LED and Beyond A Convergent Future Consolidation, Convergence & Collaboration

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1 LED and Beyond A Convergent Future Consolidation, Convergence & Collaboration Paul Hyland President & CEO AIXTRON SE

2 Forward-Looking Statements This document may contain forward-looking statements regarding the business, results of operations, financial condition and earnings outlook of AIXTRON within the meaning of the safe harbor provisions of the US Private Securities Litigation Reform Act of These statements may be identified by words such as may, will, expect, anticipate, contemplate, intend, plan, believe, continue and estimate and variations of such words or similar expressions. These forward-looking statements are based on our current views and assumptions and are subject to risks and uncertainties. You should not place undue reliance on these forward-looking statements. Actual results and trends may differ materially from those reflected in our forward-looking statements. This could result from a variety of factors, such as actual customer orders received by AIXTRON, the level of demand for deposition technology in the market, the timing of final acceptance of products by customers, the condition of financial markets and access to financing for AIXTRON, general conditions in the market for deposition plants and macroeconomic conditions, cancellations, rescheduling or delays in product shipments, production capacity constraints, extended sales and qualification cycles, difficulties in the production process, the general development in the semi-conductor industry, increased competition, fluctuations in exchange rates, availability of public funding, fluctuations and/or changes in interest rates, delays in developing and marketing new products, a deterioration of the general economic situation and any other factors discussed in any reports or other announcements field by AIXTRON with the U.S. Securities and Exchange Commission. Any forwardlooking statements contained in this document are based on current expectations and projections of the executive board and on information currently available to it and are made as at the date hereof. AIXTRON undertakes no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise, unless expressly required to do so by law.

3 Solid State Lighting in years ago: Dr. Nakamura in his lab Today:.. Is the job done? SSL lamps are available in virtually every global market

4 The LED Industry s Priorities are Changing 90 s 2013 Technology and Performance Consistency & Reliability Quality & Cost

5 Technology and Performance Brightness Work in Progress In many consumer s eyes - LEDs are already bright enough at 800 lm! Source: Philips, Strategies in Light Europe 2012

6 Quality and Consistency Application driven progress Warm White preference in EU and US High Spec application requirements are already being achieved

7 Is lumen / Watt still the battleground? DoE SSL roadmap (2012) Looking at Lifetime Cost for external applications - Yes! Critical for Industrial, Commercial and Outdoor use But Private consumers may think differently

8 The private consumer s appetite is growing....at the right price I don t care if an 800 lumen LED bulb consumes 11W or 10W but it makes a big difference if it costs $ 30 or $ 10!

9 2013: A Year of Transition for the SSL Industry 90 s 2013 Technology, Performance & Lifetime Consistency & Reliability Quality & Cost

10 LED Cost Structure by Application LED Chip representing ca. 20% of LED Light Bulb Cost Mature Emerging Other costs Profit/Yield 50% 50% 40% 40% LED Chip cost Based on: AIXTRON; DisplaySearch Q3/2011; DOE 2011; CSA Conference 2011

11 U.S. DoE LED Lamp price projection A sub $ 10 price is a must! Source: Multi-year SSL program plan (April 2012)

12 A-19 Bulb: 60W* LED Replacement - US-Pricing Commercial Lighting: LEDs approaching economic tipping point Residential Lighting: From Social driven to Operating Cost benefits Government / Public Utilities support could be tipping point catalyst Store LED Man. Inca n. CFL LED QoQ +/- LED vs. Incan. (x) LED vs. CFL (x) Amazon APIDA $0.6 $ 1.1 $ 15 25% 25.4x 14.1x Philips Home Depot Home Depot Philips $ 1.1 $ 1.4 $ 18 6% 16.4x 12.5x EcoSmart $ 1.1 $ 1.4 $ 24 0% 21.9x 16.6x Lowe s Utilitech $ 0.4 $ 2.0 $ 20 0% 53.6x 10.0x EcoSmart Walmart 3M $ 0.6 $ 1.3 $ 25 (new) 44.4x 18.9x Energy Federation LSG $ 2.2 $ 22 28% 10.0x Average $ 0.7 $ 1.6 $ 21 7% 27.7x 13.1x Source: LEDinside; AIXTRON * According to Tab. 6 of EU-Regulation 244/2009 requiring >700lm minimum for 60W 3M

13 A-19 Bulb: 60W* LED Replacement Global Pricing Recognized Global Brands: Samsung, Osram, Philips, GE, Toshiba, etc. Rapidly growing group of substantial local regional manufacturers Local retail initiatives: Test market phase in leading economies New light bulbs with higher performing lumens per Watt being offered Stores Incan. CFL LED QoQ +/- Low High LED vs. Incan. (x) LED vs. CFL (x) Average US $ 0.7 $ 1.6 $ 21 7% $15 $ x 13.1x Average Japan $ 1.6 $ 9.0 $ 23 3% $12 $ x 2.6x Average EU ** $ 7.9 $ 35 10% $29 $42 4.4x Average Korea $ 0.9 $ 3.4 $ 17 6% $15 $ x 4.9x Average Taiwan $ 1.2 $ 4.7 $ 16 18% $10 $ x 3.3 x Source: Various websites; AIXTRON Average $ 1.1 $ 5.3 $ 22 9% $10 $ x 4.2x * According to Tab. 6 of EU-Regulation 244/2009 requiring >700lm minimum for 60W

