Which Packaged LED Applications Will Keep Growing?

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1 Lighting the Way Trends for 2016

2 Which Packaged LED Applications Will Keep Growing? For most LED companies, 2015 was a tough year. News about companies filing for bankruptcy, exiting the LED market or downsizing their LED businesses was common. Many people wonder whether the LED market is still growing and, if so, in which types of products are leading growth. According to the IHS LED Intelligence Service, lighting, automotive exterior and signage are the three major applications where growth is forecast. LED prices are continuing to fall very quickly, especially in general lighting. Some products average selling prices (ASPs) were cut in half in 2015, due to intensifying competition. Although the current market environment is moribund, the situation should turn around soon, for the following two reasons: 1. LED penetration rate is still low. According to the IHS Lighting Intelligence Service, the LED lamp penetration rate was below 10% in As LED lamp price reaches parity with CFL, LED penetration will increase quickly. 2. Smart lighting will bring more opportunities for LEDs. Companies are talking about Internet plus or LED plus, where LEDs are used for more than just illumination. The automotive exterior market is also forecast to grow in the coming year. Because there has been less competition in this area, price erosion has not been as severe as it has been in the lighting sector. Japan, North America and Europe are the most established regions for automotive production and have made up most of LED sales to the automotive sector; however, growing markets in South Korea and China are now becoming increasingly important. The signage market is almost saturated, but ultra-high density resolution LED video displays are gaining shares in indoor applications, which require more LEDs. price erosion everywhere, it is no longer easy for LED manufacturers to make money nowadays; however, since the market is still growing, the companies that survive will eventually have a chance to raise profitability. Alice Tao Senior Analyst, LEDs

3 The Human Side Of Lighting Only a short time ago, LED lamps varied widely in terms of efficiency, light colour and colour rendering (CRI). Today, however, most large manufacturers offer bulbs that have an efficiency of close to 100 lumens per watt (lm/w), with a warm white colour and a CRI of 90 or more. Similar for the price: LED lamp prices have declined rapidly over the last year and all the major manufacturers now offer 60 watt (W) incandescentequivalent bulbs for $5 or less. These developments have made it more and more difficult for incumbent LED-product manufacturers to compete on quality or price. The longer life of LED lamps, compared to incandescent, halogen and compact fluorescent (CFL) lamps, have caused sales to shrink to the point that many manufacturers are now struggling. In an attempt to differentiate their products and increase margins, a number of premium LED products have been developed, offering more than just illumination. They include smart lighting controlled through connected devices, data transmission though LED frequency modulation,and human-centric lighting (HCL). These technologies are based on the recent re-discovery of a third photoreceptor in the human eye. Rods and cones are responsible for vision, while the photosensitive retinal ganglion cells are sensitive to changes in ambient light colour and intensity. One of their main functions of retinal ganglion cells is to regulate melatonin production and synchronize the human body rhythm to the time of day, known as the circadian rhythm. In broad terms, morning daylight tends to have a blue hue, which makes us feel awake and alert; evening daylight, on the other hand, is more yellow-red, which makes us feel sleepy. Artificial light usually has the same colour temperature whenever we switch it on, so there is a disconnect between how we light our homes and what our brains would naturally expect. Traditional incandescent and halogen lights have a low yellow-red colour temperature, so they are well suited for evening lighting, but they are not the best choice to wake up to in the morning. Many LED lamps, on the other hand, have a high level of blue light, which could deteriorate sleep quality, when used in the evening. Ideally artificial light would follow the rhythms of natural daylight and change throughout the day. This is precisely the idea that kicked off HCL: passive HCL products are fine-tuned for a specific need, for example to be used as bedroom lights in the evening; active HCL products automatically or manually change to suit human needs during specific times of day or in particular situations. Many manufacturers are now selling passive HCL bulbs and active HCL systems to residential consumers, and there are a number of large pilot projects already in progress in schools, hospitals and offices. What human-centric lighting is missing so far is a large body of research proving the benefits of human-centric lighting in real world scenarios. If or when research yields these results, it stands to reason that a majority of houses, schools, hospitals, offices, factories and other buildings will eventually be outfitted with HCL, as the tangible and intangible benefits in productivity, health and wellbeing would far outweigh the additional costs. Fabian Hoelzenbein Senior Analyst, Lighting

