Light Emitting Diode (LED) is an innovative lighting technology. According to the estimation of the research company, Strategies Unlimited, the global market size of LED industry is 4.6 billion US dollars in year 2007 and the cumulated average growth rate till year 2012 is estimated to be 20%. Taiwan LED companies owned the worldwide second large market share, 22%, which have an important position worldwide. The background above led to this paper, analyzing the operation performance of Taiwan LED companies and providing suggestions for future improvement respectively. This research encompasses all public financial data from the 14 pure LED companies in Taiwan, covers from 2002 to 2007. This research applies the technique of Grey Relational Analysis (GRA) and Entropy to assess the performance of Taiwan LED industry and provide suggestions to improve Taiwan LED companies' performance. From our research results, the performance of EPISTER and EVERLIGHT are relatively high among other LED companies. After a further analysis of these two companies, this research suggests Taiwan LED companies should build up strategy alliances with worldwide LED leaders for cross licensing. Moreover, they should enhance their technology capability, accelerate in R&D and innovation, grasp the market trend, improve product mix and manufacturing efficiency and reduce the cost. In consequence, they can improve their competitive advantages and enlarge worldwide market share and benefit.