Feb.7 (NBD) -- San'an Optoelectronics Co., Ltd. (San'an Opto), one of the largest LED chip makers in China, released an announcement Monday saying that its fully-owned subsidiary Xiamen San'an Optoelectronics Co., Ltd. (Xiamen San'an) will team up with Samsung Electronics Co., Ltd. (Samsung) to co-develop MicroLED displays.

Samsung will make a prepayment of 16.83 million U.S. dollars to Xiamen San'an to secure the supply of a certain amount of LED chips used for producing displays, according to the announcement. If Samsung's monthly chip orders go beyond the agreed maximum amount, there is a possibility to discuss potential expansion plan ahead of schedule.

The agreement between Xiamen San'an and Samsung is exclusive, which means that the former should supply LED chips exclusively to the South Korean company within the 3 years once the agreement takes effect.

Join forces to lead the MicroLED market

MicroLED has become a buzzword since the second half of 2016. Industry giants and upstream enterprises are all ramping up efforts in MicroLED development.

In early January, Samsung unveiled "The Wall" – the world's first consumer modular MicroLED 146-inch TV – at its annual First Look CES event. Although "The Wall" is still at the conception stage, Samsung has already had a clear commercial plan.

Through the strategic collaboration, Samsung and San'an Opto expect to seize the initiative in the MicroLED market.

According to San'an Opto's statement, Samsung will consider Xiamen San'an as its major chip supplier once the latter is able to mass produce MicroLED chips. At that time, the two will start a negotiation for a new supply agreement.

NBD reached the board secretary office of San'an Opto through a public contact number, but the office staff declined to reveal any other information beyond the statement on the ground of commercial secrecy.

Risks loom despite high demand

Data reveals that China's LED industry reached 636.8 billion yuan (101.3 billion U.S. dollars) in 2017, up 21 percent year on year. Production capacity of LED chips on the mainland accounted for 58 percent of the global total, according to LEDinside, a media platform for LED and LED lighting.

China's three largest chip makers - San'an Opto, HC SemiTek Corporation, and Aucksun - all announced capacity expansion plans last year.

According to San'an Opto's annual pre-results for 2017 released in mid-January, its net profits attributable to shareholders were estimated to total 3.15 billion yuan (500.9 million U.S. dollars) to 3.25 billion yuan (516.8 million U.S. dollars) in 2017, up 45.39 percent to 50.00 percent year on year. The report says high demand for LED chips contributed significantly to the growth of net profits.

However, it's undeniable that LED chip makers largely depend on subsidies.

San'an Opto reportedly received subsidies of 400 million yuan (63.6 million U.S. dollars) in 2017, up 11.7 percent year on year.

Meanwhile, industry insiders noted that the fast technology upgrading and capacity expansion would drag down the prices of LED chips. In early 2018, San'an Opto confessed to investors that chip prices decrease every year as costs continues decreasing.

Against such a background, mastering new technologies would be a core competency for LED chip makers to stand out in the competition. San'an Opto has been developing MicroLED since 2015 and will focus on the niche sector in the future, the company said in the first half of 2017.

Email: tanyuhan@nbd.com.cn