LED prices are anticipated to drop around 20 percent in 2014 and pricings are already at a level comparable to traditional lighting, according to an Ofweek report. At the Guangzhou International Lighting Exhibition (GILE) LEDforum, Dr. Ke Zhang, Director of Business Development and Government Affair, Asia Pacific Osram and Dr. Guoqing Tang, General Manager, LED China, Samsung and Sr. Vice President, expressed their optimism about LED prices continual decline. The LED industry remains upbeat despite faltering macroeconomic growth for LED products, and manufacturers aggressive production expansions.
China 40W equiv. LED bulb Average Selling Price (ASP) was down 12.8 percent in May 2014, according to LEDinside’s latest LED bulb retail findings for May 2014. Existing products prices also dropped, with Haide Lighting Technology 5W LED bulb ASP plunging from US $4 to US $2.60. Moreover, some high-priced products were temporarily discontinued, such as LED bulbs by manufacturers Osram and Samsung. The U.S. product ASP also dipped in May, down around 8.3 percent. Prices of products entering the promotional period were slashed. The insignia 9W bulb ASP for example declined 50 percent. Philips’ 9W dimmable bulbs showed a similar price decline. LED bulb prices are now as competitive as those of CFL bulbs. Some manufacturers are even offering LED bulbs at retail prices that are more alluring than CFL bulbs’. This has removed previous pricing issues that kept LED bulbs from entering household lighting.
Plummeting prices are causing LED bulbs to fly off the shelves and into people’s homes. How will this impact the industry? Did the industry force LED bulb price falls to CFL bulb levels or has it been the result of ripe conditions? If the low product prices is not based on sacrificing quality, then four major industry trends will arrive earlier than expected.
Prices to accelerate smart lighting adoption
A few years ago, the general public was unfamiliar with LEDs and required some explanations, but lengthy introductions are no longer needed. LED lamps are entering average family households today. Currently, LED penetration in household lighting has already reached 10 percent. After penetration rate surpasses 10 percent, the industry will officially enter the S curve fast growth period, pushing LED lighting into a golden three year development period, said Epistar Chairman B.J. Lee. Demand for LED retrofit lighting is anticipated to draw to a close after 2017-2018. After the market enters into its S curve fast growth period, growth will ease and the torch will be passed to smart lighting systems. It was clearly observed at all the lighting exhibitions this year that many companies have begun to deploy smart lighting business strategies.
LEDs were created from intelligent design, said Dr. Chen Wencheng, Senior SSL Application Manager at Osram Opto Semiconductors. Chen believes that ‘intelligence’ is not just a smart control system. “In the past we controlled light, but in reality light controlled us,” said Chen. The effect from lighting fixtures is not always visible. It can impact our moods and adjust our circadian rhythm. A university library in Europe added a ceiling light with a blue colored backlight and discovered that it was conducive in increasing student productivity. Additionally, it was indicated at GILE 2014 that smart lighting has the potential to make up a large portion of the lighting market in the next few years. Low cost and low energy consumption LED control technology which can dim light and adjust color temperature could completely replace the traditional household lighting market, which only offers products with one brightness and one color temperature mode. Many industry insiders believe that LED lighting is just a stepping stone towards smart home applications. LED prices were already lowered to a level acceptable to consumers. It is estimated that the smart lighting market will begin to develop over the next 10 years and become a full-fledged member of household lighting.
Oligopolistic industry to arrive earlier due to rising industry restructures
Since the 18th National Congress of the Communist Party of China, economy transformation and upgrades has become the top priority. Emerging industries undoubtedly were a daring vanguard during this period, especially market listed small and medium enterprises (SMEs) and growth enterprises market (GEMs) that relied on capital markets have initiated a mergers & acquisitions (M&A) boom, creating an unprecedented peak in M&A.
