The Global LED Lighting Market Key Trends and Opportunities Presented to Tekes June 2015
Total Lighting Market, including Traditional Control Gear is the Fastest Growing Segment Global Lighting Market: Historical and Forecast Market Size by Segment, 2014 & 2020 USD million Year/USD bn Lightsources Control Gear Fixtures 120,000 100,000 2014 24.4 7.9 55.0 2020 25.7 11.2 60.5 CAGR (2014-20) 1.0% 7.4% 1.9%. Source: Frost & Sullivan 80,000 60,000 40,000 20,000 0 2012 2013 2014 2015 2016 2017 2018 2019 Fixtures Control gear Lightsources Control gear to gain a pivotal role with the rise of LED due to the long term increase on functionality The possibilities that LED offers will give rise to increasingly complex control gear giving comfort, security and flexibility to lighting that has thus far only been seen in niche markets The average price of control gear is expected to rise notably in Europe and North America by 2019 on top of the increase in units globally 2
Lighting Industry and Markets The LED revolution is happening now 40% of the market in value in 2015 Global Lighting Market: Historical and Forecast Market Size by Segment, 2014 & 2019 2013 and 2014 have been the breakthrough years for LED in the professional market, in Europe, North America and China. The other green technologies are on the way out 2014 has seen significant inroads for LED in the large residential market, which will help LED to pass 40% penetration of total lighting sales in 2015 USD million 120,000 100,000 80,000 60,000 40,000 20,000 Year Traditional (USD m) LED (USD m) 2014 54,972 27,261 2019 27,261 70,100 CAGR (2014-19) -13.1% 16.8%. Source: Frost & Sullivan LED Traditional 0 2012 2013 2014 2015 2016 2017 2018 2019 3
Revenue Forecast Key Takeaway: the 2014 boom was driven by Europe, North America and China across applications; LED replacement bulbs made significant progress in the Residential application worldwide Revenue ($ Million) 80,000.0 70,000.0 60,000.0 50,000.0 40,000.0 30,000.0 20,000.0 10,000.0 Total LED Lighting Market: Revenue Forecast, Global, 2012-2019 CAGR, 2014 2019 = 16.8% 0.0 2012 2013 2014 2015 2016 2017 2018 2019 Revenue 16,939.0 23,936.0 32,285.0 40,070.0 47,303.0 54,361.0 61,854.0 70,100.0 Growth Rate - 41.3 34.9 24.1 18.1 14.9 13.8 13.3 Year 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Growth Rate (%) Note: All figures are rounded. The base year is 2014. Source: Frost & Sullivan
Key Figures (1/2) Total LED Lighting Market: Market Engineering Measurements, Global, 2014 Market Overview Market Stage Market Revenue Average Price Per LED Lightsource Market Size for Last Year of Study Period Growth $32,285 M $12.4 $70,100 M (2014) (2014) (2019) Base Year Market Growth Rate Compound Annual Growth Rate Customer Price Sensitivity Degree of Technical Change Market Concentration 34.9% 16.8% 7 9 16.7% (CAGR, 2014 2019) (scale:1 [low] to 10 [high]) (scale:1 [low] to 10 [high]) (% of market share held by top 2 companies) Decreasing Stable Increasing Note: All figures are rounded. The base year is 2014. Source: Frost & Sullivan
Key Figures (2/2) Competitor Overview Total Addressable Market Number of Competitors Number of Companies that Exited* Number of Companies that Entered* Replacement Rate 5,000 10 30 15 22 years (active market competitors in 2014) (2014) (2014) (average period of unit replacement) Industry Advancement Average Product Development Time Average R&D Spend as a Percent of Market Revenue Marketing Spend as a Percent of Market Revenue 9 12 months 7.6% 5.0% Decreasing Stable Increasing *Note: Companies with revenue of more than $50.0 M Note: All figures are rounded. The base year is 2014. Source: Frost & Sullivan
Europe and North America to mature first; higher growth rates during the forecast period in younger markets Europe: The implemented EU ban on incandescent and the prospective ban on halogen drive LED adoption in the region. CAGR 2014 2019 = 17.2% North America: Incandescent ban stimulates demand; utilities rebates make SSL affordable. CAGR 2014 2019 = 15.2% Latin America: Price is the key barrier to adoption outside of high-end projects. LED will increasingly be able to challenge CFL. CAGR 2014 2019 = 23.1% Middle East and Africa: Growth expected in the second half of the forecast period, thanks to a sharp price decline. CAGR 2014 2019 = 18.4% Asia-Pacific: China is embracing LED and will lead the change for the region. CAGR 2014 2019 = 16.8% Source: Frost & Sullivan
