The LED (light-emitting diode) industry experienced remarkable growth during the past decade, due primarily to the rapid adoption of LEDs as a backlighting source for TVs and cell phone displays. Today, however, the rate of expansion is slowing in some areas. Handset display backlighting has become a saturated market, while TV backlighting is growing at a slower pace. Nevertheless, the global LED industry appears poised for strong growth once again, this time via general lighting applications.
One strategy that investors may want to consider in this space is to focus on companies that are successfully bringing down the cost of LED products to increase their appeal to consumers. This gives consumers a reason to switch to LED lighting. These bulbs shine almost as brightly as the comparable incandescent bulbs, while saving 84 percent of the energy.
LEDs are spectrally efficient because the emitted spectrum is based on semiconductor compounds. In comparison, traditional lighting emits across broader wavelengths, including infrared and ultraviolet, which can lead to bulbs that actually create more heat than light, such as incandescent and halogen technologies.
As has been the case with multiple other industries, the lighting industry’s transition from analog to digital technologies should spur rapid improvements in the efficiency and capabilities of various lighting systems, while, at the same time, making them cheaper to build and operate. In addition, the switch from analog to digital has traditionally been a precursor for market growth.
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Some analysts say “LEDs will be the hidden gem of the cleantech/sustainability movement” and that “LEDs will begin as an energy-efficiency story, but will become more about utility: users can do more.”1 In either case, lighting policy in many countries is critical to the advancement of LED lighting. So far, this effect has been most marked in the Asia region.
For instance, Japan now has the highest LED lighting market penetration rate of any region, with the rate set to rise to 73.8% by 2015. South Korea’s Korean Association for Photonics Industry Development (KAPID) projects that the country’s LED lighting industry will have an output value of $7.8 billion (USD) by 2015, 5.6 times the figure for 2012. Meanwhile, China’s LED lighting market is growing by 30% per year, which will give the country nearly one third of the total global output value for LED lighting in 2015.2
The European Union has also been an early adopter of legislation supporting a shift away from manufacturing and sales of incandescent lighting. This legislation has been copied with similar policies implemented in various other countries (U.S., Switzerland, Canada, and Australia).
Jed Dorsheimer, an analyst from investment bank firm Canaccord Genuity, predicts LED lighting will reach a cumulative penetration of between 32% and 60% of the global lighting market by 2020, and this technology will save a cumulative five trillion kilowatt-hours of electricity in the next decade. Dorsheimer estimates that the energy saved by the adoption of LED lighting will be enough to remove the need for nearly 560 full-sized power plants from the grid. He also predicts that a 46% penetration rate for LED lighting—approximately the midpoint of his estimated range—will create 1.3 million jobs worldwide and a cumulative energy savings of $489 billion over the next decade. Meanwhile, cumulative revenues for businesses associated with LED lighting could be between $106.9 and $314 billion.3
For all of its potential, the LED lighting market is still in its nascent stages of evolution. One critical driver of higher optimism for the industry is the lower prices for LED lighting products. Until recently, pricing was a barrier for entry for many potential consumers, particularly on the residential front. However, according to the U.S. Department of Energy (DoE), LED lighting product prices are likely to drop by 20%–25% in 2013. Looking further ahead to 2015, the DoE targets are for LED component costs to drop 37% from 2013 levels, while 60 watt-equivalent LED bulb costs are expected to drop by 38% from 2013 levels by 2015. LED lighting prices would then be at an even more acceptable price point for general consumers.4