LED makers get smart to rise above price war and growth cliff

Thu Apr 3, 2014 9:10am EDT

* Manufacturers in price war for standard LED light bulbs

* Prices still seen as too high to win over consumers

* Companies develop higher-value smart systems

* Osram, Samsung, LG unveil systems to rival Philips Hue

By Maria Sheahan

FRANKFURT, April 3 (Reuters) - Lighting companies like Philips and Osram are scrambling to develop more advanced technology as a price war for LED bulbs threatens to eat into profits and bring on a period of low growth as the long-life bulbs become more common.

The market for light-emitting diodes (LEDs) is growing rapidly as companies, hotels and shops switch from incandescent light bulbs, which are being banned in countries around the world, to these more efficient and durable lights.

But the initial cost of buying LED bulbs for home use, while falling rapidly, is still higher than alternatives such as compact fluorescent lighting (CFL) or halogen, leaving consumers hesitant to adopt the new technology.

That is driving manufacturers to cut prices, and also to seek new product features to replace lost business when a blown bulb becomes a much rarer event.

"We are working on two different fronts," Philips Lighting CEO Eric Rondolat told Reuters at the Light + Building trade fair, which is being held in Frankfurt this week.

Analysts see the overall lighting market starting to shrink from around 2017, when LED will account for more than half of the lighting market.

Three manufacturers - Osram, Samsung and LG - announced plans at Light + Building to launch or expand smart lighting systems for light-emitting diodes (LEDs), pioneered by Philips's Hue line.

Manufacturers hope they can lure more customers with systems that allow them to customise light intensity, colour and composition.

Smart lighting allows users to remotely control lamps from a smartphone or tablet computer. They can, for instance, add orange hues to their lights when they want to relax in the evening, have colourful lighting schemes for kids or have their lights blink whenever they receive an e-mail on their smartphone.

When used in office buildings, such smart, connected systems offer ways to save energy by having the lights on only when and where they are needed and to increase productivity by adjusting lighting schemes to match human biorhythms.

PRICE DROP

Manufacturers like Philips, U.S.-based Cree and Germany's Osram have been cutting retail prices of LED light bulbs as they compete for the residential market.

Philips said its retail price for 60 watt replacements in Germany had dropped to just under 12 euros by 2013 from close to 40 euros in 2011, and Cree has been selling a comparable bulb for about $13 in the United States.

"Our objective is to drive LED lighting to the same price level as traditional lighting," Greg Merritt, Cree Vice President Marketing Lighting, told Reuters at the trade fair.

Globally, the retail price of LED lamps fell 9.4 percent in the 12 months through March, according to data from IHS Technology, putting the average cost of an LED lamp that can replace a 60 watt incandescent bulb at around $25.

General Electric, one of the biggest traditional players in the lighting market, has estimated that LED will account for about 70 percent of a $100 billion lighting market by 2020, compared with 18 percent in 2012.

Some estimate the residential sector alone will account for almost a third of LED lighting.

But in 2012, LED accounted for less than 1 percent of light bulbs in the United States, compared with 43 percent for CFLs, according to a May 2013 report by the U.S. Department of Energy.

In Germany, only 3 percent of lamps sold in 2012 were LED, up from 1 percent in 2009, according to energy think-tank Dena.

"In the residential area, costs are still seen as relatively high," Osram Chief Technology Officer Peter Laier told Reuters ahead of the trade fair.

"But you're also getting a product that lasts at least 10 times longer," he added.

Manufacturers realise that prices have to fall further to win over more customers, so they are also trying to lower production costs to safeguard margins.

Osram, for instance, is introducing an LED lamp based on a modular product platform so it can combine parts in different configurations and introduce new components when technology advances.

Manufacturers are also trying to develop technology that uses silicon instead of sapphire in the manufacturing process, although so far silicon-made LEDs do not perform as well.

"We currently still see an efficiency disadvantage," Aldo Kamper, CEO of Osram's chip-making business Osram Opto Semiconductors, told Reuters.

"That doesn't mean that we have given up on the matter. Production with silicon substrate is still being developed." ($1 = 0.7263 Euros) (Additional reporting by Harro ten Wolde; Editing by Will Waterman)