More than 130 years after Thomas Edison sparked a new industry with the incandescent light bulb, his invention is finally giving way to newer innovations.
Light-emitting diodes — a form of semiconductor chip that generates light — produce the crisp, energy-saving backlit displays for TV sets, laptops and smartphones.
The technology has been gaining traction in those markets over the past 15 years. But in other markets, the LED lights were more clunky and costly than the established incandescent and fluorescent competition. That barred the technology from the bigger opportunity — lighting homes, offices and large-scale outdoor applications.
Design and cost breakthroughs, and rising desire for energy efficiency, have begun dismantling those barriers.
A scrum of LED makers are competing for precedence. Among those are Philips Lumileds, General Electric (GE), the Cooper Lighting unit of Eaton (ETN), Acuity Brands (AYI) and Soraa in the U.S.
Germany's Osram Sylvania has a heavy hand in the market. Several Asia-based players also figure into the mix. In South Korea, Epistar and Everlight Electronics, Seoul Semiconductor, Samsung and LG Innotek are involved, as well as Nichia, based in Japan.
Suppliers of chips used by those companies include Veeco Instruments (VECO), STM Microelectronics (STM) and Japan-based Toyoda Gosei.
One pioneer at the head of the field is North Carolina-based Cree (CREE), which has been developing LED materials and devices for 26 years. Several breakthroughs by Cree influenced the company in 2006 to pursue commercial lighting markets, including outdoor municipal lighting and industrial and office ceiling fixtures.
"People scoffed," said Mike Watson, vice president of product strategy at Cree. "But we've always been an innovator and we committed to making the shift.
The following year, a tanking economy sent Cree's earnings down 58% on a 7% decline in revenue. Revenue growth quickly recovered. Earnings struggled back above 2006 levels in 2010.
But the company stuck to its guns and expanded its research efforts in order to crack the residential lighting markets. This year, the company broke a critical barrier.
In March, the company introduced a 40-watt LED light bulb for under $10. The new 60-watt bulbs were under $13. Research by Canaccord Genuity shows that consumer acceptance for LED bulbs is "very high" when priced under $10.
"The lower prices have opened the biggest market opportunity," said Canaccord analyst Jonathan Dorsheimer.
Home Depot (HD) began pushing the bulbs aggressively. The prices dropped further when Cree received the U.S. Environmental Agency's Energy Star seal of approval. That gave consumers a utility-subsidized discount.
Cree recently added a 75-watt LED bulb to the lineup for $23.97. The company claims the bulbs last 25,000 hours — effectively 25 times longer than incandescent bulbs — and use 84% less energy.
Incandescent Meets Its Match
Watson said the market for light bulbs across the board worldwide is a $1 trillion business. Consumer purchases are the smaller piece, about 20% of the total. Commercial and industrial is 80%.
"But it's the consumer that leads every market transition," Watson said.
Consumers also tend to preface changes in business behavior, Watson said, "so we wanted to capture the hearts and minds of consumers.
Cree hasn't been alone.
The LED market got a bonus in 2007 when Congress passed the Energy Independence & Security Act. Among its provisions were a series of mandates for the gradual phase-out of incandescent lighting. Europe is ahead of the U.S. in this regard as it began to implement a ban of incandescent light bulbs in 2009. China is also phasing out incandescent bulbs, as is Japan.
The push to phase out energy-wasting incandescent bulbs is part of a global trend to lower energy consumption and carbon dioxide emissions. It also opens the door for a massive upgrade to LED lights.
Lighting accounts for approximately 19% of purchased electricity worldwide. Energy-efficient fluorescent technology has helped lessen that amount but, judging by consumer tastes, fluorescent lighting is not as good as incandescent. With the rise of LEDs, incandescent bulbs may have met their match. "The LED industry is on the cusp of beginning a multiyear secular growth scenario," Dorsheimer said.
Market Set To Double In Size
He estimates there were about 17 billion residential lighting sockets globally in 2012, 7 billion commercial sockets, 1.2 billion industrial and 1.4 billion outdoors sockets. More than half of those sockets will have upgraded to LED lighting by 2020, possibly as many as 80%, he estimates.
"The basic everyday Edison bulb is going away and will ultimately be replaced with LED," said David Petina, research analyst at Freedonia Group. Compared with he other alternatives, including halogen, LED bulbs have the best lighting for the price when energy costs are included.
Freedonia estimates the U.S. market for LED bulbs, for indoor and outdoor lighting, including LEDs in motor vehicles, flashlights and decorative lighting, will more than double in the next five years to $7.3 billion in 2017 from $3.3 billion in 2012.
And while general lighting is the biggest market segment, many other markets are energized for the LED transition. Currently, about 60% of LED consumption is by TVs, smartphones and displays. That will shift as LED lighting enters more homes and offices. Multicolor LED lights are used increasingly in aircraft and automobiles, not to mention billboards, agriculture, ports, harbors and mines.
"The LED market is poised for very fast growth," said Petina.
$250 Billion In Energy Savings?
The basic light-emitting diode produces light as electrons pass through a semiconductor material. The initial discovery of electroluminescence occurred in 1907. But it wasn't until the 1960s that the technology began making its forays into expensive electronic devices such as laboratory and electronics test equipment and lasers. Then came radios, telephones, calculators and TVs. LED technology is sometimes referred to as solid-state lighting, a category that also includes organic light emitting diodes, or OLED.
Watson said it's about time LED got put in the spotlight.
"What other technology do you have at home that dates back to 1879?" he said, referring to incandescent bulbs. "LED costs are coming down fast and consumers and businesses now recognize it's worth the investment.
A Bank of America Merrill Lynch report published in April detailed the LED market as a rapidly emerging opportunity.
"Spurred on by legislation, LEDs could represent 45% of the global lighting market by 2015," the report said. "Residential LEDs could represent 70% of the general light market by 2020.
More mind-boggling, the report estimated U.S. adoption of LEDs could result in energy savings of $250 billion by 2030. The report also estimated the global LED market in 2012 at $11.6 billion.
Dorsheimer at Canaccord Genuity thinks some of the best and brightest opportunities for LED expansion have yet to be discovered. For example, research has demonstrated that students perform better when learning under high-quality artificial light. Research is underway on the psychological and physiological affects of illumination in health care, the workplace, educational facilities and the home. This includes the effect of color-tunable lighting that LEDs can accommodate.
Boeing installed LED lighting in its energy-efficient 787 Dreamliners with multiple color lighting themes that can be changed for cruising time, meal time, lighting to simulate sunrise and sunset and other changes in ambiance.
Experiments in LED lighting are also taking place in industrial applications in areas, such as the drying of inks, coatings and adhesives without solvent emissions. In agricultural and horticultural applications, the ability of spectrally tuned light may enable farmers to increase and improve the output of produce and livestock.
The categories all simply mark beachheads where the technology is taking hold, Dorsheimer says, pointing to multiple usage models out there that have not been fully uncovered.
"The first wave is about replacement bulbs and energy efficiency," said Dorsheimer, "but as we go through this analog to digital transition in lighting there's a whole host of new things to address."
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