LED Industry at a Critical Crossroads

After three consecutive years of explosive double-digit growth, the rate of expansion in the Solid-State Lighting (SSL) industry declined dramatically in 2005 to 5.8 percent, contributing to a slowdown in the larger Light Emitting Diode (LED) market, according to iSuppli Corp. The deceleration in the growth of the LED industry last year was primarily due to aggressive reductions in pricing of High-Brightness (HB) blue and white LEDs, a deceleration in the increase of demand for LEDs from the mobile-phone market, and the slower adoption of solid-state lighting in new applications. iSuppli estimates that Average Selling Prices (ASPs) for blue HB LEDs used in keypad backlighting declined by 26 percent in 2005 and ASPs for white LEDs employed in handset backlighting decreased by about 20 percent last year. The aggressive ASP erosions are continuing in 2006. In 2005, backlighting of Liquid Crystal Displays (LCDs) and keypads in mobile handsets accounted for 25 percent of total SSL industry revenue. However, during the past year, the growth rate in unit shipments of mobile phones was 15 percent, significantly lower than the 25 to 30 percent growth rates in 2003 and 2004. "The SSL industry now finds itself at a critical crossroads," said Jagdish Rebello, director and principal analyst with iSuppli. "The growth drivers for the SSL industry are shifting from backlighting of small-screen LCDs to new applications requiring high-flux LEDs-also referred to as Ultra High Brightness (UHB) LEDs." iSuppli projects that the market for LEDs will have a Compound Annual Growth Rate (CAGR) of 10.6 percent through 2011, when it will exceed $9.1 billion. A significant portion of this growth will be driven by UHB LEDs. In 2011, UHB LEDs will account for approximately 33 percent of the total LED market-up from 4 percent in 2005. iSuppli's forecast for the worldwide market for standard brightness, HB and high-power through-hole and Surface Mounted Device (SMD) LED lamps is shown in the figure below and attached. The backlighting of large-screen LCDs, new signage and decorative illuminations and exterior automobile lighting will fuel future growth, iSuppli predicts. Several LED suppliers, Back Light Unit (BLU) manufacturers, LCD panel makers and television/monitor OEMs are actively investigating the use of LEDs for backlighting of large-screen LCDs. Several designs are being investigated and prototypes are being demonstrated. While LED BLUs offer the advantages of richer color gamut, better contrast, lower power consumption and reduced thickness, LED BLUs now are significantly more expensive than Cold Cathode Fluorescent Lamp (CCFL) BLUs. iSuppli projects that commercial shipments of large-screen LCDs with LED BLUs will commence in 2007. However, penetration rates will be small, at less than 10 percent through 2009. And as progress continues to be made in improving the performance of LEDs, while driving down pricing, high- power LEDs will slowly start to penetrate the general lighting market. The global general illumination business represents a $16 billion market for light bulbs and an additional $25 billion market for lighting fixtures, drive circuitry and accessories. LEDs now have a negligibly small percentage of this market. Today, applications such as LED flash lighting and garden lighting are slowly creating awareness among customers and reducing the educational barrier to the adoption of LEDs in lighting. iSuppli projects that LED light bulbs will begin to address the residential and enterprise general illumination market in 2010. And as LED technologies advance, new applications will emerge that traditional lighting sources like incandescent lamps and fluorescent bulbs will simply not be able to address. The near monochromatic emission of LEDs and their resultant capability to tune their spectral characteristics will culminate in dramatic lighting applications that have not yet been conceived. If all LEDs do is replace traditional lighting sources in existing applications, then the success of LEDs will be limited. However, iSuppli believes that just as the replacement of vacuum tubes with solid-state transistors revolutionized the electronics industry with dramatic new applications, so too will the LED for the lighting business. Lighting designers, OEMs and module manufacturers are striving to harness the power of LEDs in new lighting applications and to advance the overall lighting industry. The market is expanding and investments in innovative designs and creative solutions can be well justified.