LATTICE POWER–Recreating Bell Labs in China

 LED lighting is here to stay. It’s just a question of economics since the cost must fall for the price/bulb to be affordable to households.  Lattice Power is a Chinese company that wants to revolutionize the economics. They believe their technology of GaN-based LED on silicon substrate will enable low-cost and large-scale manufacturing.

 We arrived at the campus of Tsinghua University –China’s equivalent of MIT–and in an office building situated across from Google, we were greeted by Sonny Wu and David Lim. The discussions started immediately, with Starbucks coffee brought in instead of the usual tea that has accompanied other meetings in China. This could have been Cambridge Massachusetts rather than the Haidian district of Beijing. David Wu is the Strategic Planning Director of Lattice Power, which has recently been in the press for buying more MOCVDs from Aixtron than any other Chinese company.  Sonny Wu is MD of GSR Ventures, owner of Lattice Power. Both are MIT grads, ambitious and “proud” (as the website repeats) that their breakthrough technology originated in China.  Their optimism is infectious. If they’re right, the sky’s the limit. One of their goals is to replicate Bell Labs in China.

 “We’re getting the best minds in the world to come to China…I can imagine Bell Labs out of this: research breakthroughs, 500 scientists (we’re building them houses, schools for their kids)….We can get to higher lumens/watt. We can get more inches.”

 Importantly, there are no scientific limitations on the reduction of  cost per lightbulb  (theoretically now less than US$10/bulb), or potential increases in lumens/watt (now 100 lumens/watt and very soon 120 lumens/watt) or the expansion of wafers (6-inch wafer is already here).

 In 2005, GSR Ventures  bought the Lattice technology from a  university in Shanghai. Since 2006, new investors in GSR Ventures have included Mayfield Fund, AsiaVest Partners, Keytone Ventures, and Temasek Holdings. Total investment: US$70M. In December 2010 Lattice received  US$55.5M of  new financing from the IFC, a member of the World Bank Group. In all Lattice has raised over US$100 million, no small sum for a start-up.

 LatticePower’s technological differentiation is a GaN-based LED on silicon substrate. To date 90% of the LED market is sapphire and only 10% is silicon. Sapphire substrate has the longest history. But silicon is the ‘holy grail’ because it is  scalable, 8-12-inch for large-scale manufacturing and  much cheaper.  The key is to deposit thick enough layers of gallium nitride  on the silicon (i.e. more than 10 microns).

  Lattice Power built the first plant in September 2009 and  generated over US$1M in sales with 3 machines. In 2010 revenue reached US$15M with 10 machines. In 2011, 12 more machines were added. MOCVD machines were bought from both Veeco and Aixtron.

 Everyone was sceptical two years ago, but since July 2010 the science community has embraced silicon: e.g. Cambridge University, Imec (Belgian nano-electronics research institute) and Siltronic AG. Having started six years ago, Lattice has had a big head start. It has launched  a 6-inch wafer process for  LED light bulbs. Next step: scale to 8-inch then to 12-inch.

 Even the MOCVD tool companies (US-based Veeco, German-based Aixtron) are following suit. Since Lattice announced it had reached 6-inch and passed the largest Chinese MOCVD order ever –to Aixtron –the tool makers say they can do 6-8 inch today. The US Department of Energy’s recent funding support to Veeco appears to be a sign that the Department is supporting silicon-based technology.

 While improving the environment through  contributing to the explosive growth in  LED  lighting,  Lattice Power is pushing the boundary of sustainability even further by employing recycled aluminium in its production.  They import from the US and recently built a 600-ton factory in China.  This has significantly reduced energy consumption and overall production costs. “LED must be a sustainable industry!” said Sonny Wu.

 Discussing  LED market potential, Sonny pinpoints Japan where 40 million LED lights, quickly increased to 200 million lights in 2010 and will double that by 2020.  Germany also will  need to lower power consumption with its end to nuclear power (the Germans have asked Lattice to set up production there).  China of course, is not just a big market for LED but importantly the only completely homogeneous one, making penetration easier.

 There is little risk of overcapacity such as with PV. The Chinese government subsidies are  helping to bring players into the general LED market thanks to MOCVD subsidies. Lots of people are doing LED for the first time. This will drive prices down. However, entry barriers are higher for LED than for PV. This is especially true for new technologies like Lattice Power’s GaN-on-Si LED.

 An IPO is not on the agenda for tomorrow. Lattice is already cash positive but management’s motto is to expand first, then IPO. “This is an industry that’s growing fast. Once we have the people we can do all this. We need like-minded investors. We don’t want a small  IPO.” said Sonny Wu.



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