Strategies Unlimited tempers LED and SSL projections but remains bullish on sectors (MAGAZINE)

Analysts led off the Plenary Session on each day of Strategies in Light, reports Maury Wright, with growth projections for both packaged LED markets and lighting products slightly lowered relative to the 2014 presentations.

Strategies Unlimited tempers LED and SSL market projections but remains bullish on sectors
Strategies Unlimited tempers LED and SSL market projections but remains bullish on sectors

Analysts led off the Plenary Session on each day of Strategies in Light, reports MAURY WRIGHT, with growth projections for both packaged LEDs and lighting products slightly lowered relative to the 2014 presentations.

The Strategies in Light (SIL) 2015 conference, held Feb. 24-26 in Las Vegas, NV, featured Plenary Sessions anchored by Strategies Unlimited market-research presentations on each of the two main-conference days. Senior analyst Stephanie Pruitt reported that packaged LED revenue hit $15.4B (billion) in 2014 and projected growth to $22.1B in 2019. Philip Smallwood, co-chair of SIL and director of research at Strategies Unlimited, reported that LEDs penetrated 5% of the lamps market in 2014 and projected 52% penetration by 2022 based on units shipped. Smallwood reported LED penetration in luminaires at 33% in 2014 and projected 69% penetration by 2022.

Generally, the market projections were positive, but growth rates in terms of revenue were slightly down from the 2014 data. We will discuss the new data in detail including reasons for changes that range from packaged LED prices dropping faster than expected to new methods of modeling the lighting market that have been instigated by Smallwood in the research program.

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Packaged LEDs

The packaged LED presentation is directly comparable to the data presented last year as the methodology remained consistent in the component area. Still, there is one caveat. Pruitt presented preliminary data. The actual data will not be finalized until April when the report is due for sale (after this article was written). So beware of some changes, although we'd expect them to be minor.

Pruitt took the stage on day two of SIL (Fig. 1) and compared data in the most recent years. In 2014, Strategies Unlimited projected a 13% compound annual growth rate (CAGR) for LED revenue through 2018. Pruitt said the new data suggests an 8% CAGR through 2019. The lower growth, however, is not in any way indicative of the research team expecting fewer LEDs to be sold. But LED component prices are eroding faster than expected. Moreover, parts of the LED forecast are driven by research on the lighting market, and Pruitt said the new forecast is "more conservative than last year due to lighting research" - in part the new models mentioned earlier.

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FIG. 1. Senior Strategies Unlimited analyst Stephanie Pruitt presented the research firm's latest data on the packaged LED market.

Indeed, we can already see slower growth in revenue numbers reported for 2014. Pruitt said LED revenue grew from $14.5B in 2013 to $15.4B in 2014. That's far lower than the 13% projection from last year. In fact, the 6% growth from 2013 even lags behind the new projection going out to 2019.

But before we delve into more details, let's discuss the methodology of the packaged LED research. As with previous years, the scope includes all packaged LEDs but not bare LED die or chips. It certainly does include package-light LEDs such as products based on chip-scale packages (CSPs). We covered the CSP trend in our report from the Light+Building event in Frankfurt last year, and there is much more in our conference keynote coverage in this issue.

The research is focused on revenue and not number of LEDs shipped or sold. The report covers products ranging from very-low-cost, low- and mid-power LEDs to the high-power LEDs that have been most prominently used in lighting until recently when mid-power LEDs entered that space. The scope also includes super-high-power LEDs, primarily chip-on-board (COB) products. Strategies Unlimited now also publishes dedicated COB LED research.

The segmentation of the packaged LED market also remains largely consistent with prior years. The 0.5W dividing line between the mid- and high-power segments remains. But that line may create ambiguity in some of the data where applications are dissected relative to the types of LEDs used. Many LEDs that look like traditional mid-power devices in plastic packages with no secondary optics can be driven at levels of 1W and higher today.

Application segments

The projected 8% CAGR through 2019 will lead to a packaged LED segment that totals $22.1B. Let's look at the applications that will drive such growth and the near- and long-term prospects and trends for each. The primary application segments include:

• Displays/backlights

• Mobile

• Signs

• Automotive

• Lighting

Fig. 2 depicts the segments and the recent growth or decline in each segment from 2013 to 2014. As you might expect, lighting will remain the largest growth segment for the foreseeable future. Two years ago, Strategies Unlimited reported that general lighting had become the largest consumer of LEDs by revenue. Previously, the display-backlight sector had consumed more LEDs by revenue. Still, all of the applications listed above consume copious amounts of packaged LEDs.

Display backlights

Indeed, the display-backlight market for TVs and computer monitors remains robust and likely consumes more individual LED components that any other application. But the LEDs utilized are generally low- or mid-power LEDs and are among the most-commoditized products in the packaged LED space.