4 Who Will Exit The LED Market In 2016? In 2011 many Chinese manufacturers began to produce LEDs, and the LED TV industry failed to meet expectations. The LED market moved into an oversupply situation and the competitive market has been tough ever since. Given this situation, the number of LED manufacturers was too high and consolidation was expected; however, this consolidation has taken longer than expected. So far only smaller players, primarily in China, have left the market. Even so some of the leading LED companies have recently faced difficulties. Cree experienced a decline in its component LED business in 2014 and 2015, while Samsung exited the LED lamp market, thus removing a captive market for its component business. In addition, last year Toshiba announced it was leaving the LED market, and it was also reported that Sharp was considering closing one of its LED fabs. While these are two big-name companies, they are not leaders in LED. LEDs will continue to be produced almost entirely on sapphire substrates in 2016, which means Soraa (GaN substrates), Plessey (Silicon) and other companies could make big moves. It will however be business as usual with the same top suppliers. Producing LEDs on silicon is no longer considered as attractive as it was a few years ago, and modest profit margins, falling LED prices and other factors mean that larger players from semiconductor-related industries are now less likely to enter the market. While no big player is expected to enter the market in 2016, there is a small, but unlikely, chance that a new company with, a genuinely game-changing technology could enter the market. In Korea, there are three big LED players: Seoul Semiconductor, LG Innotek and Samsung. In recent years, Korean companies ceded their position as the lowest cost players in general-lighting LEDs to Chinese companies, which put great pressure on their businesses. Among those three companies, Seoul Semiconductor has the longest history, the most intellectual property (IP), and, as an LED specialist, the company doesn t have the luxury of exiting the market. LG and Samsung, on the other hand, are both diverse conglomerates that are more than capable of exiting a market, or reducing the size of their business units if needed, to improve overall company profitability. Samsung has seen declines in its LED market share and ranking in recent years and LG Innotek has come up agains a tough competitive environment leading to variable quarterly results. The possibility of acquisitions still remains. After its plan to sell to a Chinese investment consortium was blocked by US regulators, Philips Lighting is still attempting to sell Lumileds. Osram has also been the subject of rumours of Chinese interest. While it s difficult to identify exactly which companies will be involved, it seems reasonable to suggest that one more major merger or acquisition could still happen this year. Overall LED consolidation will continue in We can expect to see at least one big player either exit the market or downscale its business, and perhaps one more merger or acquisition; however, no additional big players will enter the field. Jamie Fox Principal Analyst, Lighting and LEDs

5 What is next for quantum dots? For the lighting industry, 2015 was as a year filled with research and development. OLED luminaires were once viewed as the next big thing at the end of 2014; but over the past year, much of the interest in this technology has died down. Instead the use of newly developed materials has led to the development of interesting new technologies, but as of yet there have been few new products launched. The one technology for both lighting and displays identified as one to watch at the start of 2015 was quantum dots (QDs). The advantage of QDs lies in the unique property that, when illuminated, they emit a very specific color. The color depends on the size of the crystal, and quantum dots can be manufactured to emit any color in the visible spectrum. When used in combination, they can accurately produce any color in the visible spectrum. In the display industry, many manufacturers are now using QD in their screens as light re-emitters, to enhance color rendering in their TVs. Although currently only available in high-end devices (partly due to their significant price premium over conventional LCD technology), QD TVs are still considerably cheaper than comparable OLED TVs, particularly at higher screen sizes and resolutions. In fact many people regard QD enhanced TVs as superior to OLED in almost every way, except for the rendering and depth of black. In the lighting industry, QDs are only now beginning to be deployed in commercial products, and in the latter half of last year, the first commercial lighting-related QD product was released. This product essentially replaced the phosphor on a blue LED with a red and green QD covering, to produce a high CRI white luminaire. Although perhaps not yet of major benefit to the general lighting industry, QD provides a major benefit in other parts of the industry, as it is particularly compatible with the concept of human-, plant- and animal-centric lighting. Research has shown that plants can more efficiently absorb certain colours of light (mostly red); but others (for example green) are almost completely wasted. By using QD LEDs as grow lights, the light output of the luminaires can be tuned to peak-absorption colours, thereby using far less energy by not generating light that is of no use to the plants. Research has also shown that some farm animals, for example cows, are actually more productive when they live in certain colours of light. Farmers could, therefore, reduce costs using luminaires that more accurately mimic those colours, increasing their farms productivity and profitability. QD technology for general lighting applications is currently limited. With the transition from traditional technologies to LED well under way, much of the residential market focus (which accounts for half of the lighting market) is on driving the costs of LED lamps down as far as possible, in order to further spur adoption. Although light quality is also a major concern for consumers, they are not likely to pay extra for a QD luminaire, when they are already paying a premium for a standard LED lamp. QD development of is still in its infancy, and the fact that so many new benefits have been revealed bodes well for further development. This is a technology that many in the industry will be watching closely. Mike Hornung Analyst, Smart Lighting