08 Jul 2004
Over the past decade Taiwan has transformed itself into one of the world's leading makers of optical disk drives, flat-panel displays and LEDs. Oliver Graydon visits the island to learn more about its investment in photonics.
From Opto & Laser Europe July/August 2004
A combination of expertise in low-cost electronics and semiconductor manufacture, readily available venture capital and a fast-moving approach has enabled Taiwan to create a lucrative optoelectronics industry almost from scratch within a decade.
Since its emergence in the mid-1990s, the optoelectronics sector has seen phenomenal growth and Taiwan now boasts around 1000 firms in the field, making everything from laser diodes and light-emitting diodes (LEDs) to liquid-crystal display (LCD) screens and optical CD/DVD drives.
The main driver for this transformation is that in the past decade optoelectronics has penetrated consumer electronic items on a huge scale. Products that Taiwan has traditionally produced, such as computer drives, printers, mobile phones and cameras, all now contain some item of optoelectronics - be it an LCD, a laser diode, an imaging chip or a handful of LEDs. Taiwanese manufacturers saw a new lucrative market for low-cost, mass-produced optical parts, and the rest is history.
The intense level of activity today, especially in the displays sector, is illustrated by the number of exhibitors at Taiwan's two large optical trade shows. The Taipei Opto show in April was awash with the latest flat-panel televisions based on TFT-LCD and liquid-crystal-on-silicon technology. For four days the aisles of the Taipei World Trade Center were crammed with the screens, which measured up to 50 inches.
Looking back Although some packaging and assembly operations were already in place, Taiwan's optoelectronics industry started in earnest in 1993, when Kuo-Hsin Huang left HP in the US and moved to Taiwan to establish United Epitaxy Corporation (UEC) and set up the country's first MOCVD fabrication plant for making high-brightness LEDs.
Over the next five years another 20 MOCVD firms making LEDs and laser diodes entered the scene, including Epistar (1996), Union Optronics (1996), Kingmax (1998) and Tekcore (1999). Today it is estimated that approximately 235 commercial MOCVD machines have been installed in Taiwan.
"The thinking in Taiwan is that you have the money, you have the technology, so why not form a company?" said Dan Chen, CTO of Excellence Optoelectronics Incorporated (EOI), a leading maker of high-brightness LEDs that was formed in 1995 and is part of the UEC group. Walk around Taipei today and it is impossible not to notice the arrays of LEDs in traffic signals, on giant billboards and on the exteriors of futuristic buildings.
The mid-1990s also saw photonics beginning to enter computer peripherals, and demand for optical disk drives, laser printers, scanners and optical communications modules took off. This spawned further start-ups and more investment in the optical field. Even the catastrophic downturn of the telecoms industry in 2001, which had a crippling effect on Silicon Valley and other high-tech regions in the West, did little to slow growth in Taiwan.
Many firms are based in one of Taiwan's several large science parks, such as those at Hsinchu, TaiChung and Tainan. Of these, by far the largest is the giant Hsinchu Science Park, which is about an hour's drive south of the capital Taipei and occupies an area of 632 ha - making it more of a science town than a park. Founded in 1980, Hsinchu has grown steadily to become a powerhouse of the Taiwanese high-tech industry. By the end of last year it was home to 370 firms and more than 100,000 employees. Of those firms, about 60 are in the optoelectronics field, and employ around 20,000 staff. Another 60 firms and 7000 staff are involved in the telecoms sector.
HC Photonics is a Hsinchu-based start-up that is commercializing periodically-poled lithium niobate for applications in nonlinear optics. Ming-Hsien Chou, the firm's CEO and one its founders, told Opto & Laser Europe that although much of his initial research was carried out at Stanford University in the US, the firm preferred to set up in Taiwan. "The advantage of setting up a company in Taiwan is that it is close to China, which is an emerging, attractive market," said Chou. "There's also a supply of good engineers and the operational costs are much lower than in Silicon Valley, for example."
TrueLight, a leading maker of VCSELs and PIN detectors based at Hsinchu, also finds benefits in being part of the science park. "It's easy to communicate with lots of companies and is a great R&D resource. Tsing-Hua University is just around the corner," explained a spokesperson for the firm.
Although many Taiwanese optoelectronics firms, such as HC Photonics, are small-to-medium sized enterprises (SMEs), several very large companies have emerged, especially in the field of flat-panel displays. AU Optronics (AUO), for instance, has grown to become the world's third-largest manufacturer of large (greater than 10 inch diagonal) TFT-LCDs. Formed in September 2001 in the merger of Acer Display Technology and Unipac Optoelectronics, AUO reported a revenue of $3.1bn last year. The firm employs 15 500 staff worldwide and has four fabrication plants at Hsinchu, five in Lung Tan and one gigantic new plant in the TaiChung science park.
Another success story in the displays field is Chi Mei Optoelectronics (CMO), which also makes TFT-LCDs for computers and TV applications. Formed in 1998, CMO employs 8000 staff and has three fabrication plants based at Tainan Science Park. Last year it shipped 10.2 million LCD panels and generated a revenue of TWD83.4bn.
Last year CMO announced that it will invest $9bn over the next five years to create three next-generation (5, 5.5 and 7G) plants at Tainan. The 5G plant has now been built and is currently ramping up its production, while the 5.5G and 7G plants are due to enter production in 2005 and 2006 respectively. The 7G plant will make panels that are more than 40 inches in size.
