Good news and not-so-good news in LEDs

There was good news and some not-so-good news at our 13th SIL event in February. First the good news: it was another record year for LEDs, and for that matter, for the Strategies in Light event. As my colleague, Ella Shum, reported: sales totaled $12.5 billion in 2011, thanks to growth in all major segments except backlights.

The not-so-good news is that growth will continue through 2012 but the market will be tepid for a few years beyond that, ending in 2016 in about the same place, the way things are going. This is because LED suppliers are so successful in reducing the selling price while improving the performance. Growth in sales is countered by reduction in the LED count (per product) and falling prices, making a double whammy. This is good for increasing penetration of LEDs into lighting and other applications, but it’s hard on suppliers’ profits. In fact, it was a bloodbath, in Ella's words, due to overcapacity.

Looking at this another way, the LED business is maturing. It still has a long way to go with lighting, of course, and even backlights. But the business is now of such a size that it is starting to behave like DRAMs, to use a cliché. Penetration into new applications is not enough to guarantee LED industry growth through the coming lull. From now on, LED sales will be highly dependent on the fortunes of the end-product markets for backlights, just as DRAM sales are highly dependent on personal computer sales.

To improve margins and market share, LED suppliers will have to stay ahead in scale and performance. LED lighting, in particular, will require larger volumes and high performance devices. Suppliers that can manufacture well in volume (improving yield and tightening binning, for example) will fare well. The suppliers that cannot may be relegated to older segments that don’t require the performance that lighting does. Or they may simply get squeezed out of the market.

LED drivers--a $2 billion photonics market

With all of us opto folks going gaga over the $10+ billion LED market, stop and consider that the LED driver IC market is a sweet $2 billion, and growing at 12% compounded annually. And I'm going to say it: drivers is a photonics market too.

OK, I said it. Electronics is photonics too. I'm stretching things a bit, since the suppliers of LED driver ICs are companies like Texas Instruments, Maxim, Analog Devices, and Macroblock who don't know or care about photons. They do know a lot about hand-crafted analog circuit designs and specialty fab processes that enable circuits tolerant to high-voltages--the kind that drive long LED strings in display backlights.

But good LED design optimizes the entire circuit for efficiency, reliability, LED uniformity, and many other specs. We call the circuit--minus the LEDs themselves--the driver. It may include zero, one, or multiple ICs for the purpose.

Opto people, like myself, tend to think that there is nothing interesting in the system apart from the quantum mechanics of electron-hole recombination and fancy MOCVD epitaxial growth.  But when product designers take the electronics for granted, system performance is notoriously terrible, and that's bad for the whole LED industry. Likewise, electronics designers tend to take the LED for granted, but LEDs are requiring surprisingly novel and sophisticated circuits.  The only way to achieve widespread LED lighting is if electronics designers innovate enough to meet cost and performance goals.  Fortunately, there are those out there who can. Look for example at companies like Exclara, iWatt, Luxera, and Lynk Labs, to name a few.

The boundary between electronics and photonics is also fuzzy for lightwave transceivers. The laser and detector in a transceiver are typically very cheap, so much of the value is in the electronics: driver and receiver, clock recovery, and so on inside the module, not to mention all the higher level routing and control elsewhere on the board.

In imaging, it is even more dramatic. The detector array is sophisticated, but the image processing electronics takes it further, correcting optical limitations and even adjusting focus after the fact. The point is not that the electronics helps the optics, but that optical science actually resides in the electronics, often on the same chip as the sensor array.

I'll get back to the LED driver market again, but for now, remember: Electronics can be photonics too.

New LED market data for SIL 2011

We have some new market numbers for the LED world: HB-LEDs passed into the double-digit billion dollar territory in 2010, while LED luminaires will reach $8.4 billion by 2014. These numbers will be discussed at the Strategies in Light event in Santa Clara next week.

The LEDs market number is up significantly from last year, due to the stronger than expected growth in LED backlights for LCD displays. And by the way, China is coming on strong in both the demand for and supply of LEDs.

