LED manufacturers had an especially tough year in 2015. Despite rising LED lighting market demands, and large scale replacements of traditional luminaires, the oversupply situation in the market has caused average sales price (ASP) of LEDs to plunge 30% to 40%. Growing number of manufacturers have incurred heavy losses and exiting the market. With 2016 just around the corner, LEDinside Research Director Roger Chu has listed ten major trends in the market including future LED industry consolidations and technology trends. Listed below are five major trends observed by LEDinside’s analyst team:
1. Easing LED market growth in the near future
Due to the oversupply situation in the LED industry, LEDs ASP prices plunged. LEDinside estimates the global high brightness LED market value in 2015 will increase at an incremental rate of 2% to US $14.52 billion. Even though lighting demands spurred LED usage volume growth, ironically the increasingly energy efficient LEDs are reducing usage volume. Additionally, LEDs still are under immense pressure to further lower prices. Based on these observations, LEDinside projects in the next five years the LED industry Compound Annual Growth Rate (CAGR) is unlikely to reach more than 10% in the future.
2. Shrinking LED component price falls
LED backlight market demands fell short of expectations, which caused sliding ASP of LED chips and LED package. This trend has been markedly observed during second half of 2015, when LED chip and package prices sharply plunged to the point that some LED chip and package spec prices are now close to material costs. Many manufacturers have incurred losses as a result. Even though manufacturers in the LED industry are being pressured to lower prices in the short term, in the long run there will be limited room for further LED price cuts. This can be explained by the growing number of manufacturers withdrawing from the market in the near future, as LED prices is close to manufacturing costs and reduce companies’ profitability.
3. China’s changing LED policy
Over the last decade, the Chinese government largely supported the local LED industry through massive financial subsidies, incentives, and resources to improve domestic LED companies manufacturing capacity. China has become the world’s largest LED lighting manufacturing base, but local manufacturers are still very dependent on international manufacturers for certain upstream MOCVD equipment and materials. Hence, future Chinese policies will encourage innovation, and focus on upstream raw materials, for example wide bandgap semiconductor development, or smart lighting applications following the emergence of the Internet of Things (IoT).
4. LED industry to be hit by another bankruptcy wave
Due to currency fluctuations in 2015, end market demands in different countries have been much lower than expected. To make matters worse, LED prices have continued to slide. Many SMEs in the LED industry are facing financial loss pressures, with plenty sinking into negative cash flow cycles. These developments have ousted smaller manufacturers, due to their broken finances. The next bankruptcy wave in the LED industry will be most evident before the Chinese Lunar New Year.
5. Chinese LED manufacturers start acquiring foreign companies to transform their business models
Chinese LED companies listed on the A stock have been acquiring international manufacturers through issuing shares on the market, or after receiving government financial support. Some Chinese manufacturers are targeting major international LED players’ patents and lighting brands, in hopes of strengthening their patent portfolio and oversea distribution channels. Additionally, more Chinese LED manufacturers are also transforming their business models. Some LED manufacturers aiming to leave behind hotly contended red sea markets are entering other market sectors through mergers and acquisitions.
6. Flip chip LEDs being introduced into LED TV backlight applications
Previously, only a few manufacturers highlighted their flip chip LEDs as a major product, due to low yield rates, production costs and other technology challenges. However, starting in 2014, more Taiwanese and Korean manufacturers started to invest in flip chip LED technology R&D, which improved the product quality and made financial benefits more evident. By 2015, Korean LED manufacturers started to apply flip chip LEDs on a large scale in TV backlight. Korean TV manufacturers also started to increase the usage of flip chip LEDs in their products. LEDinside has observed a growing number of Taiwanese and Chinese LED manufacturers promoting flip chip LED technology and even smaller CSP LEDs in the TV backlight market, which spurred the rapid ascension of flip chip LEDs market penetration in the LED TV market in the last few years.
7. Trending low LED prices, and increasing replacement lighting market penetration
LED bulb prices around the globe are nearing traditional luminaire prices, since LED bulb and tube light sources used to replace conventional lights are becoming standardized, and manufacturers’ aggressive promotion pricings. In 2016, manufacturers will continue to find cost cutting solutions. Besides lowering LED chip prices, LED luminaire manufacturers will start to evaluate whether LED driver and other component prices can be further lowered. Manufacturers aim to reach a cost reducing solution through the overall system design. Lighting manufacturers on the other hand are seeking to raise their market shares through low pricing strategies to expand sales and revenue. Hence, LED light sources to replace traditional lighting products market shares will soar in the next three years.
8. Rocky road ahead for smart lighting sector, despite of bright outlook
Even though LED companies are able to raise retail prices for smart LED lighting products, sales have fallen below expectations. The key issue is whether smart lighting products added value can meet consumer demands. Most smart lighting products added value has been remotely controlling lighting devices and dimming / color tuning features, but most consumers are unwilling to pay an extra premium for these product features, which will impact smart lighting sector’s overall supply chain ecosystem, and requires long term observations.
9. Automotive lighting revolution
LED automotive lighting developments have gradually shifted from high class car models to mid to high class car models. Laser lights are expected to fill the void left by LED lights in the high class car model sectors, but since automotive laser supplies are only available in small volumes it will be applied in specific car brands and car models. It is hoped the proliferation of laser car lights will spread to more car models, following the entry of more suppliers in the market.
In addition, adaptive driving beam are an emerging trend. Adaptive driving beam headlights control semiconductor that are incorporated in the LED headlight, shutting off particular lighting beam area, which prevents glaring issue from oncoming vehicles. Adaptive driving beam headlights allow both high brightness and security at the same time and has become one of the main highlighted developments for each manufacturer.
10. Non-visible LED light applications increasingly valued
Due to intense LED pricing competition in the white LED market, manufacturers are searching for innovative or special lighting applications to boost profitability. For instance LED manufacturers are turning their focus to LED applications in the non-visible light spectrum, such as UV or IR LEDs. LEDs in the non-visible LED sector has a small market size that cannot be compared to LED lighting or backlight applications. However, it has a very high technology barrier due to technology challenges that need to be overcome, customization demands, and need to work closely with system manufacturers. Therefore, non-visible LED products gross margins are evidently better than white LEDs. The largest market for UV LEDs for example is exposurers and curing applications, but manufacturers are also starting to value disinfection applications. At the moment, UV-C has an exceptionally high technology barrier, and there are only a handful of manufacturers in this sector. Hence, LED manufacturers have started to develop UV-C wavelength LEDs. In the IR LED sector, the largest market application for the technology is still remote controllers or security applications. IR LED market applications can be applied on a broad scale in image sensors, motion sensors, photo interrupter detectors, proximity sensor, position sensor, biometrics, pulse oximeter sensor and others applications. IR LED applications in mobile devices are expected to added value features including information security, health management and others. The sector is projected to be highly profitable, and will spur IR LED market development.