In terms of revenue, the display sector is already in decline from $2.6B in 2014, as detailed in Fig. 3, with a -5% CAGR projected through 2019. The display sector will not suffer from the same type of saturation as the lighting sector that we will discuss later. Now the backlight segment is fully saturated, but consumers continue to buy new and better TVs or monitors. Still, LEDs used in displays will continue to fall in price. At the same time LEDs get brighter, resulting in fewer LEDs being required per display in some cases.

Pruitt noted, however, that technology innovation in the TV space could significantly impact the projection. Specifically, a larger-than-expected transition to 4k-pixel TVs, sometimes called ultrahigh-definition TVs (UHDTV), could result in more LEDs being sold into the application. Such higher-end TVs would almost assuredly rely on local-dimming implementations where individual LEDs light a smaller area of the overall screen to provide optimum contrast ratio. Conversely, were an OLED manufacturer to solve the manufacturing issues with large screens, allowing that technology to drop in price, fewer LEDs might be sold into backlighting.

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FIG. 2. The packaged LED market grew by $800M from 2013 to 2014 with lighting applications leading the charge.

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FIG. 3. The display-backlight market for LEDs is in decline but is still significant.
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FIG. 4. LED revenue related to mobile devices is declining with falling LED prices.
Mobile devices

Moving to LED revenue in mobile devices, we find yet another application in decline. Fig. 4 depicts the details of the -5% CAGR projected by Pruitt through 2019. Still, the raw numbers are impressive. Mobile devices consumed $2.8B worth of LEDs in 2014 and the projection calls for around $2.1B in 2019.

The reasons for the decline in mobile are in part similar to the decline in displays, but OLED technology plays a larger role. The mobile market is nearly saturated, but the upgrade cycle continues to drive the sale of new devices. However, price erosion is heavy in the LEDs used in mobile devices for backlighting or lighting the keypad.

Moreover, OLED technology is already being used broadly by vendors such as Samsung in smartphones. LED revenue specifically for the phone market will go from $1.3B in 2014 to less than $1B in 2019. Declines in tablets and other mobile computing devices will be shallower.

Last year, we reported that expanded camera functionality in mobile devices was driving the need for more and higher-quality LEDs for both forward- and rear-facing camera-flash functionality. Indeed, we covered that technology trend in our report on the conference sessions at SIL 2014. Pruitt did not address the flash sub-segment in her SIL presentation, but that data will likely be included in the final LED market report due in April.

Pruitt also suggested that as with the display market, a transition to higher-resolution screens in mobile devices could positively impact the revenue for LEDs in the mobile segment. There will be some level of penetration of UHDTV technology even in the smaller devices as screen technology continues to improve.

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FIG. 5. The interior sub-segment of LED usage in automotive is saturated, but great growth potential awaits on the exterior.

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FIG. 6. Exterior applications, especially in headlamps, will drive the growth of LED revenue in automotive.
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FIG. 7. Lighting, and specifically general illumination, holds the greatest revenue potential for packaged LEDs. In 2014, general illumination accounted for 75% of the lighting market.
Automotive and signage

Moving to areas of growth, automotive is probably the packaged-LED application with the greatest growth potential outside of general lighting. As Fig. 2 indicates, the sector experienced 10% growth between 2013 and 2014. Moreover, Pruitt projects 10% CAGR through 2019 as depicted in Fig. 5, with revenue going from $1.8B in 2014 to $2.9B in 2019.

The automotive application includes both exterior and interior lighting. The dashboard sub-segment of interior automotive lighting is fully saturated. We will see more in-cabin use of LEDs for ambience including color-tunable lighting products. We covered an Osram Opto Semiconductors product designed for just such applications more than a year ago. But the LEDs used in automotive interiors will mostly be commodity products and falling component prices will keep interior revenue relatively flat.

The exterior automotive application, however, still has a lot of room to grow with penetration remaining relatively low in headlamps. Moreover, the value proposition is twofold. Automakers will adopt LEDs for headlamps in mainstream cars to leverage the low power and long life inherent in LEDs. High-end vehicles will carry LED headlamps with functionality such as steered beams that can't be realized with legacy sources.

Fig. 6 shows that LED revenue is projected to grow by 15% through 2019 in the exterior sub-segment with LED revenue in just that sub-segment exceeding $2B by 2019. The biggest growth will come in headlamps with that specific application consuming nearly $1B by 2019. Stop- and tail-light revenue will be the other high-growth area as automobile manufacturers add functionality in that application.

Signage is yet another LED application that is projected to grow. Pruitt reported that LED revenue in the application totaled $1.7B in 2014. Projection of an 11% CAGR will take the market to $2.9B in 2019.

