Various countries have banned the use of incandescent light bulbs, paving the way for LED lighting to shine. However, due to numerous newcomers in China taking up massive capacity expansion, the LED market has been in severe oversupply, according to Robert Yeh, chairman of Taiwan-based LED packaging house Everlight Electronics. Yeh said that there will be both negative and positive developments for the industry in 2013.
Non-replacement light source demand to grow
Sales of LED lighting have been growing annually by 17% on average since 2011. In 2013, the global LED lighting market output will likely reach US$15 billion, including replacement and non-replacement light sources. The former consists of applications such as retrofit light bulbs and the latter lighting fixtures, said Yeh. The market ratio of lighting fixtures and replacement light sources should be 8:2, added Yeh. In addition, there are three major focuses for lighting fixtures - industrial applications, buildings, and retail stores.
According to statistics, the penetration rate of LED lighting in 2013 will reach 25% and this has been the concern for many China-based energy-saving light bulbs or phosphorus lighting firms. Many traditional lighting firms aim to shift production to LED lighting and have been focused on two major applications - commercial lamps and street lamps.
However, the players in the lighting fixture market need to understand regional and cultural characteristics. In addition, the transportation cost is also high for lighting fixtures because of the size, said Yeh. For firms that hope to build a brand in the market, they need to find suitable local partners for the products to be made on-site, added Yeh. Furthermore, lighting fixtures have various form factors that vary from region to region, Yeh revealed, and therefore doing business in the lighting fixture market is not easy.
"According to the numbers I have," said Yeh, "currently the top 10 LED lighting firms in the world account for 37% of the market and in particular, Philips has a global market share of around 10%, ranking at number one. Japan-based Panasonic has a global market share of around 7.9% while Toshiba has a market share of 5.6%. Osram and Cree have market share of 4.6 and 2.4% respectively. On the other hand, the combined market share of other firms is around 62.7%, meaning the lighting market is very localized with low industry concentration."
According to studies, in 2013 Asia will become the largest market for LED lighting, accounting for 39% of the global market share, added Yeh. In addition, the China market has a large population and smooth distribution channels, hence it will be more effective to promote LED lighting in that market. The studies stated that in 2013 Western Europe will account for 30%, North America 20%, Latin America 4%, while other Europe areas, the Middle East, and Africa will each account for 6%, according to Yeh.
Oversupply to continue in 2013
Despite the fact that LED lighting can bring many benefits, the China government's subsidy policies are likely to plunge the LED market into imbalance in 2013, suffering the same kind of fate that has been plaguing the solar industry has seen, said Yeh.
Before 2011, Taiwan was strong in terms of the number of MOCVD equipment compared to other markets. But as China introduced policies to promote green energy, local governments raced to provide subsidies for the solar and LED industries. In the LED industry, makers rushed to procure massive amounts of MOCVD equipment in 2011-2012. Without proper control of supply and demand in the industry, many LED epitaxial wafer firms began to lose money, according to Yeh. Even now, Yeh added, many MOCVD tools are still unwrapped at port warehouses or equipment storage facilities after they were delivered from suppliers. Market imbalance is a serious problem for the industry.
Market demand and capacity utilization rate have a close relationship. Yeh stated that if the overall capacity utilization rate is at 50%, supply and demand will reach equilibrium. If the capacity utilization rate increases to 60%, the market will see oversupply. And when the overall capacity utilization rate increases to 80%, the LED market will be overrun, added Yeh. The special character of China's economy will continue to cause fluctuations to the market, said Yeh.
Human resource is the key
In the past, Asia-based LED firms mostly focused on midstream segments that have relatively lower added values. If firms hope to expand to the upstream or downstream segments, they need to hire more engineers to increase the added values.
China-based firms have been hiring engineers from Taiwan-based firms to improve technology rapidly, causing Taiwan's LED industry to face a human resource shortage. Taiwan needs to build up its poolof talent, invest in core technology, and obtain more patents in order to compete with international firms in terms of quality.
"Taiwan used to dominate the global lighting market but as most of its players have moved production to China, Taiwan now lacks lighting fixture designers," said Yeh. "Despite the fact that many LED firms in Taiwan have been expanding downstream to build brands and distribution channels, I personally believe human resource is the most important key."
Yeh noted that LED firms that want to build international brands and strong distribution channels need professionals that know about the market and how to market products. According to Yeh, the development of LED products requires engineers that understand optics, engineering, thermal energy, and electricity. The government should set up institutes to train such engineers, Yeh pointed out.
The LED light bulb market is expected to become saturated after 2015 but the LED lighting fixture market will continue to grow, said Yeh. In the future, LED modules and lighting engines will integrate to increase the design flexibility and lower the cost of LED lighting fixtures, Yeh concluded.
