Epistar takes 94% stake in TSMC SSL, adds LED IP and fab capacity

Epistar and Taiwan Semiconductor Manufacturing Company (TSMC) have announced that Epistar will acquire all shares of the TSMC SSL business unit held by TSMC, totaling 94% of the company. Principals in TSMC SSL will retain their 6% ownership of existing shares. Epistar will gain LED manufacturing capacity in the transaction along with intellectual property (IP) developed by TSMC SSL.

The acquisition is valued at NTD 825 million (about $26 million). The participants consider the move a positive step for both organizations. "I believe that we can reach a win-win-win scenario with TSMC SSL led by Epistar and SSL’s present team," said TSMC SSL chairman Steven Tso. "Epistar’s operations can take off with redoubled strength, the development of the LED industry will accelerate, and consequently TSMC SSL’s shareholders and employees will benefit as well."

Other reports on the acquisition have questioned why Epistar would acquire more manufacturing capacity in a time of LED oversupply. The oversupply is acute in the mid-power LED sector where TSMC SSL was focused. Moreover the reasons for TSMC's divestiture have largely been attributed to the oversupply state and low LED prices.

We suspect the motivations aren't nearly so simple. TSMC is among the leading contract fabricators of digital ICs in the semiconductor industry. The company is on a constant path of investing in next-generation semiconductor technology as the feature size in ICs goes down and the number of transistors on a chip goes up. The company entered the LED business, in part, looking for a way to utilize out-dates and fully-depreciated digital IC fabs to handle the back end of the LED manufacturing process.

The exit by TSMC from the LED business could signal that the company doesn’t believe that the LED industry will make a successful transition to using gallium-nitride-on-silicon (GaN-on-Si) manufacturing platforms. A move to GaN-on-Si manufacturing and 8-in wafers would have made existing TSMC fabs a far more valuable commodity.

To date, TSMC SSL has been manufacturing LEDs using a traditional GaN-on-sapphire process. The company was working on what it calls a "Phosphor-on-Die" (PoD) approach. In actuality that technology is very much the same as the chip-scale-packaging (CSP) architecture that many companies including Samsung, LG Innotek, Toshiba and others announced during 2014. We covered the trend in our feature on the Light+Building trade fair.

Epistar certainly has been developing CSP technology on its own, although the company is focused on selling LED chips and not packaged LEDs. Still the company may gain some advantages in the CSP space with the TSMC SSL acquisition.

For now, however, Epistar is closely guarding its motivation for acquiring TSMC SSL. "We hold an open and positive attitude towards anything that can enhance Epistar’s competitiveness and shareholder value, and is beneficial to the development of the LED industry," said Epistar Chairman Biing-Jye Lee. "TSMC SSL’s capacity may be far less than Epistar, but by working with TSMC we can be introduced to different thinking, different talent, and different systems from across industries to spark new ideas and strengthen Epistar’s future operations."

It has been a busy year for Epistar in terms of absorbing outside organizations. The company bought Formosa Epitaxy (Forepi) back in the summer of 2014.