14 The private consumer s appetite will grow..at the right price? The first Osram LED lamp with an RRP of under 10 ($ 13) Osram will soon be lowering the cost barrier significantly and will bring the first LED 40-watt replacement lamp with an RRP of under ten Euros to the market. The growing acceptance of LED lamps confirms to us that we have got this technology of the future on the right track. With a price under this symbolic threshold, we are providing access to this energy-efficient lighting to even more consumers, comments Klaus-Günter Vennemann, CEO of the General Lighting business unit at Osram. At the same time, we are keeping our high quality standards, which are regularly confirmed by independent institutions. OSRAM press release August 28, 2012

15 The private consumer s appetite will grow..at the right price? ($ 13) German retailer ALDI, September 2012

16 The LED Manufacturing Cost Challenge 800 lumen LED bulbs for $ 10 are nice for the consumer but does it allow the LED manufacturer to make profits???

17 Collaboration?... Focus on Volume Focus on Cost Focus on Profit Huge Manufacturing investments made Very large # of MOCVD tools installed Substantial short-term Over-capacity More cost-efficient tools Larger wafers Economies of scale Margin Erosion Consolidation LEDs on Silicon Profitability

18 Collaboration?... Managing Cost Delivering Profitability Key CoO Manufacturing cost targets need to be agreed and defined LED manufacturers and equipment suppliers must have a common vision A consolidated Roadmap is required

19 Collaboration?... Public Cost Down Roadmap: DoE Source: DoE 2012 An almost 10x cost reduction over 10 years is required!

20 Collaboration?... AIXTRON LED Epitaxy Cost Roadmap Epi cost per wafer considered Based on standardized Total Cost of Ownership (TCO) model Takes into account Capital cost MO/gas cost Spare parts cost Labour/facility cost Further cost improvement by using larger wafers On chip level: by yield improvement Potential disruptive effect of new III-V on Silicon Epitaxy cost per wafer area (a.u.)

21 Manufacturing cost reduction through MOCVD scale-up

22 MOCVD Upscaling Evolution (GaN only) AIX G5 HT 56x2 / 14x4 / 8x6 AIX G5+ 5x200 mm 2012 AIX 2800G4 HT 42x2 / 11x4 / 6x AIX 2600G3 HT x2 24x2 / 8x CRIUS 31x2 / 7x4 1x8 / 1x12 CRIUS II XL 69x2 / 19x4 / 7x6 / 4x x2 19x2 / 5x4 Continuous reactor upscaling has enabled progressively reduced manufacturing costs

23 Cost Reduction by Reactor Design: CRIUS II-XL (19x4 ) CRIUS II-XL World s largest MOCVD reactor capacity A major contribution to lowering the Total Cost of Ownership

24 Manufacturing Cost Reduction using larger wafers

25 Manufacturing Cost Reduction using larger wafers (Sapphire) LED Wafer Size Forecast 2013 will most probably see 2 wafers below the 50% point 4 and 6 wafers set to dominate over the next 3 years Some customers contemplating skipping over 6 sapphire to go to 8 Silicon Larger wafers will inevitably drive cost down Source: YOLE 2012

26 MOCVD Wafer Size Evolution (GaN only) MOCVD reactors are already ahead of the wafer size roadmaps Early collaboration with some LED manufacturers has stimulated progress

27 Looking even further into the future: 300 mm wafer solutions are already available today 200 mm/300 mm CCS reactor for GaN LED production

28 Beyond 300mm? - Feasibility study: 450mm process 300nm AlN on 450mm Si(100) Good On Wafer Thickness Uniformity The AIXTRON CCS platform offers the largest single wafer Compound deposition solution available today

29 Manufacturing cost reduction: The LED on Silicon Opportunity

30 Compound Semiconductors and Silicon Two Different (Converging) Worlds?. Dominated by small wafers 2, 4 & 6. Low level of Automation and Fab Integration. Complex Binning Process required. No recognised shared Industry Roadmap. 300 mm wafers (thinking about 450mm). Fully Automated Fabs. Excellent Yield Management practices. Recognized Industry Roadmap alignment

31 Convergence? 2001: First R&D on GaN on Silicon We present a simple method for the elimination of cracks in GaN layers grown on Si (111). Cracking of GaN on Si usually occurs due to large lattice and thermal mismatch of GaN and Si when layer thicknesses exceeds approximately 1 µm. By introducing thin, lowtemperature AlN interlayers, we could significantly reduce the crack density of the GaN layer. The crack density is practically reduced to zero from on original crack density of 240mm² corresponding to crack-free regions of 3x10³ mm². Additionally for the GaN layer with low temperature interlayers, the full width at half maximum X-ray (2024) rocking curve is improved from approximately 270 to 65 arcsec.