General illumination

Lighting - specifically general illumination - however, will provide the real lift in LED revenue for the next five years. LED revenue in the lighting application totaled $5.3B in 2014 with 75% of that total dedicated to general illumination (Fig. 7). Retrofit lamps account for nearly half of the 2014 LED revenue in lighting. Pruitt projects a 14% CAGR through 2019, consuming more than $10B in LEDs for lighting.

Fig. 8 provides more details on the projection with general illumination accounting for 86% of the LED revenue by 2019. At the end of the projection, LED revenue for replacement lamps will grow to $6.6B with that application remaining well over half of the lighting consumption base. The other or non-general-illumination segment is the next largest in aggregate at $1.5B in 2019. That category, however, comprises a wide variety of small sub-segments including entertainment, architectural, retail display, consumer portable, safety and security, off-grid, and strip and string lighting. Outdoor is the second largest general-illumination sub-segment today and in 2019 growing to consume $815M (million) in LEDs.

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FIG. 8. The Strategies Unlimited forecast states that 86% of the lighting market will be general illumination in 2019, and replacement lamps are expected to be the top consumer of LEDs by a wide margin.

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FIG. 9. The high-power LED segment will decline as a percentage of the total revenues of all LED classes.
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FIG. 10. All classes of power LEDs will see growth in replacement lamps.
LED types in lighting

Pruitt dug deeper into the LED market data relative to lighting applications. For example, Fig. 9 breaks down the total lighting application by types of LEDs used through the five-year forecast. The details rely on the aforementioned categorization of LEDs by power rating.

At first glance, the data is surprising. We've been hearing for several years about the rise of mid-power LEDs in a greater number of lighting applications. But the forecast projects that the mid-power share remains near-constant as a percentage of the total market. Still, the escalating overall market will take mid-power revenue from $1B in 2014 to $1.8B in 2019. But why doesn't mid-power represent a bigger share percentage-wise? The answer is that many LEDs that are based on typical mid-power technology platforms operate well in excess of 0.5W today and are actually captured in the high-power segment.

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FIG. 11. Mid-power LEDs will do especially well in commercial luminaires and specifically the troffer application.

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FIG. 12. LED revenue will continue to ramp in outdoor applications with the most growth coming in chip-on-board (COB) LEDs.

Despite the inclusion of some super-charged mid-power LEDs in the high-power category, that high-power segment will decline as a percentage of the total, as you can see in the chart. The super-high-power category composed primarily of COB LEDs will enjoy the biggest gains percentage-wise. That gain is due to a couple of primary factors. Price erosion is much lower in both high- and super-high-power LEDs relative to low- and mid-power LEDs. And COBs are much simpler for many lighting manufacturers to work with given that the LEDs have a single electrical interface and can be more simply mounted in a design. Moreover, optics manufacturers have made great progress in lenses for the relatively-larger COB LEDs, as was evident in a recent feature article on optics.

In her SIL presentation, Pruitt also characterized types of LEDs used in specific applications, and a couple are of particular interest. Fig. 10 depicts the LED segments relative to replacement lamps, including A-lamps, directional lamps, and tubes. Arguably, replacement lamps are the most cost-sensitive portion of the general illumination market. Yet in terms of percentage of the LED market, high-power LEDs will remain predominant in the application. Moreover, COB revenue will grow at a higher rate than either the commodity mid- or low-power LEDs.

Mid-power LEDs will make the greatest gains in the commercial sector, as documented by Fig. 11. Ceiling troffers are widely used in the commercial sector. And LED-based luminaires that are focused on the traditional rectilinear troffer form factors are a good match to mid-power LEDs. The LEDs are applied in a linear fashion with the components closely spaced for even illumination.

The outdoor segment is one where COBs will really shine, according to Pruitt's forecast. Fig. 12 shows high-power LED usage remaining relatively flat in outdoor applications while COBs ramp considerably. We'd speculate that the improved COB optics mentioned earlier will be a driver for the success of COBs in outdoor applications. In the past, luminaires that used COB LEDs relied on reflector-based designs for beam control. The new lenses can enable far superior beam control that had been only achievable with smaller sources.

Lighting market data

Now let's transition to an examination of market data centered on lighting products presented in the Plenary by Smallwood on day one of SIL (Fig. 13). The presentation was entitled "How big can the LED lighting market get?" Smallwood addressed both the lamps and luminaires markets.

Smallwood moved into a leadership position in the Strategies Unlimited lighting practice in late 2013. He has since revamped the approach that the firm takes to characterize the lighting market. The research has been expanded to cover lighting products based on all types of light sources - not just LED-based products. The data is segmented for form factors and applications. And Smallwood has led development of a market model that can yield regional geographical segmentation of the market. Smallwood also said the new approach will enable more accurate prediction of saturation by long-life, LED-based products and the coincident shrinking of market potential.