Following a surge in LED lighting demand last year, the LED industry welcomed development peak that was never seen before. Every segment of the industry, from upstream to downstream manufacturers began to expand production and strategize channel distribution to gain larger market share. M&As were one of the fastest and most convenient methods to achieve this, which produced the fastest route to receive attention from LED market listed manufacturers. After the second half of last year, almost all LED market listed companies experienced mergers or entered strategic cooperation agreements.
As the LED industry becomes a market for the survival of the fittest, manufacturers with product, technology, and capital advantages are quickly developing and restructuring. In anticipation of the rapid development of the LED lighting industry, manufacturers are trying to gain an upper hand as the industry becomes more concentrated. In 2014, there was frequent M&As. Some manufactures from other industries bided their time, waiting for the perfect opportunity to stake their claim in the LED industry. There were also large lighting manufacturers absorbing smaller companies.
Previous mergers are long since forgotten, but the recent merger between Taiwanese chip manufacturers Epistar and FOREPI on June 30th really shook the industry. On the same day, Philips Lighting also sent shockwaves through the LED community when it announced plans to establish a stand-alone company by merging Lumileds with its automotive lighting business. Philips announced the new company will be established on July 3, 2014. Additionally, Shenzhen Sea Star Technology announced its investment of RMB 10 million (US $1.61 million) in Firefly Energy.
Industry becomes more specialized with market segmentation
Following the rapid growth in LED lighting demands, market concentration has gradually risen, with prices stabilizing and the industry returning to a period of stable growth. Industry insiders estimate 2014 will be a year of explosive growth for the LED industry. As industry concentration continues to increase, manufacturers move towards market segmentation is clear. In order to stake a claim in market segments, a company must excel, be professional, and segment product fields, said Wang Yinghua from Shanghai Sansi Technology. Manufacturers should meticulously develop product production and continue to improve innovations depending on client demands. Sansi Technology’s large sales volume is due to highway tunnel lighting, subway LED lighting, and municipal LED street lights. The company owes their success to market segmentation.
GE’s LED lighting market strategy can be summed up in three points: green solution, dedicated development in vertical market, and internationalize operational efficiency, said Wang Jian, General Manager of LED Products Asia Pacific at GE Lighting. Dedication in vertical market developments is most important in green lighting implementation, diversifying different industry applications, and creating green lighting solutions to satisfy different demands. The most important step in this process is to make note of client demands and finding the differences. This is also where the local research and innovative teams play an important role.
LED lighting to move into the average households
As we move into 2014, LED lighting manufactures are still finding it difficult to work with dealers. Traditional lighting manufacturers are changing and there is a rise in the emergence of LEDs. The proliferations of many brand-names in particular have resulted in overcapacity of LEDs. The first and second tier LED market is almost completely saturated. Therefore, many brands have started to find new channels, turning their sights to third and fourth level markets. Opple Lighting, Philips and other brands were among the first to begin submersion strategies, with their presence already visible in some small towns.
China is a traditional agricultural country with many farming towns, and a huge demand for lighting. Rural areas offer huge market potential. Over the past two years, LED lighting has been pushing its way into the civilian market. To move into the civilian market, LED must “fly” into the homes of ordinary people. This is LED lighting’s biggest potential market, but is also the hardest market to popularize. Currently, LED products and fluorescent lighting is the most used lighting application in residential lighting. In terms of energy saving, incandescent bulbs are gradually removed from the market. Main industry demand is for LED products and CFL bulbs. Their convenience and energy saving advantages make them leaps and bounds ahead of incandescent bulbs.
Most people’s lighting demands are not high, and mainly focus on quality, price and power saving ability. When purchasing luminaires, people first look to the style of the product and then to its energy saving ability. Most people still believe that LED prices are high. However, with LED prices reaching today’s low prices, the market will become more stable, while product technology continues to mature, and retail client recognition increases.
(Translator: Leah Allen, Editor/Translator, LEDinside// Editor: Judy Lin, Chief Editor, LEDinside)