In LED luminaires, the largest segment is in consumer portables: flashlights, worklamps, and so forth. The transition to LEDs in that segment is almost complete, which is very rapid for a new technology. The strongest growth in luminaires is in residential lighting, but starting from a small base.

What’s driving this? Heightened awareness of energy efficiency, phasing out incandescent bulbs, and fiscal stimuli certainly helped.

Oh and yes, China is now both the largest end market and the largest supplier of LED luminaires. Sound familiar?

SIL 2011 is next week and it looks like it will break attendance records once again. It’s going on Tuesday through Thursday at the Santa Clara Convention Center. The conference will feature 66 speakers spanning two main sessions, an investors forum, and workshops and tutorials. There will also be presentations in the Lighting Pavilion each day on the show floor.

How many MOCVD reactors is too many?

We took a look recently at the bubble in sales of MOCVD reactors for LED production. We set out to sort out who wins and who loses. It turned out more complicated than we first thought.

There have never been so many orders in the history of MOCVD. Just to give you an idea of the scale, in January there was a rumor that Golden Concord Holdings in Hong Kong wants to purchase 500 reactors as part of a new $2.5 billion investment in LEDs. Several companies have orders to buy over 100 reactors each. Aixtron and Veeco are working like crazy to deliver them.

But it’s too many. The figure below compares what we think the world needs to meet near-term LED production to what the world seems to be asking for. Since then, Barclays Capital raised its estimate of MOCVD shipments for 2011 to 900, from 800. While we may disagree about what actually may be delivered, much less what is actually brought into production, this much is sure: there is a big mismatch. Our question is: who wins and who loses?



I suggest that you read the full article in LEDs Magazine for the whole story. In the meantime, suffice it to say that there will be a lot of winners: end-users of LEDs, China, and the MOCVD reactor vendors, to name a few. Lower-tier LED suppliers may feel the most pressure. And yes, a few investors may get stuck with expensive paperweights.

The Decade's 5 Best Market Trends in Photonics

Well, it'over: the decade-that-could-not-be-named (2001-2010). Time for a list of the Decade's 5 Best Market Trends in Photonics:

The triumph of flat displays. Remember the see-through iMacs? Don't CRTs look soooo 20th century now? And how about the touch screens for smart phones? They don't just make a nicer phone. They transform how we live. This is #1 because of the sheer size of the display industry, and its impact on everything else.

Cellphone cameras relaunch the image sensor market. The first cameraphone showed up in 2000, in Japan. There are now over 1 billion mobile phone handsets shipped every year, and most have cameras. That volume drives lots of other applications. And the quality! Again, transformative, and billions in new photonics revenue.

The Green Revolution: LEDs and solar. High-brightness LEDs are all about taking an old technology and improving the brightness to do some new things--a marketing VP's dream. This decade saw LEDs in mobile phones and TV backlights, but the talk now is about LED lighting taking over the world. And how about that solar market! Many investors have lost money in solar companies, but they keep coming. Somehow, we all want to be part of it. (I was too, back that was back in the 1970s.)

Molecular imaging and all other thing biophotonic. The average person on the street doesn't know it, but photonics is making a huge impact in biomedicine, from diagnostics to therapy. Optical molecular imaging is my favorite because of the promise it brings in finally solving some difficult and costly medical challenges. But there is also mid-IR spectroscopy, ultrafast surgery, OCT, and many more.

IPG and the fiber laser. Several companies had fiber laser products in the 1990s, but IPG Photonics gets credit for making it a big name in materials processing today, and the 5th largest maker of non-diode lasers. Ha! No one is laughing now. The fiber laser is one of the laser types you would design if you could pick only one, and if you had the materials you have today. The diode laser is the other.

There you have it. Next time if I get to it, the Decade's 5 Un-Trends in Photonics.

SIL 2010: HB-LED market to grow 53% this year

Our 11th annual Strategies in Light event ended last week and it was symbolic of the LED and LED lighting market. Booming. In fact, the big takeaway is exactly that. The HB-LED market will surge 53% in 2010 to $8.2 billion, going to $20.2 billion by 2014. Did you get that? That’s $20 billion. That's a respectable number compared to other components sectors, like semiconductors and displays. And, it grew 5% in 2009, despite the recession.

