LED technology is proving disruptive in lighting markets globally. Leading analysts predict that annual sales of LED lamps and luminaires will grow to around $70 billion or €65 billion by 2020, accounting for as much as 70% of the total market. So clearly, this is highly disruptive in the marketplace. These disruptions are caused by factors that include eco legislation and rising utility prices, which encourage users to adopt new energy-saving technologies. The effects will be felt throughout the entire value chain, from product design, production and logistics through to point of use.
The growth potential for LED lighting represents an extremely attractive opportunity for lighting suppliers. Almost all lighting R&D is now focused on LED technology; however, the established lighting companies will not have the LED market all to themselves.
LED Lighting: Land of Opportunity
Neetha Jayanth, Senior Research Analyst at Frost & Sullivan, comments that while established lighting brands such as Philips, Osram and Havells-Sylvania have already made definitive entry into the LED applications market, start-ups and companies from the semiconductor and electronics industries are also moving in. The UK-based Lighting Industry Association is also seeing this trend; joint CEO Peter Hunt adds that companies with a track record in solutions for energy efficiency are now beginning to address lighting applications.
LED-based solutions have been spreading through lighting markets for more than a decade, taking over specific sectors – such as emergency lighting – one by one. Ray Molony of Lux Review, the international journal for the lighting industry, assesses the current LED market as having around 12% to 15% of the overall lighting business. He has seen a repeating pattern as LED-based solutions enter a particular sector and gain acceptance up to a tipping point, beyond which LED becomes the dominant technology. With ongoing improvements in the performance of leading LED emitter types, this cycle has been repeated in a number of markets and applications such as refrigeration and some industrial uses.
Right now, according to Molony, LED technology is reaching its tipping point in retail lighting. Large store chains, and also smaller privately owned stores, are adopting LED luminaires and lamps to reduce utility bills and also to provide a more pleasant environment for their customers to experience. Molony expects the next sector to feel the full force of the LED effect to be office lighting; within two years, he says, new offices will be fitted with LED-based lighting as a matter of course.
The last sector to switch to LED as the preferred lighting technology will be residential applications. According to Frost & Sullivan’s Neetha Jayanth, cost has been a major factor holding back large-scale homeowner acceptance. “The pricing of LED lighting implies the returns are implicit with high initial investment. It therefore becomes difficult to convince a switch in lighting technologies, especially in the residential sector. Hence eco-legislation becomes the key catalyst,” she says. “The potential for the commercial sector, such as offices, retail and hospitality, can be tapped on the basis of design and technology, light quality and lifetime of lamp. However, the pace of penetration will remain slow even in this sector, if not for the eco-legislation.”
Such eco legislation is now in force in territories such as Europe and North America, where sales of high-power incandescent bulbs is effectively being ruled out so as to force residential users to adopt more energy efficient lamps. Ultimately, this is expected to drive buyers towards retrofit LED units, which Neetha Jayanth expects to overtake CFL replacement bulbs by around 2016 as the energy-saving lamp of choice in the residential market.
The price of LEDs is also falling, which will make the technology increasingly accessible to design start-ups as well as end users, and will hasten the onset of the tipping point in the remaining unconverted marketplaces.
World of Change
The outlook for LED lighting is bright but the industry is changing, demanding design competencies that are unfamiliar to traditional lighting designers, attracting major new players from the electronics and energy sectors, and demanding the rapid evolution of new standards that will protect suppliers and end users and enable the cost savings and quality improvements that will allow the technology to continue flourishing.
Peter Hunt of the Lighting Industry Association sees standards as being crucial to solving some key challenges to the industry today. “There is a surprising lack of data available on chip performance and many luminaire manufacturers struggle to obtain the information they need from suppliers. As standards appear this will have to change,” he comments. He also says it is clear that a large number of poor quality LED products are finding their way into the market which is damaging for the companies that have invested heavily in quality products which deliver their claims.
The work of groups such as the Zhaga consortium should help address such challenges effectively. Zhaga is the result of cooperation between companies from the international lighting industry, including LED module producers and lighting component suppliers, which aims to ensure interchangeability of LED light sources made by different manufacturers.
Interchangeability is expected to have several benefits for suppliers and users, such as drawing a larger number and variety of standard products into the marketplace, allowing access to economies of scale both for producers and buyers of LED lighting, and increasing buyer confidence; particularly among large users such as municipal authorities, industrial corporations and large retailers. Another facet of the consortium’s standards is to provide future-proofing by allowing users to take advantage of ongoing improvements in energy efficiency and functionality as LED lighting technology continues to evolve.
Even so, observers agree that producers of LED modules, light engines and luminaires need a higher level of technical support than has traditionally been the case in the lighting industry. Since LED is essentially an electronic technology, the product realisation processes are also changing accordingly.
Whereas the traditional lighting-industry value chain has been composed mainly of component vendors and lamp manufacturers, the need for more interactive technical partnerships between vendors and lighting designers is causing the value chain to evolve towards the model used successfully in the semiconductor industry. While maintaining direct links with a small number of major accounts, today’s IC vendors utilise networks of technical distributors to service the majority of companies and designers using their products. The influence of technical electronic distributors is new to the lighting industry.
The LED Lighting Value Chain
The tremendous success of LED lighting is exciting for the semiconductor companies such as Osram and Cree, which produce high-power LED emitters, and vendors of LED-driver ICs such as TI, NXP Semiconductors and Fairchild Semiconductor and for their appointed distributors; some of whom are authorised to represent the vendors across continents or even globally.
Distributors are ramping up their commitment to LED lighting, employing and training support staff with LED and lighting industry experience, setting up dedicated lighting groups or business units, also publishing web-based tools to help customers identify the parts they need and help with thermal calculations to select the right size heatsink. They are also moving quickly to establish connections with reliable third-party specialists for items such as optical parts.
Distributors are also adapting their component sourcing and logistics facilities to meet requirements of the lighting industry. For example, lighting OEMs are not accustomed to dealing with lead-times for key components. To address this, some distributors have invested in extra inventory of lighting products to assure customers of minimum lead times. In addition, they are adding new franchises and partnering with third-party specialists to satisfy customers’ complete bill-of-materials requirements; effectively looking to offer a one-stop-shop from connector to reflector.
As end-user interest in LED lighting continues to grow, and lighting producers and design specialists identify new opportunities that can be satisfied using this new technology, the lighting industry and its suppliers continue to adapt to an ever-changing market.
Paul Drosihn, Lighting marketing manager EMEA for Arrow Electronics.