LED chipmaker Epistar is in talks with Delta Electronics about a strategic alliance that will involve product development and establishment of a LED chip production facility in China, according to Epistar sources. Since such cooperation requires the approval of the board of directors, industry sources expect the deal to be finalized in August after Epistar's board meeting.

In regards to locations for the new plant, Epistar pointed out that it needs to be situated near customers, and local government support is also an important criteria.

Since Delta has a LED lighting device plant in Dongguan, Guangdong Province, southern China is a preferred location for joint ventures with others, said Delta CEO Yancey Hai.

In recent years, Epistar has actively expanded its presence in the LED sector. Since 2009, it has acquired stakes in fellow LED chipmakers Tekcore, Nan Ya Photonics and Huga Optotech. The pan-Epistar group is now equipped with 290 MOCVD machines and is the second largest LED chipmaker globally with a 17% market share.

Vertically, Epistar has plans to jointly set up a LED epitaxial wafer plant with packaging house Lite-on Tech in Changzhou, Jiangsu Province. It has invested US$8 million in affiliate United Microelectronics Corporation (UMC)'s LED lighting subsidiary in Jinan, Shandong Province. And earlier in June, Epistar, Everlight Electroncis and TPV Technology agreed to build a facility in Fuzhou, Fujian Province for LED chip packaging and LED light strip manufacturing.

The move to align with Delta takes Epistar further downstream into LED lighting devices and secure order commitment from another important customer.

Delta has both own-brand and ODM operations for LED lighting products. It is seeing strong demand for LED light bulbs from Japan and will focus on China's street lighting market as well, the company said.