32 Convergence? 2001: Motorola Announces 300 mm III-V on Silicon as a Commercial Product GaAs-on-Silicon process opens way to OEICs Eye on Technology optoelectronics By Roy Szweda From oemagazine November November 2001, SPIE Newsroom, DOI / For years, optoelectronics manufacturers have focused on ways to replace expensive gallium arsenide (GaAs) substrate materials with silicon (Si) wafers, which are economical, easy to manufacture, and available in diameters as large as 300mm. Now, a unique alliance between Motorola Inc (Schaumburg, IL) and IQE Plc (Cardiff, UK) has culminated in the world s first demonstration 8-in and 12-in GaAs-on-Si wafers. In essence, the new technology is the first to successfully combine the best properties of workhorse silicon technology with the speed and optical capabilities of high-performance compound semiconductors.

33 2013: What is Different Now?

34 Convergence? LEDs on Si: Osram s announcement Success in research: First gallium-nitride LED chips on silicon in pilot stage OSRAM Opto Semiconductors expands its leading position in high-quality thin-film LEDs Researchers at OSRAM Opto Semiconductors have succeeded in manufacturing high performance prototypes of blue and white LEDs, in which the light-emitting gallium-nitride layers are grown on silicon wafers with a diameter of 150 millimeters. The silicon replaces the sapphire commonly used until now without a loss in quality. Already in the pilot stage, the new LED chips are to be tested under practical conditions, meaning that the first LEDs on silicon from OSRAM Opto Semiconductors could hit the market in just two years.

35 LEDs on 200 mm Si: Toshiba s announcement Toshiba to Start Mass Production of White LEDs - Will mass produce on a new line at Kaga Toshiba Electronics 25 July 2012 Tokyo Toshiba today announced that it will start mass production of white light-emitting diodes (LED) on a production line that the company will construct in the 200mm wafer facility at Kaga Toshiba Electronics Corporation, a production base for discrete products in northern Japan. Mass production will start from October The energy-efficiency and long life of white LED is winning wide-scale application in general purpose lighting, TV backlighting, etc. and significantly boosting market size from 700-billion yen (8.75 billion US dollars) to a projected 1-trillion yen in FY Toshiba is applying GaN-on-Silicon technology to the development of white LEDs, and has collaborated with Bridgelux Inc. a leading developer and promoter of LED lighting technologies and solutions in white LED chip development since January The combination of Bridgelux crystal growth and LED chip structure and Toshiba s advanced silicon process and manufacturing technology has succeeded in developing a prototype chip with a maximum optical output of 614 mw. Toshiba will build on this achievement of start mass production of white LEDs.

36 Some Chinese LED Manufacturers are also focusing on Silicon as a differentiating opportunity

37 : LEDs on Silicon LED on Si efficacy levels have now reached c lm/w A ~40 lumen / Watt gap compared to LEDs on sapphire The immediate short fall has to be offset by a lower manufacturing cost benefit The ability & expertise to manage Yield is the critical challenge!

38 Estimated Cost Saving for LEDs on Si Total Manufacturing Cost per Wafer LEDs on 200 mm Si could turn out to be the most cost efficient option But the ability to develop a sustainable III-V process is a key differentiator Yole Développement, 2011 Managing the yield of such a complex process also requires considerable expertise. and is the necessary equipment available?

39 AIX G5+ for 200 mm LEDs on Si The AIXTRON G5+ MOCVD Planetary reactor offers flexibility; acommodating wafer sizes from 2 to 200 mm & A process migration path without changing platforms 56x2 inch 5x200mm 8x6 inch

40 LED Lighting Momentum Signals Industry & Markets product quality (lm/w) Manufacturer (materials, deposition, devices) product price (lm/$) productivity (COO) best practice migration Consumer Subsidies technology subsidies (top down) public area installation capital investment GOVERNMENT LED Lighting Governmental Regulations definition of standards return on investment incandescent bans product availability ecological awareness energy savings End-User (municipal, utilities, corporate, private) product quality product price cost/ benefit conflict

41 LED and Beyond A Convergent Future Consolidation, Convergence & Collaboration Why Consolidation? Because nobody can survive a continuation of 30% year on year end market price erosion without substantial volume growth Because the growth in Market Standards will exclude all but the most capable from the most lucrative markets Because the larger, more capable players will have deeper pockets to sustain a long-term technology differentiator strategy Finally; There is no reason why LED lights won t eventually be as cheap as $ 3 (Canaccord) and because with commodity pricing cirtical mass matters!

42 LED and Beyond A Convergent Future Consolidation, Convergence & Collaboration Why Convergence? Because of the considerable opportunity for Silicon experienced players to enter the market and leverage their critical mass Because of the long & well established track record of the Silicon Players ability to continuously reduce cost and improve performance If the barriers to entry for III-V on Silicon can be resolved, the considerable expertise and experience accumulated in the Silicon industry could be a differentiating asset.

43 LED and Beyond A Convergent Future Consolidation, Convergence & Collaboration Why Collaboration? Consistency Reliability Quality Cost The first 2 priorities are about controlling your Manufacturing and Management processes.once you can do that....the second 2 priorities should come more easily (It doesn t necessarily work the other way around!) Collaboration & Cooperation is the most efficient route to the first 2 priorities

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