Between them it is estimated that CMO and AUO have a 20% share of the global market for large TFT-LCDs. Some market forecasts predict that it will not be long before Taiwan takes over from Korea, which is currently the dominant supplier of such screens thanks to Samsung and LG-Philips.
Besides CMO and AUO, several smaller Taiwanese firms, such as Powertip and Wintek, are making smaller colour STN/TFT-LCD screens for use in mobile phones and portable electronics. At Taipei Opto, Taichung-based LCD maker Wintek was showing 1.9 inch TFT-LCD panels for mobile phones, which have 262 000 colours and a resolution of 128x60 pixels. These screens represent the next generation of displays for mobile phones and offer crisp, colourful images that can operate at video rates.
Research required As well as a thriving business scene, Taiwan is working hard to establish an R&D base that will support its photonics industry. The area around the Hsinchu park is home to two universities (Tsing-Hua and Chiao-Tung) which have a strong background in the high-tech field. In addition, it is the main location of the country's Industrial Technology Research Institute (ITRI). This plays a key role in supporting local SMEs that do not have their own R&D facilities.
These thoughts are echoed by Fanny Huang, president of EOI, a subsidiary of the UEC group that specializes in making LED signage and traffic signals. "In large companies in the US and Europe, 30% of revenue typically goes into R&D; in Taiwan R&D spend is often just a few per cent," commented Huang. "We [in Taiwan] need to do more R&D here, but it is very expensive."
The high-tech industry in Taiwan may still be in its youth, but it is already in a state of transition. As the island's prosperity has grown, wages have risen and labour-intensive tasks such the packaging and assembly of OEM products are now moving to mainland China, where labour is cheaper.
"Industry in Taiwan is starting to change. The high-value manufacturing - such as semiconductor and flat-panel displays - will remain, while the low-value manufacturing is moving elsewhere," Huang told Opto & Laser Europe. "Taiwan must move to a knowledge-based industry and generate its own IP [intellectual property]. Fifteen to twenty years ago Taiwanese industry had no idea about IP - it was simply concentrating on the OEM market. Now it understands its importance."
This view that Taiwan must begin to generate its own technology rather than licensing it from abroad is shared by other leaders in the industry. "To date, Taiwan's major strength has been its ability as a best follower. Firms here move very fast and have learned from the success of the semiconductor industry in the 1980s. However, this model needs to change," said Chou. "In the US the situation is very different. The firms there are very good at ideas and innovation. This is going to happen here, but it will take a while."
Domestic innovation is a pressing need, given that fewer science graduates from Taiwan are now choosing to spend a period in jobs abroad. This was an effective way of importing ideas in the past, when engineers would typically spend a few years working in the US before returning to Taiwan. However, the island's booming high-tech industry now means that many are instead enticed by lucrative local jobs. "Fewer and fewer graduates are going to work abroad in foreign companies, so people worry where the ideas will come from in the future," said EOI's Chen.
ITRI: The heart of Taiwan's optoelectronics ideas The Industrial Technology Research Institute (ITRI) was founded in Taiwan in 1973 at a time when there was very little high-tech industry in the country. The aim of the non-profit R&D organization was to help move Taiwan up the technology ladder by conducting and transferring research to local companies.
ITRI R&D takes place at 12 laboratories around Taiwan and focuses on five main areas: semiconductors; displays; biomedical devices, broadband/mobile communications; and nanotechnology. Since 2001, its research has generated more than 800 granted patents each year. At the end of 2003, ITRI employed almost 6200 staff and had funding from the government and industrial contacts totalling $500m (€406m). Today, partly thanks to the research carried out at ITRI, Taiwan is a leading manufacturer of semiconductor chips, computers and optoelectronic products. More than 100 new firms have been spun out of ITRI.
The Optoelectronics and Systems Laboratories (OES) branch of ITRI is located at Hsinchu Science Park, south of Taipei. Since it was founded in 1987 it has carried out research programs in the fields of optical storage (CD/DVD and HD-DVD), data communications and flat-panel displays, helping to fuel the growth of these lucrative industries in Taiwan.
The OES laboratory has about 500 staff, of whom 80% are researchers. It claims to have the most comprehensive DVD/HD-DVD verification laboratory in the world and has helped six Taiwanese companies to establish their own class B DVD verification labs.
1987 OES starts a research program on optical (CD/DVD) disk drives. During the next three years the technology is transferred to 16 domestic firms, helping to launch the optical storage industry in Taiwan.
1996 OES develops an optical engine for use in projection display applications. The project includes the design of key components such as dichroic mirrors, dichroic prisms and polarization converters. The technology is transferred to Chungwa Pictures Tubes.
1990-2000 OES optimizes semiconductor epitaxy technologies (MBE/MOCVD) for growing red, yellow, green and blue LEDs and transfers them to the United Epitaxy Company (UEC) and Epistar. This lays the foundation for LED device production in Taiwan.
2001 OES develops the first blue GaN laser diode in Taiwan, a key component for next-generation, high-density DVD optical drives.
2001 OES applies ink-jet printing processes to display applications, such as creating colour filters for TFT-LCDs and polymer-LED displays.
2000-2002 OES completes 1.25 and 2.5 Gbps Ethernet transmitters and receivers, and transfers the technology to Yfc-Boneagle Electric, Baycom Optoelectronics and Coretek.