When GE sold its home appliance division in September 2014 for US $3.3 billion to Swedish company Electrolux, market rumors surfaced that the company might sell its lighting business too. The company denied intentions of selling its century old lighting business at the time. Instead of selling its lighting business, GE announced it would be spinning off its commercial LED lighting business, solar energy, and energy storage devices into a new startup company on Oct. 7, 2015. According to a Bloomberg report, the new business is expected to increase annual sales to about US $5 billion from its current start of US $1 billion.
GE’s 125-year old lighting business has been the backbone of the organization’s foundation since 1890 when Thomas Edison founded the company. The company became a forerunner in the LED industry following Nick Halonyak Jr.'s invention of the red LED at GE Labs in 1963. Halonyak’s research in red LEDs would lay the technology foundation for future blue and white LED technologies.
In more recent years, the global incandescent bulb phase out that started from 2005 by Brazil and Argentina, and gradually swept over the globe have closed the chapter on Edison’s incandescent bulbs. Global government policies promoting energy efficient LEDs in recent years has urged manufacturers including Osram and GE’s gradual withdrawal from traditional incandescent bulbs, halogen, and ballast businesses. In an internal memo in late August 2015, GE notified employees it would be discontinuing certain traditional lighting products to focus on LED and smart lighting products. The company’s LED revenues soared 77% during second quarter, while other product revenues declined 7%, reported Bloomberg.
Booming revenue figures in the LED business can be misleading, though. Sharp price declines in LED industry are pressuring companies to adjust their business strategies. “The company is adopting a strategy similar to competitor Philips, due to fierce competition in LED lighting and bulb market sectors”, commented LEDinside Research Director Roger Chu. The ascension of Chinese manufacturers in recent years has pushed down LED bulb prices considerably, with LED tube prices dipping as low as US $1.56 (RMB 9.9) in China last month. In the U.S. market, GE responded by lowering its three-bulb packed GE Bright Stik LED bulb retail prices to US $10 in August 2015.
Entry of new Chinese players onto the market is also affecting traditional players leverage on the market. “GE’s control over the LED market sector is declining,” said Duff Lu a LEDinside analyst. “Splitting the commercial lighting business into an independent entity will give the company more flexibility in government tender bids. Government tenders request manufacturers to enter local bids, label their products locally, or form local joint ventures.”
Parallels between GE’s current strategy and Philips can also be drawn from the company’s new LED product line up this year, which reflect its shift towards smart lighting. GE has launched three new LED bulb products, and announced three important smart lighting product developments in the last ten months of 2015. In the residential lighting application sector, GE announced on May 4, 2015 its color changing lighting products will be compatible with Apple HomeKit. On the same day GE issued another statement revealing its partnership with Qualcomm on indoor positioning lighting systems that targets the retail sector. Even its LED streetlights are becoming far more intelligent. This month GE announced it signed a MOU with ShotsSpotter to develop streetlights capable of detecting gunshots and gunfire.
Additionally, GE’s recent announcement also indicates it will be directing its resources to more profitable businesses where there are fewer Chinese competitors, said Chu. Chinese energy and environmental policies and subsidies have caused intense market competition in both the solar energy and commercial LED lighting business. By separating the solar energy and commercial LED lighting business, GE can direct its focus to aviation, healthcare, and oil and gas business divisions where there are fewer Chinese players.
This decision echoes with a visible trend in the LED industry from 2014-2015 where traditional strong European and American LED lighting players are prioritizing their more profitable business. Philips for instance separated its LED component business Lumileds and automotive lighting business to focus on more profitable health applications. German manufacturer Osram intends to split its traditional ballast and luminaire business as well as LED bulb and lighting solutions to focus on specialized lighting sectors, such as automotive lighting, LED chips, LED components, and industrial lighting. Even U.S. manufacturer Cree has rebranded its highly profitable power and RF business as Wolfspeed, and plans to issue an IPO to finance the business.
GE is defending Thomas Edison’s lighting business legacy that has become an integral part of its identity, but not without making certain adjustments. The rise of the red army from China is ushering the LED industry into a new phase of maturation. Asian manufacturers lower production costs continue to pressure European and American manufacturers, such as GE, Osram, Philips and Cree’s to focus on profit optimization. GE’s strategy also clearly points towards its intention to get a head start in the Internet of Things (IoT) and smart lighting sectors.
