Commentary: 2011 is the year of fierce competition for LED firms as gross margins contract
Siu Han, Taipei; Jackie Chang, DIGITIMES [Monday 2 May 2011]
digitimes.com
The inception of LED into various TV models took the market for a rollercoaster ride in 2010. On one hand, the market grew by leaps and bounds bringing outstanding profits for LED manufacturers. On the other, weak demand in the second half of the year caused inventory to increase and in turn reduced makers' utilization rates and deterred their capacity expansions. But upstream suppliers of sapphire substrates and other materials were still unable to catch up with demand. The LED market faced pressure from rising costs.
The first quarter of 2011 was fruitful for LED firms as demand for monitors began to return, LEDs were adopted by new models and the market for LED lighting was heating up. As shortage of epitaxy has begun to ease, production volume for the LED market is expected to grow rapidly in 2011.
It will also be the year where cost-down is the key to determine winners and losers. The industry is quite optimistic about reaching the penetration rate of 50% for LED TV this year. However, as competition heats up, this also means gross margins are getting thinner when the price gap between LED-backlit TVs and conventional ones gets narrower. The 32-inch is still the favorable and dominant size, so the price gap of this type will be an index to forecast LED-backlit TV's penetration rate, according to industry sources. The winners will have to successfully lower cost while maintaining strong customer loyalties and continue to obtain advanced technology.
The price of 32-inch LED-backlit TV models by second-tier brands is almost the same as CCFL types from first-tier brands. The price gap between LED- and CCFL-backlit TV models will be below 30% starting in the second or third quarter of 2011. The Asian supply chain expressed optimistic view of quarterly growth of the penetration rate. The penetration was 35% in first-quarter 2011, and is expected to grow to 50% in second-quarter 2011.
As for LED lighting, the penetration is aiming between 6-10% this year, and 2012 will be the year to shine when growth explodes.
Ever since 2009, upstream MOCVD suppliers have been ramping up capacity, with the result of the ramp-up being most evident between 2010 and the first half of 2011. But this has sparked oversupply concerns. The market balance will depend on LED-backlit TV shipments this year. If the shipments do not meet expectations, the problem of inventory build-up that happened in 2010 will again tip the balance of the LED market.
As many countries such as Japan, the US, and China have passed policies to ban the use of incandescent light bulbs and to provide subsidies promoting the use of LED lighting systems, the price gap between LED and traditional products has been narrowed quite rapidly and contributed to the swift growth of penetration rate.
Many firms follow the projected plan issued by the US Department of Energy (DOE) as their product goals. If the technology to improve quality for LED lights can achieve 15-20% every year, it is very likely by 2020, the cool white LED components can reach 243lm/W and 234lm/W for warm whites.
According to the internal planning of Taiwan-based Epistar, the cost of LED lighting will reach around 250lm/US$1 in 2011. To stay ahead of the market, Epistar is aiming to reach 500lm/US$1 with penetration of 10% in 2012, and 1,000lm/US$1 with 25% penetration by 2015. The penetration is expected to reach 60% for LED lighting in 2017.
Philips Lumileds also indicated strong confidence in reaching the schedule set by DOE ahead of time. Currently, the efficiencies of its cool and warm white products are expected to reach 145-160lm/W and 110-120lm/W respectively in November 2011. At the same time the cost will also improve to 200lm/US$1 for cool whites and 150lm/US$1 for warm whites.
It is inevitable that the retail price for LED light bulbs will decrease as the market size expands and more industry leading firms lower their quotations to increase market share. The price will decrease around 40% in 2011 from US$20 to US$12 for 40W and from US$35 to US$20 for the 60W retrofit LED bulbs, according to industry sources. The industry also foresees the retail price for LED light bulbs to drop to US$8-10 in the next 2-3 years.
LED lighting is bound to be the mainstream as penetration has been growing with amazing speed. The European market was the first to adopt LED lighting and is now expanding the market for commercial uses. The competition in the Japanese market is especially vigorous with penetration ahead of the rest of the world. The Chinese government proposed the most comprehensive and aggressive policy for outdoor LED lighting. The US market continues to be the dominant market that affects prices. The rest of Asia is also promoting LED lights to be the dominant lighting products for homeowners.
Like any other markets, if there are profits to be gained, there will be more companies wanting to get a piece of the pie. LED lighting is on its way to become the mainstream product so it means the price will face downward pressure as competition intensifies. The supply chain will soon integrate and only the strongest will survive. The 2011-2012 period will see revolutionary development as the market matures and the ability to lower costs becomes the key to win the competition. The industry predicts that as the retail price for LED light bulbs drops down to US$7-8, the penetration will reach 25%, driving the penetration of LED lighting up to 50% and into the mainstream. |
