In 2012, demand for TV-use LED backlight products was high, helping LED firms to maintain high to full capacity utilization rate. As many governments are beginning to ban the use of incandescent bulbs, the LED lighting market is expected to boom. The growth of the LED lighting market depends not only on technological improvement, but also on governments' energy-saving policies.
According to various statistics, revenues from LED lighting currently account for 25% of the total sales in high-brightness LED market and in 2014, the figure is likely to be 40%, exceeding the sales from TV-use LED applications. In the short run, demand for TV backlights will continue to stimulate market growth but as brightness efficiency (lm/W) and price-performance ratio (lm/$) continue to increase, market observers believe it is only a matter of time before LED lighting completely replaces traditional lighting. According to the observers, LED's penetration rate in the lighting market in 2012 was 7% and this figure is expected to increase to 10% in 2013 and 30% by 2015.
Taiwan market lights up
LED light bulbs were the most popular LED lighting products in Taiwan in 2012 due to a hike in electricity prices. The high demand of LED light bulbs in the Taiwan market triggerd a price competition among vendors. Studies show that LED light source sales in first-half 2012 represented an on-year increase of 500%. The growth was the most apparent in May after the Taiwan government started to increase the electricity price. The sales of LED light sources in May accounted for 30% of total first-half 2012 sales.
Despite market expansion, competition has been tough since Taiwan has a relatively small sector made up by many small- and medium-size players. According to Industrial Technology Research Institute (ITRI) in Taiwan, there are 46 brands and 154 types of LED light bulbs in the market. And a lot more are expcted to hit the shelves in the near future. Many firms have been trying out their products in Taiwan first before marketing them in China.
The rising demand in Taiwan also attracted international lighting firms such as GE and Philips. The former customized LED light bulbs for the Taiwan market and the latter decreased the price of its 9W yellow light LED light bulb from NT$599/unit (US$26/unit) to NT$449/unit. Faced with price competition, Taiwan-based firms decreased price as well. Delta Electronics lowered the price of its 9W yellow light LED light bulb from NT$449/unit to NT$319/unit.
Industry sources estimate Taiwan's LED light bulb market at 1.2-1.5 million units in 2012, a growth of 200-300% compared to 2011. The sources pointed out that when the NT$1 billion subsidy program provided by Taiwan's government takes effect, demand for LED lighting will rise significantly and penetration rate will likely reach 30% in 2014 and 50% in 2015 in Taiwan. The growth pace is likely to exceed the global average.
Japan market dims
The recent development in Japan's LED light bulb market has been stagnant, with the market focus turning to ceiling light applications. Japan was once the leading market for LED lighting especially after the March 11 earthquake in 2011. The energy-saving movement in the country pushed LED light bulb sales over 31 million units in 2011.
The LED light bulb market in Japan began taking off in 2009. But sales of LED light bulbs slowed down in 2012. According to Toshiba Lightech, sales of LED light bulb products in 2012 were only 80% of the total sales in 2011. Originally, the total LED light bulb output in the Japan market was expected to reach 51 million units in 2012 and peak in 2013-2014. But now, it seems like 2011 was already the peak.
Toshiba Lightech notes that around one-third of the Japan households use LED light bulbs, but because the products have a lifespan of 10 years, a major growth of the market is unlikely to occur any time soon. Market observers believe the rapid price fall for LED light bulbs is also one of the reasons for falling demand because consumers may be waiting for even lower prices. According to Fuji-Keizai, a Japan-based market research institute, the LED light bulb market in Japan were around JPY37.7 billion (US$423 million) in 2012. The research institute further predicts the market output will shrink to JPY36.3 billion in 2015 and JPY30.1 billion by 2020.
For LED lighting firms, the tougher challenge is the turnover rate of LED light bulbs. For most households, the average daily use of lighting is around 3-4 hours, but the industry's calculation of cost recovery period using the price difference of LED and traditional lighting is based on a daily use of 6-8 hours.
Europe market slows down, US market adds entry barrier
The EU ban on incandescent light bulbs started on August 31, 2012. However, due to the debt crisis, major LED firms that focused on selling LED light bulbs in Europe saw orders drop by more than 20% in the third quarter of 2012. As the market condition was unclear in the second-half of 2012, Europe-based distribution channels reduced the orders to Asia-based LED firms.
Lighting demand has been relatively better in the US market due to the increasing number of new house construction projects. Nevertheless, lighting order visibility remains unclear. Following the launch of Energy Star lighting standard by the US Environmental Protection Agency in April 2012, consumers in the North America market have more incentives for buying Energy Star-certified products. Brands such as Philips, Osram and GE have all obtained such certification. This lighting standard is an entry barrier to Taiwan-based firms.
China market heats up
As the global market faces a bottleneck, the China government has been eager to promote LED lighting and already started banning imports and sale of incandescent lighting products in stages since October 1, 2012. This is likely to stimulate the LED lighting industry. According to industry sources in China, the market has been expanding rapidly and since the first half of 2011, almost 1,800 new firms have entered the market of LED indoor lighting.
But China lacks standards governing LED lighting quality. Although demand is high, the LED lighting market in China is considered a high-risk market. Since the second half of 2011, there have reports about China-based LED firms shutting down production without warning. In 2012, Ningbo Andy Optoelectronic filed for bankruptcy due to overexpansion. In the same year, Foshan Xurui Electronic also announced plans to stop the production of LED chips and Shenzhen Yuanjing Optoelectronic declared bankruptcy. China-based industry sources believe the chaotic market condition in China will need 3-5 years before getting back on track.
Currently, Taiwan-based upstream component suppliers have been receiving steady orders because of their superior technology and stable volume production. The China market is desperately in need of high-quality and high price-performance ratio LED products, and therefore Taiwan-based LED firms have been eager to develop the Greater China market. Epistar has been cooperating with China-based lighting firms such as Yankon Lighting and NVC Lighting. In addition, Taiwan-based Formosa Epitaxy added Sanan Optoelectronics as one of its shareholders while Taiwan-based Unity Opto has signed supply agreements with China-based Honyar. Although such cooperation have yet to provide significant increase for the Taiwan-based firms' revenues, they are crucial steps towards growing their presence in the China market.
Rapid growth expected
International firms such as Philips and Osram have been eager to invest in the China market. Osram has noted that by 2020, China's LED lighting market will account for 42% of the entire Asia market and 20% of the global market. The current LED lighting market size in China exceeds EUR8 billion (US$10 billion) and is expected to show significant growth by 2020.
However, China has strong protectionism for its domestic firms, and therefore it has been difficult for international firms to obtain projects.