This is so big, saying much else takes away from the message. And anyway, my colleagues at LEDs Magazine were all over the event, so you can go there to find out the details. You might especially like this chart of our LED market forecast, at the magazine’s site.




The event was a indication of the expectations in the LED market. We had nearly 3,000 total attendees and 88 exhibitors, each up about 50% from 2009.


The LED lighting part of the event is really gaining mindshare, with its separate conference track, LED lighting tutorials, a new Solid-State Lighting Investors Forum, and a new LED Lighting pavilion in the exhibit area. There was also a lot of discussion about broader systems issues like LED-specific thermal management, suitable optics, efficient drivers, LED-friendly controllers, and all that. In short, it’s not just about the LED anymore.

HB-LED market on track for strong growth

When a market drops about 4% in a year like this, it's almost a relief that it's not worse. But when it looks to grow 32% per year compounded from 2009 through 2013, that's really good news. That is the situation in the high-brightness LED market.

In our new HB-LED market report, we are forecasting the worldwide market to decline 3.7% in 2009 from $5.1 billion in 2008 due to the declining sales in the end-user markets, mainly mobile phone handsets and automotive. But we project growth to resume in 2010 on the assumption that the worldwide economy will be recovering by then.

Meanwhile, there is increasing penetration in new applications, particularly in LCD backlighting and general lighting. As these segments kick in, thanks also to improving technology, the growth rates surge some more, to reach $14.9 billion in 2013. By the way, these values represent packaged LEDs, not chips or lighting fixtures.

The top level forecast isn't much different from the forecast we presented at our Strategies in Light Conference in February, but now we have a good part of 2009 behind us. The report has a lot more detail than the conference, of course, and is an update of our report last year around this time.

Did I mention that the new report is our 10th edition on the HB-LEDs market? We first reported on it in 1995. (We already reported this year on lighting fixtures and replacement lamps.)

What it takes to drive LED replacement bulbs

What does it take to drive a market to high growth in the middle of a recession? Being a drop-in substitute for an existing product helps. Having a feature that no other technology can do helps, too. A government mandate also helps. If all three happen at the same time? Then the odds improve that strong growth will happen. That’s what’s happening in the LED replacement bulb market, as described in our recent report.

Contrary to what you might think, the lighting market has never been completely static. There is a wide range of options for light sources, electronic drivers, and fixture designs, and they continue to evolve. But the sockets themselves are slow to change, since they involve network effects, a form of chicken-and-egg problem. That’s where the drop-in substitute comes in. LED replacement bulb are selling today as substitutes for certain high-value applications.

What high-value applications? That’s where the unique feature comes in. LED bulbs can’t compete with compact fluorescent bulbs for general ambient lighting. But for directional lighting, LED bulbs are superior for controllability, dimmability, and a choice of color temperatures.

Why not use the existing technology? The government mandate requires that all bulbs achieve a certain efficacy over a coming phase-in period. While this doesn’t ban incandescent bulbs outright, it does price ordinary incandescent bulbs above more efficient CFL and LED bulbs. A perfect convergence.




By the way, the terminology in this area can be confusing. The figure shows how the LED replacement bulbs fit into conventional fixtures to complete a luminaire. The eventual goal is to migrate to complete designs where the LEDs are integrated into the luminaire from the get go. (See our market report on LED luminaires.)

LED replacement lamps: new regulations and 100+% growth

Most people are not aware that new energy regulations in Europe and the U.S. will progressively ban incandescent lamps from the market, creating a huge market opportunity for LED replacement lamps just as they improve in performance and price. Our new market report anticipates growth rates in this product of over 100% per year for the next several years, thanks to the new regulations, continuing declines in prices, and the unique features that only LEDs provide. That’s great news for LED makers, who see the lighting market as the ultimate application for LEDs.

