UPDATE 1-Taiwan's TSMC exits LED lighting business with $26 mln unit sale

(Adds details on sale, context)

* TSMC agrees to sell LED unit to Epistar for $26 mln

* Unit “struggled” to become profitable, companies say

* Sale means TSMC can focus on core chips business

By Faith Hung and Michael Gold

TAIPEI, Jan 9 (Reuters) - Taiwan Semiconductor Manufacturing Co Ltd has agreed to sell its LED lighting unit to local firm Epistar Corp in a $26 million deal that will allow both Taiwanese companies to focus on their core business.

The deal, announced on Friday, underscores the price wars that have slashed the profitability of light emitting diode, or LED, makers. Last year, Samsung Electronics Co Ltd also said it would cease its LED business outside of South Korea.

The lighting unit, established in 2011, was considered a late entrant into the LED market and has “struggled” to reach profitability, both companies said in a stock exchange filing on the deal.

The sale allows TSMC, the world’s largest contract manufacturer of semiconductors, to offload a small unit outside of its core business that has been struggling to make money.

For Epistar, a major global manufacturer of LED chips, the acquisition of TSMC Solid State Lighting Ltd (TSMC SSL) gives it more capacity in an industry suffering from oversupply.

After the sale, Epistar will have a 94 percent stake in TSMC SSL, the companies said in a joint statement. The remaining 6 percent stake is held by TSMC SSL employees.

TSMC shares closed 2.9 percent lower Friday before the announcement. Epistar shares ended down 0.3 percent down. (Writing by J.R. Wu; Editing by Miral Fahmy)