LEDs could capture 80 percent of the lighting market by 2020, according to a former Philips executive.
From a 12 percent share in 2012, and a projected 25 percent next year, LEDs could more than triple that market penetration by 2020. Such a scenario is "in the cards," according to former Philips Lighting CEO Ludo Carnotensis, as reported in Greentech Media.
In Carnotensis's view, shared at a briefing yesterday at Credit Suisse, high-volume manufacturing will be the key to realizing this "aggressive" growth scenario. The LED's share of the total bill of materials of lighting products is plunging 25 percent a year as both incumbents and upstart players put their effort into driving down costs, as opposed to finding new ways to add value to their lighting products.
In this game, the lighting incumbents -- Osram Sylvania, GE, Philips -- don't have an automatic advantage. Carnotensis pointed to the example of Cree, which has been aggressively driving down its LED manufacturing costs, and won the battle to get into Home Depot's nationwide distribution channel. Ramping up LED manufacture is simpler, and is within the range of far more players, than the century-old game of manufacturing bulbs in custom glass furnaces -- a game the incumbents dominated.
The winner in the market for replacing Edison light bulbs won't emerge until 2015 or 2016, according to Carnotensis, even though by 2014 we may see such products at a $6 price point.
Carnotensis points out that profit margins are eroding, and will drop further as manufacturing volumes pick up even more. "In the past, Philips reported profits of 13 percent. Today, Cree is reporting profits of 6.5 percent, even as it ramps up production," reports Greentech Media.
The China card
What happens in the Chinese market, from both a manufacturing and a consumer point of view, will have a big impact on how the LED market plays out in the later years of this decade. The Chinese government has been subsidizing new entrants in the LED lighting space in the same manner they did with solar a decade ago. Many of these companies are now failing, because they can't produce a reliable product in the face of relentless downward pressure on prices.
According to Carnotensis, no Chinese company has yet emerged to threaten the largest manufacturers in the West. And Chinese consumers, notoriously price-sensitive, aren't buying many LEDs yet either.
China does control the vast majority of the world's supply of rare earths, however, and these are needed in the manufacture of LEDs, as in most high-tech electronic products. Over the longer term, the US may succeed in restarting its shuttered rare earth mining business; and there are recent reports of new deposits off the coast of Japan. Companies dependent on rare earths are investing in finding ways to use less of them, as this year-old news out of Philips confirms.
— Keith Dawson , Editor-in-Chief, All LED Lighting