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LED market lights up

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Light-emitting diode (LED) chip makers hope to make big inroads within the next decade into the US$12 billion ($15.6 billion) conventional lighting market, now served by incandescent and fluorescent bulbs. But in the meantime, they are doing very well supplying lights for mobiles, cars and traffic signals.

“This is a thriving market even without conventional lighting,” says Bob Steele, director of optoelectronics for market research firm Strategies Unlimited. He expects worldwide sales of high-brightness LEDs, the market’s largest and fastest-growing segment, to grow about 14 percent annually over the next five years, from US$3.7 billion ($4.8 billion) in 2004 to 7.2 billion (9.4 billion) in 2009. High-brightness LEDs use newer gallium-based technologies to convert energy into light more efficiently than previous LEDs, producing enough light even for daylight, outdoor uses.

Steele says a surplus of mostly Asian players has created “huge overcapacity” and intense price competition for lower-performance LEDs. But conditions are healthier at the market’s high end, which is dominated by five big players—Cree, Lumileds Lighting, Nichia, Osram Opto Semiconductor and Toyoda Gosei—which make higher-performance products than the commodity producers. “The Big 5 are certainly doing well,” he says. “They’re seeing better margins and less competition.”

Several top LED makers are private or owned by larger companies that don’t disclose their financial results. But the public players are showing impressive results. Cree reported 37 percent sales growth during 2004, to US$361 million ($470 million), and its profit nearly doubled, to US$86 million ($112 million). Lumileds (distributed by RS Components ), a joint venture between Agilent Technologies and Philips Electronics, reported a 44 percent sales increase, to US$280 million ($364 million), in fiscal 2004, and profits tripled to US$62 million ($81 million). Another positive indicator was last June’s initial public offering of LED maker Color Kinetics, which raised US$40 million ($52 million).

Let there be light

LEDs used to be constrained to low-value uses such as system indicator lights, because of their poor light output and limited colour palette (mostly red and yellow). Technology breakthroughs boosted their brightness dramatically in the 1990s, however, and the development of blue and green LEDs based on gallium nitride expanded the available colour spectrum. Japan’s Nichia produced the first white LEDs in 1996, by coating blue LEDs with phosphors that give off yellow light, which combines with the devices’ blue rays to create white light. After years of litigation and eventual cross-licensing, numerous companies now produce white-light LEDs, using variations of that technology or combining multiple red, green and blue LEDs.

But further efficiency and cost breakthroughs will be needed before LEDs replace conventional lighting. “We’re still a long way away from there,” says iSuppli optical components analyst Jagdish Rebello. He estimates that it will take five to 10 years to reach the goal of LEDs that equal the performance and cost of conventional lighting.

Today’s best LEDs are twice as energy-efficient as incandescent lights and almost equal to fluorescent bulbs, and multiple LEDs can be combined to generate just as much light as conventional bulbs. Yet LEDs typically cost 100 times as much for the equivalent light output, although the gap is closing. Former Agilent scientist Roland Haitz observed, in what’s now called Haitz’s Law, that LED prices decline by a factor of 10 each decade while performance grows by a factor of 20. Analyst Steele says the rate of progress may now be even faster, thanks to increasing LED investment.

Already there are some uses, such as in battery-powered devices, in which LEDs’ energy savings and durability make them the technology of choice. In mobiles, for instance, LEDs are used to backlight colour liquid-crystal display (LCD) screens and their keypads. Strategies Unlimited estimates that sales of high-brightness LEDs for mobiles and other handheld devices tripled during the past two years, to more than US$2 billion ($2.6 billion). (See Fig.1.)

Traffic signals are also converting to LEDs, which use much less energy and can last a decade, whereas conventional bulbs must usually be replaced yearly. A recent US Energy Department study found that LED traffic signals can reduce energy use by 90 percent. For similar reasons, carmakers are putting LEDs into brake and running lights as well as dashboard and interiors. The first LED headlights are expected to appear in 2007.

Another promising market is LED backlighting for LCD TVs. “All the TV manufacturers are looking at it now,” says Jovani Torres, Americas regional product marketing manager for Agilent’s optoelectronics division. LED backlighting produces brighter, truer colours and eliminates the mercury used in today’s cold cathode fluorescent lights, which raises environmental concerns.

Analyst Rebello cautions, however, that 100 high-brightness LEDs costing at least US$300 ($390) in total are required to backlight a 42-in screen. Such costs likely will initially limit LED backlighting to high-end TVs.

But regardless of how the TV market develops, analysts expect LED sales to continue growing. Says Rebello, “It’s going to be a gradual transition, but at every price point along the way, we’ll discover new applications.”

Further information: This article first appeared in Electronics Business (US) in April 2004.

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