It will remain a buyer’s market for high brightness light emitting diodes (LEDs) through at least 2014 because of ample capacity, falling prices and short lead times.
While LED tags will drop, price declines may not be as steep as in previous years. Still, LED prices are forecast to drop 20% through 2015, according to researcher IHS, Englewood, Colo. As prices decline, more equipment and lighting systems will use LEDs. OEMs are becoming familiar with LED technology and are designing them into products even if the initial price is higher than other lighting technologies.
“We are seeing new projects start,” says Michael Finn, vice president sales and marketing, Bivar, an LED product manufacturer based in Irvine, Calif.
“Customers have become much more aware of how to use them and are looking to incorporate them into products,” he says.
He explains that Bivar’s LED business was strong in 2013 and expects the same for 2014. “We were up over 12% this year, and we have seen LED usage expand across a lot of the industrial markets,” he says.
Prices will continue to erode and, as a result, LEDs will be designed into more lighting systems and products. The LED market also will post double-digit growth even if prices continue to fall.
“We take a three-to-five-year view and expect 15% to 20 % growth per year," says Rahul Bammi, vice president product management and marketing at Philips Lumileds.“We take a three-to-five-year view and expect 15% to 20% growth per year," says Rahul Bammi, vice president product management and marketing at Philips Lumileds. “I'm optimistic that it will be closer to 20%.”
Researcher IHS forecasts that packaged LEDs used in lighting applications will increase from $3.6 billion in 2013 to $5.6 billion in 2014. By 2016, the market is expected to increase to $7 billion.
Strong unit growth
While revenue growth will be robust, LED unit growth will be even stronger. “When you talk about 10% or 15% growth in the LED industry per year, that means unit growth is actually higher,” says Jamie Fox, LED research manager for IHS. He notes LED suppliers are all "fighting for a piece of the pie" and are reducing prices to increase or maintain market share.
LED unit and revenue growth is driven by general lighting, says Dr. Joachim Frank, head of Strategic Marketing and Planning, OSRAM Opto Semiconductors, headquartered in Regensburg, Germany. "LEDs for general lighting will be the strongest growth driver for the next years to come," he says. Other segments that will also drive the LED market include headlamps in vehicles, flash in mobile phones and mobile projection, he says.
The LED market can be divided into two segments, says Fox. "There is general lighting and the rest," which includes automated signage, displays, televisions, mobile handsets and other equipment, he says.
The non-general lighting market “is actually flat, so the lighting market is where the growth is," says Fox.
The market for packaged LEDs for lighting applications
will grow to $7 billion by 2016.
Residential, commercial and industrial lighting systems are migrating to LED technology because LEDs last much longer than incandescent or fluorescent lights. What’s more, they use less energy, so total cost of ownership is reduced even though the initial purchase price is higher.
LED bulbs range in price from $20-$30, although some are less than $10, reports Fox. Prices for LED bulbs continue to fall.
“The lower the price for LEDs, the higher the penetration will be. When LED bulb prices fall under $10 and eventually towards $5," LED usage will soar, he says.
Fox notes that LED prices fall every year. On average, the LED unit price will fall about 20 % per year through 2015. In 2013, the average price of an LED was $0.42. It will decline to $0.34 in 2014, according to Fox.
One way LED manufacturers reduce cost is by increasing the brightness of LEDs. "When you do that, you don't need as many LEDs, and that reduces cost," he says.
A key LED metric is lumens per dollar. Fox says manufacturers continue to improve lumens per dollar. The average lumens per dollar have increased from about 152 in 2011 to 343 in 2013.
Bammi of Philips Lumileds says there are several ways to improve brightness and reduce cost. One is by refining the semiconductor substrate as well as the phosphors used in the LED.
"The raw LED in the semiconductor produces blue light. We put phosphors on top of the semiconductor, and as light passes through a yellow phosphor, the light gets converted into white light," he says.
“We do a lot of research involving phosphor materials to maximize light output from blue light to white light," says Bammi.
Advances in LED packaging also improve performance and reduce cost. "We do a fair amount of R&D packaging to improve package efficiency to get more light out of the package,” he says.
As manufacturers reduce cost, LEDs will be used in more lighting systems, which will further grow the market. LEDs are only using about 10% of all lighting sockets, says Bammi. The U.S. Department of Energy says by 2025, 75% of all lighting sockets will use LEDs.
While demand for LEDs will rise, lead times or prices should not be an issue for buyers, at least in the short term.
“There are still over capacities in the LED market,” says Frank of OSRAM. However, there are the “first signs for an easing of the overcapacities. First-tier players announced further expansions as they are running at or near full utilization,” he says. He notes that one way capacity is added is to move production to larger wafers sizes, such as from 4-in. to 6-in. wafers, which OSRAM is doing.