeping all the jewels for their own light fixtures... not that Philips would do that, quite the contrary. Philips is a fine, upstanding giant in the lighting industry and they'll do the right thing with their wholly-owned offspring. My guess is that Philips won't groom Lumileds for an IPO, even though I wish they would, mainly because I'd love to hold stock in Lumileds. It will more likely be business as usual at Lumileds and not much will change with their established customer base. But, by owning Lumileds completely, at least LEDs have come to the attention of the senior management, big time, at Philips! And if they're talking LED up, the mainstream and general business press will get the message and that's very good for our industry.

Others in "The Big 5", namely Toyoda Gosei and Osram Opto, are owned by larger systems integrators and I doubt that ownership by an overlord has inhibited their sales. I simply like independence, and I think Lumileds would thrive under an independent publicly-held corporate structure, preferably on the USA's Nasdaq exchange. Cree and Nichia are the others in The Big 5 and both are independent. Cree trades on the Nasdaq and is now in a close 2nd place to Lumiled's market cap at about $1.85 billion. (FYI... of the Big 5, I own a few shares in Cree as part of my CS Stock portfolio, about which I write the first of every month (ref: Aug 3, 2005 report)). As I said, I'd love to add Lumileds to that portfolio and it wouldn't be a measly 100 shares! My bet is that a Lumileds IPO would skyrocket. They're simply that good, and that well regarded in the SSL industry. Their management and R&D team are unsurpassed, and most of them have been there from the start with many dating back to the glory days of HP when pioneering the advanced LED field. Money can't buy that kind of loyalty (... although it helps). It's simply the HP legacy.

A side issue of the sale of Agilent's SPG group is how the new owners of SPG, private equity firms Kohlberg Kravis Roberts & Co (KKR) and Silver Lake Partners, who will collectively buy SPG (minus Lumileds) for $2.66 billion. Speculation there revolves around how the new owners will create value for the newly liberated entity. There are some tremendous synergistic programs going on between Lumileds and SPG, which co-share headquarter facilities in Silicon Valley in the USA. Will SPG go on a slim fast diet and experience the usual cutbacks that inevitably happen after a buyout? Will SPG be groomed for an IPO by these heavily monied owners? This is a case where an IPO is essentially assured, which could make SPG's buddies at Lumileds even more envious and wanting total independence for themselves. With political shakeups in the USA underway (finally), the sluggish, muddy roads are slowly being cleared to make way for healthy USA-based IPOs again.

KKR and Silver Lake are huge privately-held equity investment firms. They are run by very, very smart people who graduated from the Warren Buffet School for Billionaires. What they traditionally do is put one of their people on the board of directors to keep an watchful, but generally hands-off eye on things and advise where needed. But they don't micromanage and they tend not to put the axe to things and break up what works. Patiently, they groom their new acquisition for an IPO by making sure savvy business people who know how to grow a company's value are at the helm. My guess is that Agilent's current SPG group will be re-grouped and re-branded and go for an IPO when the time is right, which could be soon... or years from now. These are patient investors and they wait until the payoff is extremely large, and well-assured.

Now, let's move our focus across the Pacific ocean to Taiwan where Epistar and UEC have announced their intent to merge (ref Aug. 15 news). Word on the Taiwan streets (and those who travel by plane to get to and from them) is that rumors of this merger were rampant over the last couple of months, so "locals" were not surprised. The merger will comfortably combine UEC's strength in ROY (red, orange & yellow) LEDs and finished devices with Epistar's strong BG (blue & green) technology and chips. The current buzz speculates that this lays the groundwork to now elevate Epistar (as the newly merged company will be named) to an equal-enough footing with the current "Big 5" (Lumileds, Nichia, Cree, Osram Opto and Toyoda Gosei), expanding that group to what would become "The Big 6". So I do what I always do when I don't know the answer. I called Bob Steele, our industry's foremost prognosticator (and world traveler, most recently back from safari in Africa). Bob had just completed the latest Strategies Unlimited HB LED Market Review and Forecast prior to leaving for Africa.

The whopping 170 page Strategies Unlimited HB LED market report is the definitive roundup of the demand side. While market growth is slowing some, the overall advanced LED market is still expected to reach $6.8 billion in 2009, nearly doubling from 2004. The supply side, which Bob and his colleagues at SU will be reporting next, will include the facts that market maturity is indeed changing the landscape. In our telephone chat, Bob agreed with the word on the Taiwan streets that the merger of UEC and Epistar indeed boosts their status. But he pointed out that there are also other very big Asian players coming on fast, including Seoul Semiconductor in Korea. He added that mainland China now has 6 to 8 epiwafer and chip companies coming online, in addition to Cotco. The old "Big 5" may have to be relegated to history as simply "The Pioneers." We'll see what happens when the consolidation dust settles.

So as companies get bigger, and some of the biggies get bought, how does the SSL industry landscape look to be reshaping as we pull out of summer? Extremely promising, especially if you're in it for the long haul. Some of the smaller companies that don't merge with their big brothers may be left by the wayside, but the good people in those companies (and their IP) simply move on to another home. Strategies Unlimited's HB LED report stresses that growth between now and 2009 will be driven by emerging applications such as illumination, automotive headlamps, and backlights for LCD monitors and TV screens whereas the industry grew largely by mobile appliances such as mobile phones, digital cameras, PDAs, etc. That, to me, is significant. It means we're moving logically to higher end applications.

The changes in the landscape and the promise of IPOs and more consolidation may also equate to a welcome stabilization of LED prices. I find that especially encouraging. Whereas most successful USA-based LED companies (Cree, Lumileds, etc.) enjoy healthy gross margins, many of the Asian companies have been working at a much lower margin, and that simply can't continue. I recall the age-old marketing metric: If you can't make it for less than you sell it for, you certainly won't make it up in volume. If the margins improve, it follows then that so will the wages to the employees producing the goods. Thus, everyone's quality of life will be elevated while the world becomes better illuminated. Literally and figuratively. Think about it. Price isn't everything in life.

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