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Yole: How LED lighting will shape the outlook for 2014

The highly fragmented LED industry will have to undergo some major transformations. With more than a hundred chip makers and thousands of packaging companies, much consolidation is needed
“Growth of the LED industry came initially from small LCD displays and keypad backlighting for cell phones. Then, the industry was driven forward by medium and large LCD display applications, with LED TV expected as the LED industry driver for 2011," explains Pars Mukish, Senior Analyst, LED, Lighting Technologies and Compound Semiconductors activities at Yole Développement.

He adds, "However, the reality was quite different due to lower sales of LCD TVs, a lower than expected penetration rate of LED technology and a lower number of LEDs per TV set.”

The situation, mixed with the entry of several new players at the chip and device levels (mostly from Asia), created a climate of overcapacity, price pressure, and strong competition.

As a consequence, packaged LED volumes were sharply lower than expected and revenue shrank due to strong ASP pressure. In 2012, most companies started moving to the new “El Dorado” of the LED business: General Lighting, which represented the next killer application.

In 2013, LED technology has really started to spread beyond general lighting, with the LED penetration rate greater than 5 percent in some applications (such as residential lighting, commercial lighting and road and street lighting).

However, to enable massive adoption of the technology, LED products still require a cost decrease in order to be able to compete with incumbent technologies (halogen...).

What's more, the switch from a display driven market to a Solid-State Lighting (SSL) driven market poses many challenges for the many LED manufacturers that are not vertically integrated all the way through to lamps/luminaires.

Indeed, to address the LCD display market, LED manufacturers just needed to discuss with Samsung and LG (or, to be more specific, their backlighting unit suppliers, of which there are only a handful) and develop a few types of LEDs.

With General Lighting, there are thousands of possible customers. The market is highly fragmented (in terms of applications and products). The channels to market have become much more complicated as they require a lot of commercial effort, and deal making with regional and local distributors.

Also, engineering gets requests to develop many different types of LEDs for each customer (one-chip package, multi-chip package, COB....). The segment becomes a “low volume/high product mix” type of market without the benefit of commanding the usual high prices.

The LED industry expects “low volume/high product mix” products to still be priced like commodities. And to makes things harder, the only “large” potential customers for SSL devices would be Philips Lighting, Osram and General Electric, but two of the three are vertically integrated and have their own source of LEDs that covers a large percentage of their needs.

In 2014, after years of anticipation, promises an d excitement, General Lighting will no longer be “at the corner” for the LED industry. However, as explained, to successfully convert this opportunity into bottom line cash, the industry will have to undergo some major transformations, and many challenges await.

First of all, the highly fragmented LED industry - with more than a hundred chip makers and thousands of packaging companies - needs some serious consolidations. Secondly, the paradigm changes of SSL implied that it’s no longer simply about making bulbs and sticking them into luminaires.

To reap the full benefits of LEDs, products will have to be designed out of the box, almost from the chip to the final installation in our living room or city hall.

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