Virtual vertical integration of the supply chain
The core concept of Epistar’s Co-activation Service Model is virtual vertical integration. In this business model, it is Epistar that mainly receives projects from clients and coordinates cooperation with other firms. “We will evaluate the project’s needs, find the most suitable packaging and module firms that we can work with, and build an optimized supply chain for partners to sell the products or to provide OEM services,” according to Ita Lin, associate vice president of Epistar’s Marketing Center.
In reality, due to issues concerning the company size, sales, marketing, and brand recognition, it is difficult for Taiwan-based small- and medium-size packaging or module firms to obtain orders from well-known lighting firms or mobile device backlighting suppliers. In contrast, Epistar is a world-leading LED chipmaker and has established a strong brand image and trust within the industry, allowing it to play a leading role in the virtual vertical integration for the Taiwan LED industry in its completion against others in the world.
Lowering design barriers for end-market firms
Lin added that “to facilitate this cooperation model and maximize the synergy in competition for orders from US- and Europe-based lighting fixture firms, Epistar has been expanding its electric control, industry design, and sales marketing teams, and has now become a supplier for brand-name vendors.”
However, Epistar mainly applies this strategy in the down lighting market and has been avoiding the light bulb market, which has become a pricing war zone. It has been pointed out that the ex-factory price for the mainstream mid-power 800-lumen LED light bulb has been falling from US$5-6/unit in 2013, to US$2.20-2.50/unit in 2014, and to US$1.80/unit in 2015. This means LED firms have an extremely low profit margin.
The Co-activation Service Model introduced by Epistar not only integrates Taiwan’s LED industry to compete with other regions, it also satisfies the demand of LED lighting fixture firms. Alexander Wang, director of Epistar’s Marketing Center Segment Group, noted, “In the traditional lighting era, mechanical design was the most important part, and that was what lighting fixture firms were good at. But in the LED era, electronic design has become the center of lighting fixture development. This means it is difficult for traditional lighting firms to build their own products by integrating the components such as power supply they procure. They need to rely on suppliers to provide a total solution.”
HV DoB is popular in the market
Due to the demand aforementioned, Epistar currently relies on Co-activation Service Model to mainly promote driver on board (DoB) solutions with high-voltage (HV) chips. The one big advantage of HV chips is their ability to operate under HV direct current, hence in the process of turning alternative current (AC) into direct current (DC) there is no need to dramatically lower the voltage. This also means the chip does not require expensive drivers but can rely on linear driver circuits. In fact, in the 2014 Frankfurt Light + Building exhibition, some of Epistar’s major customers such as Philips and other Europe- and US-based firms showcased HV linear lighting products.
The DoB technology is to package power drivers directly onto the circuit board which can help minimize the size of the light source. This means the integration of HV chips into the DoB can greatly lower BoM costs and simplify designs. The DoB module introduced by the Co-activation Service Model provided by Epistar and its fellow partners can be immediately used after the lighting fixture firm takes delivery and puts two screws on it. This greatly lowers the entry barriers faced by traditional lighting fixture firms in the LED lighting market, and therefore this solution is quite popular.
Flexible customized services
In addition, in the LED lighting fixture market, competition is mainly based on design differentiation and with Co-activation Service Model, Epistar can customize special designs for special needs and choose suitable packaging and module firms to join the project. This flexibility allows Epistar to provide lighting fixture firms with quick customized products and services.
In addition to DoB, Co-activation Service Model has also expanded to many other products. More packaging and module firms have joined Co-activation Service Model due to its profit-sharing advantages. In the face of fast expansion by LED firms in other regions, the virtual vertical integration will help Taiwan’s upstream and downstream LED firms to capture more business opportunities.
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