Pricing is an important factor in the commercialization of LED lighting. To stimulate demand, LED light bulb firms have been introducing low-price products.
Growth in demand for LED light bulbs has been quite significant, but has yet to return the market bwack to a state of balance between supply and demand. Market observers estimate that if retail prices of 60W retrofit LED light bulbs fall to US$10/unit in 2013, demand will take off and global LED light bulb shipments are likely to reach 300-400 million units.
Although the shipment number seems large, the LED chips catering for one million of LED light bulbs only require 15 MOCVD tools to make. This means even if LED light bulb shipments grow to 400 million units, it will only take up the capacity of 60 MOCVD sets. Currently, Taiwan-based industry-leading LED chipmaker, Epistar, has 165 blue MOCVD sets. This means the LED light bulb price competition is unlikely to achieve a supply-demand balance.
The LED light bulb price competition began with Cree announcing the launch of 40W retrofit LED light bulbs priced below US$10/unit in March 2013. According to industry sources, Cree's low-price strategy reduces profit margins for distributors. In the past, the ex-factory prices of LED light bulbs were usually 50% of retail prices. However, the ex-factory prices of Cree's low-price products account for 65% of retail prices. Cree is a heavyweight in the industry with strong barganing chips and therefore, it would be hard for other brands to adopt the same strategy. To compete, other brands have to lower their ex-factory prices. The sources added that the ex-factory prices of LED light bulbs with brightness of 400-450 lumens have been lowered to US$2/unit. China-based LED packaging houses are able to push the ex-factory prices down to US$1/unit, almost comparable to the ex-factory prices of traditional light bulbs.
Amid the pricing pressure, another industry trend has emerged. Some LED firms have been shortening the product lifespan in order to cut costs. Firms have been introducing LED lighting with shorter lifespan of 15,000-20,000 hours compared to 40,000-50,000 hours in the past. Even though this type of product has lower brightness efficiency and simplified designs, the firms can save cost by up to 50%.
Another way to reduce cost is to simplify the testing procedures. In the past, testing began in the upstream epitaxial wafer stage, causing high costs for LED chipmakers. Recently, the industry has eliminated the LED sorting process. Testing takes place when LED chips have been assembled into tube lighting or light bulbs. The final products have to fit the standard of the market. However, this has caused the quality of LED chips to vary and affect the reliability of the final products.
The LED lighting market is likely to take off in 2013 and strong growth should appear around the end of 2014 to 2015. Taiwan-based LED firms need to figure out strategies to develop products for a market that does not require large volume of universal products. Upstream LED firms need to have strong relations with downstream distributors and brands.