Revenue Forecast by Region Key Takeaway: APAC is confirmed the key area, especially outside of China in the long term Total LED Lighting Market: Revenue Forecast by Region, Global, 2012-2019 CAGR, 2014 2019 = 16.8% 80,000.0 Revenue ($ Million) 60,000.0 40,000.0 20,000.0 0.0 2012 2013 2014 2015 2016 2017 2018 2019 Year North America Europe Asia-Pacific Middle East & Africa Latin America Note: All figures are rounded. The base year is 2014. Source: Frost & Sullivan
Revenue Forecast by Application Key Takeaway: Office and Industry will be the highest growth applications; Residential will be the largest application by far by 2019 80,000.0 Total LED Lighting Market: Revenue Forecast by Application, Global, 2012-2019 CAGR, 2014 2019 = 16.8% Revenue ($ Million) 60,000.0 40,000.0 20,000.0 0.0 2012 2013 2014 2015 2016 2017 2018 2019 Year Architectural Hospitality Industrial Office Outdoor Residential Retail Note: All figures are rounded. The base year is 2014. Source: Frost & Sullivan
Percent Revenue Forecast by Distribution Channel Key Takeaway: Wholesalers and retail have dominated the nascent stages of LED, and are now losing to direct sales and project based solutions; however, indirect sales will grow as more standard products become available Total LED Lighting Market: Percent Revenue* Forecast by Distribution Channel, Global, 2012-2019 100.0 80.0 Revenue (%) 60.0 40.0 20.0 0.0 2011 2012 2013 2014 2015 2016 2017 2018 Direct Sales 30.0 31.2 33.0 34.0 35.0 34.0 33.7 34.2 Wholesalers/Retail 70.0 68.8 67.0 66.0 65.0 66.0 66.3 65.8 Year *The exhibit represents only the professional lighting end users and not the residential ones Note: All figures are rounded. The base year is 2014. Source: Frost & Sullivan
Key Messages 1 2 3 4 5 The LED revolution has happened, driven by Europe, North America, and China. Further growth will be less centralised and will challenge the leading global participants. LED replacement lamps are already at a price point that successfully challenge traditional technologies and will take over that market completely by 2020. The challenge is to offer noncommoditised productsthat make the most of digital LED light advantages. LED drivers and lighting management services will be key. The market forluminaires will be particularly challenged, as LED requires new knowledge and expensive R&D. Concentrationin this very fragmented market is expected. New markets for services and solution designs open up, but require good contacts and customer knowledge, which might favour local companies above global participants. Source: Frost & Sullivan
What next? 3 Big Predictions 1 The LED replacement lamp is the winner in the medium term, as it progressively replaces traditional technologies around the world. The entire market for replacement lamps (the cash cow of the top companies) is, however, doomed in the long term as next-generation fixtures will not have a lamp socket. 2 The LED revolution will sweep away hundreds of fixture companies that cannot cope with the new competencies and R&D needed. There is a chance for large LED lightsource manufacturers to save good, medium-size fixture companies by providing the LED know-how in return for their help in reaching local customers and winning project-based business together. 3 Lighting as a service (LaaS) on cloud-based networks for efficient and personalised management of applications will pave the way for connected lighting and living, and better energy and facility management. Financing, leasing, and maintenance are other service models that will evolve around LaaS. Source: Frost & Sullivan
Global LED Market What next? Leveraging Lighting Management Systems to target verticals Key Takeaway: Offices to focus on energy saving aspects, residential to focus on ambience
