LED industry will change significantly as lighting takes off

August 8, 2012 — The light-emitting diode (LED) industry is entering its third growth cycle, general lighting, according to Yole Développement and EPIC’s report, “Status of the LED Industry.” However, the cost of a packaged LED still needs to be reduced by a factor x10 to enable massive adoption. New business models are mandatory to capture added value of LED lighting.

Growth of the LED industry has come initially from the small display application and has been driven forward by LCD applications. LED TV was expected to be the LED industry driver for 2011 but the reality was quite different. Lower adoption of LEDs in the TV market and the entry of several new players, mostly from Asia, created a climate of overcapacity, price pressure and strong competition. As a consequence, packaged LED volume was about 30% lower than expected and revenue shrank due to strong ASP pressure.

Figure. Packaged LED revenue, by application. SOURCE: Yole, Status of the LED Industry, August 2012.

Yole and EPIC estimate packaged LED revenue will reach a market size of $11.4 billion in 2012 and will peak to $17.1 billion by 2018. Growth will be driven both by the display (LCD TV) and general lighting applications until massive adoption of LEDs in lighting.

From 2014, the third growth cycle of the LED business will accelerate with the general lighting application representing more than 50% of the overall packaged LED business. In terms of volume, LED die surface will increase from 22.5 billion mm² (2012) to 80 billion mm² (2018). This will prompt substrate volume growth from 8 million x 2” wafer equivalent (TIE) in 2011 to 39.5 million TIE in 2018, with a CAGR of 26%.

The adoption of LEDs for general lighting applications strongly depends on technology and manufacturing improvements, improving performance and cost to hit an LED adoption trigger point. Industry consensus points out a cost reduction per lumen of packaged LEDs by a factor x10. This can be achieved through a combination of manufacturing efficiency and performance improvement, such as access to larger size wafers, improvements in LED epitaxy cost of ownership through yield and throughput, and improved packaging technologies (phosphors, optics, etc).

Additionally, improved package and luminaire design will also enable significant cost reduction.

Ultimately, the long life of solid state lighting (SSL) technology will totally change the lighting market by dramatically increasing the length of the replacement cycles. The replacement market (aftermarket) will be strongly impacted, pushing traditional players of the lighting industry to define new strategies to capture profit (intelligent lighting, lighting solutions, etc).

“In addition, as value is moving to the top of the value chain (module and luminaire levels), several players that were originally involved only at LED device levels will develop strategies of vertical integration in order to capture more value,” added Tom Pearsall, general secretary, EPIC. But accessing distribution channels represents a big challenge for those players who develop new approaches to sell their lighting products (e-commerce, new distributors). The rise of LED lighting will therefore depend on the right merger of the emerging LED industry with the traditional lighting industry.

The researchers also found that China’s GaN MOCVD reactor capacity has increased by a factor of 20 in the last 3 years. The capacity for GaN LED epitaxy has increased dramatically in 2010 and 2011. This increase took place across all regions but was most dramatic in China (increased by a factor x20 of the reactor capacity between Q4 2009 and Q1 2012).

“Most emerging Chinese LED epiwafer and die manufacturers are still lagging significantly behind their competitors in term of technology maturity and LED performance,” says Dr Eric Virey, senior analyst, LED at Yole Développement.

The bulk of those new companies are not yet capable of manufacturing LEDs to address the large display and general lighting applications that are currently driving the market. In the mid-term, consolidation of the Chinese LED industry will occur (scenario in the central government’s new five-year plan), and China should became a major actor in the LED industry.

The report presents all applications of LEDs and associated market metrics, LED cost reduction opportunities, entire LED value chain, a deep analysis of the general lighting application and an analysis of geographical trends. Authors include Pars Mukish, market and technology analyst and Dr Eric Virey, senior analyst at Yole Développement, amd Tom Pearsall, general secretary, EPIC.

Companies cited in the report: A-Bright, Advanced Photonics, American Bright, American Opto Plus, AOT, ApexScience & Engineering, APT Eelctronics, Aqualite Co, Arima, AUO, Avago, Bridgelux, Bright LED, Brightview electronic, CDT, Century Epitech, Chi Mei Lighting Technology, Citizen Electronics, CREE, CS Bright, Daina, Dominant Semiconductors, Edison, Elec-tech, Enfis, Epiled, Epilight Technology, Epistar, EpiValley, Everlight, Excellence Opto, Fangda group, Formosa epitaxy (Forepi), Galaxia Photonic, GE, Genesis Photonics, Golden Valley Optoelectronics, Hangzhou Silan Azure, Harvatech, HC SemiTek, Heesung, High Power Opto, Hi-Light, Hueyjann Huga, Huiyuan Optoelectronic, Hunan HuaLei Optoelectronic, Hunin Electronic, Idemitsu Kosan, Illumitex, Invenlux, Itswell, KingBright, Kodenshi, Konica Minolta, Korea Photonics Technology Institute (KOPTI), Kwality group, Lattice Power Corporation, LedEngin, LEDTech, Lemnis, Lextar/Lighthouse, LG Display, LG Innotek, Lighting Science, Ligitek, Lite-On, LongDeXin (LDX), Lumei Optoelectronics, Lumenmax, Lumex, Lumileds, LumiMicro, Lumination, Luminus, Lumitek, Lustrous Technology, Luxpia, LuxtalTek, MokSan Electronics, Moser Baer, Nanosys, Nanya, Nationstar, Neo-Neon, Nichia, NiNEX, Oasis, Optek Technology, Opto Tech, Osram, ParaLight, Philips, Power Opto, Powerlightec, Rainbow Optoelectronics, Rohm, Samsung SEMCO, Sanan Optoelectronics, Sanken Electric, Seiwa Electric, SemiLEDs, Seoul semi / Optodevice, Shandong Huaguang Optoelectronics, Sharp, Shenzen Mason Technology, Shenzen Mimgxue, Shenzen Yiliu Electronic, Shenzhen Refond, Showa Denko, Stanley Electric, Sunpu Opto, Supernova, Sylvania, Tekcore, TESS, Tonghui Electronic Corporation, Toshiba, Toyoda Gosei, TSMC, Tyntek, UDC, Unity Opto, Visera Tech, Vishay, VPEC, Walsin Lihwa, Wellipower, Wenrun Optoelectronic, Wooree LED, Xiamen Changelight, Xiamen Hualian, Ya Hsin, Yangzhou Huaxia Integrated Photoelectric (DarewinChip), Yangzhou Zhongke Semiconductor, YoungTeck, Yuti Lighting Shanghai, Zoomview (Xi An Zoomlight), and more.

Yole Développement is a group of companies providing market research, technology analysis, strategy consulting, media, and finance services. For more information, please visit www.yole.fr.

The European Photonics Industry Consortium, EPIC, has three important activities: dialogue with the European Commission, ownership of the European roadmap for photonic technologies, and developing the critical human resource of trained scientists and engineers in the European economic area. EPIC is composed of 80 member organizations and over 400 associate members. For more information: www.epic-assoc.com.

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