Strategies Unlimited tempers LED and SSL market projections but remains bullish on sectorsStrategies Unlimited tempers LED and SSL market projections but remains bullish on sectors

FIG. 13. Philip Smallwood of Strategies Unlimited presented lamp and luminaire market research at Strategies in Light.

Starting with the lamps market, Smallwood said there are around 45B installed lamp sockets in the world with that number only growing incrementally in the coming years (Fig. 14). Today, 9B incandescent products are installed in those sockets with that number projected to fall to less than 2B by 2022. Smallwood's projection shows that linear fluorescent and compact fluorescent (CFL) technologies will remain prevalent through 2022. Primarily, LED-based replacement lamps will replace the incandescent incumbent with some displacement of fluorescent and halogen technologies.

Recognize, however, that there is a vast difference between the installed base and shipments of lamps throughout the forecast period; Strategies Unlimited's new model allows the analysts to report both, and by region or globally. For example, Fig. 15 depicts the difference in the North America region specific to A-lamps. The installed base chart on the left of Fig. 15 shows a strong presence of incandescent products, whereas shipments of such products will drop precipitously as LED lamp shipments continue to rise.

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FIG. 14. The global installed base of lamps will remain a mix in terms of light-source technology through 2022.
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FIG. 15. The installed base of incandescent A-lamps in North America will decline slowly, whereas new shipments of such products have already plummeted as LED-lamp shipments rise.

Smallwood reported that LED lamps represented 5% of the overall 2014 market globally. He projects that penetration to rise to 28% in 2018 and to 52% in 2022. Those numbers may sound low, but remember the total lamp market includes tubes, and fluorescent technology will remain a major player. Indeed, Smallwood projects that fluorescent tubes will still account for more than 20% of lamp shipments in 2022.

Ironically, Smallwood also reported a very bullish outlook for LED-based replacement tubes as he broke the data down by type of lamp. Smallwood admitted that he never believed the concept of an LED-based replacement tube to be a very good idea relative to products such as integral, LED-based luminaires. But the research indicates that the market will heavily rely on such tube products primarily because of the ease of retrofit. Smallwood projects a 29% CAGR for tube shipments through 2022, although the growth will flatten at the end of that period as sockets are saturated.

Overall saturation will be felt far more acutely. Total lamp shipments will decline by 44% through 2022. Other than the tube market, all of the other lamp types will be in decline in terms of units shipped by the end of this decade.

Still, the lamp market will remain sizeable in terms of revenue. Fig. 16 shows the lamp market charted by revenue and segmented by light-source technology. Revenue will peak at $21B in 2018 but still reach a hefty $16B value in 2022.

Smallwood also covered the luminaires space. And the Strategies Unlimited team has developed a far more granular model for the broad luminaires segment. The team is now segmenting the market by different types of fixtures including:

• Downlights

• Troffers

• High bays

• Suspended pendants

• Tracklights

• Street lights

Moreover, the new model includes the ability to sort the data by application including retail, office, hospitality, and more. The two types of segmentation can be applied individually or together. And in terms of LED-based fixtures, Strategies Unlimited is separately tracking fixtures that use LED-based replacement lamps and fixtures based on integral, LED-based designs.

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FIG. 16. Global lamp revenue will peak in about four years as socket saturation with long-life LED-based products takes place.

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FIG. 17. The global luminaire market will grow slowly through 2022, but LED-based products will represent an increasingly large share of that revenue.

In 2014, the combination of both types of LED fixtures represented less than 4% of the total luminaire market in terms of the installed base. But again installed base and shipments differ. Fig. 17 provides an excellent picture of both market size and the light-source technologies that will ship in luminaires. Luminaire revenue will only ramp from $59B in 2014 to $66B in 2022. But as mentioned at the beginning of the article, 69% of the luminaires will be LED-based in 2022.

Smallwood closed his presentation with some interesting thoughts. He said, "The lighting world has accepted that LEDs are the future." Still, he characterized the transition as an evolution from the filament to LED sources. He added, however, that there is a revolution afoot in addition to the changing light sources.

Smallwood said, "The revolution is the ancillary products and technologies such as networks and controls that are coming along with LED lighting." Smart lighting based on sensor-driven autonomous or programmatic controls is a good example. Smallwood also suggested that the revolution will deliver "lighting with a purpose." He said lighting will specifically target needs such as human wellbeing, productivity, security, and safety.

Smallwood asked the audience, "Would you ever have thought Cisco would present a keynote at Strategies in Light?" Indeed, that company did. For coverage of that keynote and other high-impact keynote speakers, see our feature article.

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