What next? Services. Smart buildings, performance contracting and lightas-a-service are key trends driving future growth Key Trends Competitive Landscape Competitive Success Factors Smart buildings, representing the convergence of green and smart technology trends, will become increasingly important and a driver for consultancy based services. Performance contracting is increasingly becoming a mainstay of the market; end users are keen to maximise cost savings and improve efficiency. Light-as-a-service (essentially leasing-type models and pay-as-you-use services) is a concept that is gaining traction in the industry through its ability to enable businesses to minimise upfront capital expenditure. The increasing importance and value of lighting projects is attracting ever greater competition within the sector. BMS & FM companies are both actively targeting the sector. Market participants need to be able to work in partnership with BMS companies, and need to be able to work with not just light but also HVAC etc. With strong growth forecast, establishing a market presence, a network of connections, and customer relationships will be vital for future success. Supplies want to establish an entrenched position. With performance contracting becoming the customers preferred business model, suppliers will need to develop service capabilities, or partner with facility management companies, or energy service providers, to participate in the most dynamic part of the market.
What next? Services. Smart buildings to drive data-based consultancy services Smart buildings will become a mainstream reality, driven by the convergence of green and smart technology and new market entrants. Cloud-based services with a strong focus on data interpretation will be key enablers for a new generation of intelligent buildings. If lighting services companies manage to make a space for themselves in the data analytics market, consulting contracts could potentially include very different new services -data based services
Performance contracting to become preferred business model Performance contracting will become customers preferred business model and suppliers will need to develop service capabilities or partner with facility management companies or energy service providers to participate in the most dynamic part of the market. EU energy savings contract and performance contracting to grow at CAGR12-18 8.2% to reach 7,375.0 million by 2018.
Light-as-a-service (LAAS) Future trends in terms of business models include leasing-type models and pay-as-you-use services. The concept of light-as-a-service is expected by most market participants to pick-up as a service offering in the future. Key advantages for the end-customer is the ability to use new technology, increase comfort levels, and bringing related energy savings, whilst taking away the up-front weight on the balance sheet of customers. Where budgeting is a barrier for upgrades/retrofit, lease-type services will strive. Uptake is expected to be faster in the industrial and public sectors. X-as-a-service proposition is developing in adjacent and unrelated markets, and is proving a success story. It would be interesting to study how quickly this type of services have picked up in other markets (penetration rate), to understand typical conditions for success, and learn from these other industries. As reference, in the European passenger vehicle market, one of the oldest leasing markets, the share of leased cars was 19% in 2011 and will grow to 23% by 2018.
Lighting Industry and Markets Key Challenges for 2015 1 Offering Differentiation Description and Context Moving away from cost-based competition 2 Selling on Value Moving the core business from wholesale to services 3 4 5 6 Refocusing on Total Cost Ownership Identifying Sector Specific Routes to Market Selling to Developing Markets Managing New Entrant Disruption Supporting a client s longer term vision in line with product design benefits Finding the best resource allocation model for a specific target market Correctly identifying and benchmarking the competitive landscape Innovating to maintain a technical advantage 18
Lighting Industry and Markets Challenges to Insights 1 Offering Differentiation Moving away from cost-based competition Insight Integrate Upstream Client Decision Making 2 Selling on Value Moving the core business from wholesale to services Minimise Client Operational Risk 3 Refocusing on Total Cost Ownership Supporting a client s longer term vision in line with product design benefits Provide Light Solution Leasing 4 Identifying Sector Specific Routes to Market Finding the best resource allocation model for a specific target market Manage/Educate Specifiers more than End-Users 5 Selling to Developing Markets Correctly identifying and benchmarking the competitive landscape Develop Better Market Segment Models 6 Managing New Entrant Disruption Innovating to maintain a technical advantage Leverage Total Solutions 19