Lighting companies and LED suppliers are setting themselves up for a brighter year.
In fact, 2015 could be pivotal for the global LED industry as Asian companies continue to grow their market share and traditional manufacturers transition to pure-play lighting companies, according to the “Top Lighting and LEDs Trends for 2015” white paper from IHS Inc.
Additionally, LED adoption is picking up and winning a bigger piece of the revenue stream, said William Rhodes, research manager of lighting and LEDs at IHS Technology. While they may represent a small part of the overall market in terms of unit shipments, LEDs accounted for nearly 30 percent of 2014’s total $25.55 million lamp revenue, he added. As the technology advances and LEDs reach into different market segments, those numbers are projected to maintain their steady climb in the near-term.
Keep an Eye on the Business Dynamics
On the business side, continued competition from Asian, and namely, Chinese, companies top IHS’ list of lighting and LED trends likely to play out this year.
And, for good reason. China’s LED industry has grown rapidly in the last few years, and has become a threat in other parts of the world.
Subsidies from the Chinese government in 2010 for metal organic chemical vapor deposition (MOCVD) tools helped propel this growth, and allowed a huge number of new players to enter the industry and purchase equipment to produce LED dice, according to Rhodes. While many of these startups have since closed or were acquired, those left standing are now stronger and have extended their product offerings.
“Those companies that were just selling into China have started to integrate themselves and have begun to make their own lamps, lumineres and fixtures,” Rhodes said, adding that the growth is happening not only in the upstream LED market but also in the packaged LED market as well. For instance, in early 2014, MLS, the largest Chinese packaged LED manufacturer, joined for the list of the largest 10 global LED companies, according to the IHS report. Consuming 20 billion LED die per month, MLS, at present, is the largest packaged LED manufacturer worldwide when it comes to capacity, and was ranked the seventh biggest revenue generator in the 2014 third quarter, noted IHS.
Although these Asian and Chinese newcomers are grappling with consumer and market perception that they are producing poorer quality products compared to their big-brand and well-established competitors, the overall quality is improving. And, more significantly, they are handily beating the traditional players on price.
“Chinese companies have started to come across to Western Europe and North America. They’re saying ‘Our quality is getting better. We worked on it and look what we can do. We can sell our products for a third of the price of the other guys,’” said Rhodes. “Some of the larger [Asian] companies like MLS and OPPLE are starting to produce higher quality products while mainitianing that price. It’s incredibly hard work for traditional lighting companies to compete with that.”
That’s the big question on the table. How will traditional companies compete with that?
The answer among the market leaders, who experienced falling revenues for the first three quarters of 2014, is to restructure operations and create pure-play lighting businesses.
Faced with a 19.3 percent price drop on the average bulb price worldwide from 2013 to 2014, similarly forecasted price erosion for the coming years, falling revenue and stiff competition from Asia, mainstay conglomerates with broad portfolios, like Siemens and Philips, hope organizational restructuring will bring them more luck in 2015.
Last year, Siemens spun off Osram, listed it on the Frankfurt Stock Exchange and started the task of streamlining the new company to make it more profitable. As its own entity, the prevailing thought is that Osram could better focus on and invest in core growth areas, such as the Specialty Lighting and Opto Semiconductors lines, noted IHS.
Last fall, Philips followed suit and announced it would split its business into two parts: HealthTech, which would bring together Philips Healthcare and Consumer Lifestyle groups, and Lighting Solutions, which will be setup as a standalone lighting company.
“The idea behind these reorganizations is to make the companies more dynamic,” Rhodes said. “At the moment, with the LED market coming onboard, they are losing share to new companies, so they have to do something. It’s gone past the point of no return.”
The mix of broader market dynamics has forced their hand. The traditional companies may still be getting volume sales, but as mentioned earlier, average LED bulb prices have dropped, and will keep dropping, by double-digit percentages. Product lifecycles are changing, too; incandescent bulbs needed replacing every year or two, whereas high-quality LED bulbs can go 10, 15, or maybe even 20 years, Rhodes added.
There’s also a push for greater vertical integration from the component level up through the finished product, he said. A stronger aligned internal focus could open the door for investments in new technologies, product segments or end markets, and pave the way for production of lower-priced consumer products and improved margins and profits.
Technoloy Trends Worth Watching
On the horizon, industry watchers can also expect to see some new developments coming up on the technology side.
One interesting thing could be increased consumer sentiment for LED filament lamps as a replacement to their incandescent or halogen lamps. Instead of LED chips organized on a board, these filaments have rows of tiny LEDs on a glass substrate, which is covered in yellow phosphor to convert blue light into white light, according to the IHS report. The design and light color would be familiar to incandescent bulb users, and LED filament bulbs are beginning to match other LED offerings when it comes to efficiency, price and color-rendering and overall capabilities, noted IHS.
Packaged LEDs are also poised for greater attention as well. Next-generation component conversations include broader use and rollout of chip-on-board, modules and light engines that would incorporate features such as heat sinks and optics, said Rhodes. Besides bridging the supply chain between the component LED and the completed lamp or luminaire, they give LED manufacturers a way to diversify their offerings and create more value.
For some companies, the packaged LED trend already has delivered results.
In the last few years, San Jose, Calif.-based Philips Lumileds Lighting Co., a manufacturer of LED dice, packaged LEDs and high-brightness LEDs, focused on advancing its high-power, chip-on-board, low-power and mid-power technologies, said Dale Kane, global business and market development manager. The result has led to new market opportunities.
“Our investments in these areas from as early as 2008 are really starting to pay off with gains in penetration and market share. Philips Lumileds has invested heavily in chip-scale packaging with our flip-chip technology. We are shrinking the size of high-power LEDs down to where your footprint of your high-power LED is one millimeter by one millimeter,” Kane said. “Due to the fact that you can drive the high-power emitters harder, you have better color stability over time, better lumen maintenance and better performance at high temperature and high drive currents. These really small high-power LEDs are enabling us to penetrate into applications traditionally served by mid-power applications.”
Going forward, though, component LED manfacturers could face two important design challenges in the coming year, Kane said.
Designing for very space-constrained applications will be one of them, he predicts. For something like a small MR16 lamp where space for the LED, electronic driver and heat sinking for the LED and electronic driver are limited, companies may turn to chip-scale packaging technology to solve that issue, Kane said.
Similarly, very high lumen applications, such as those used on highways or in stadiums, are migrating to LED and bringing with them some design challenges.
“On highways, you have very tall poles and hundreds of thousands of lumens of light. Stadium or arena lighting fixtures could have anywhere from 100,000 to half million lumens per fixture,” Kane said. “From a fixtures perspective, they scale fairly linearly. So if you need double the light, you pretty much need double the LEDs, you need double the drive current, and you need about double the heat sinking. How do design for that?”
“Five years ago, no one would have thought LEDs could replace stadium lighting, but today you’re hearing announcement after announcement about stadiums going full on with 100 percent LED inside and outside their stadium,” Kane said. “It’s these kinds of applications that are pushing the technological edge of what is possible. That’s where we working a lot of our end-customers to ensure that they are using the best LEDs and the latest technology to create fixtures for those never-before-not-possible scenarios.”
Questions or comments on this story? Contact dylan.mcgrath@ihs.com
Related links:
IHS Technology Lighting and LEDs page
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