It’s not quite so simple as that, however. For one thing, LED replacement lamps are too expensive today for widespread use, so they are relegated today to special applications, such as hard-to-reach places. Manufacturers have yet to realize economies of scale. In the meantime, compact fluorescent lamps (CFLs) are more prominent. Also, customers have to be educated to think in terms of cost of ownership, rather than the initial price. Even the government regulations aren’t set in stone, given the big change that it entails.


What's so great about LEDs? LED lamps are directional and can be adapted to fit different lamp profiles not possible with other light sources. They come in all possible shades of white, last for a long time, can be dimmed and controlled easily. And unlike CFLs, LED lamps contain no mercury.


The LED is in many ways the ideal lighting technology, but actually developing that market is still surprisingly challenging. That's why the new energy regulations will prove so pivotal for the LED business.

Oh, and in case you missed the hint earlier, we do have a new market report on this topic.

Substrates for GaN devices: growing in more ways than one

Our new market on substrates for GaN-based devices is now available. Our take on that market? That's one market segment that's growing, and we don't mean growing just crystals. We forecast merchant substrate sales growing from $280 million in 2008 to $470 million in 2013. But, native GaN has a ways to go, and 6-inch substrates are a long way off.

The new report from our SU analysts Bob Steele and Hank Rodeen updates our earlier reports, addressing both the devices and the substrates used for shorter-wavelength LEDs, blue lasers, and widebandgap electronics. The substrates are mainly sapphire or SiC, with the GaN grown on top, although there are a number of variations and alternatives to get the GaN layer. The substrates have been mainly 2-in in diameter, but are quickly moving to 3- and 4-inch diameters.

The rapid migration stops there, however, in part because of the difficulty to work with GaN but also the manufacturing costs involved in the specific devices fabricated in GaN. In widebandgap electronics, for example, Cree points out that the substrate technology will be ready before the volumes will be. And the electronic devices are relatively large, but not large and pricey enough to merit the jump to larger substrates.

And as for bulk GaN substrates--well--they are simply too difficult to grow and expensive to use for the time being. Inexpensive bulk GaN would be ideal for devices based on GaN, but nature provides alternatives today that are good enough at a lot less cost, and still getting cheaper. Without that volume, bulk GaN remains perpetually behind, or at least far enough behind to be unimportant to our 5-year forecast.

The tipping point: Lightfair becomes LED Fair

My colleagues got back from Lightfair in New York last week raving about the big shift to LED products at this year's show. This is important because a first, critical step for LED lighting is to generate interest among lighting designers. And this was the year that exhibitors at Lightfair decided that they need to show off their LED products to get noticed.

Vrinda Bhandarkar, our LED lighting market expert, notes that it takes events like this to create the interest, and then the lighting designers can start specifying products they want. These designers write the specs for big projects, like commercial buildings and such. Those projects help to drive LED volumes up and prices down enough to reach even wider markets.

And for once, the standards won't be holding the market back. Finalized last year were the standards on solid-state lighting definitions (IES RP-16 (a)), photometric testing (IES LM-79), lumen depreciation testing (IES LM-80), and chromaticity (ANSI C78.377).

If you want more detail on Lightfair, see the great coverage in the daily articles in LEDs Magazine.

Oh, and I'll make a shameless plug here for Vrinda's most recent market reports: LED replacement lamps (2009), LED Lighting Fixtures (2009), and HB-LEDs for Lighting (2008). The replacement lamp report is just coming out--we'll comment on that soon.

Why LEDs are doing better than industrial lasers

The difference between the high-brightness LED and the industrial laser markets couldn't be wider right now. My colleague, Bob Steele, forecasts that LED revenues will decline 5% in 2009. I'm forecasting that industrial laser sales will drop by over 30%. And that's if 2009 follows the current trend. Some sectors will be worse.

Why so different?

It turns out that a lot of LEDs are sold into consumer products like mobile phones, displays, that sort of thing. Sales are down, but these products aren't out of reach for people who still have jobs.
Industrial lasers, on the other hand, are expensive capital items that are usually used to make something else. When factories are idle, or closing, you aren't likely to need much new capital equipment. It is a good time to upgrade, but the recession leaves most companies short of spare cash, so capital spending gets cut. And we don't count consumer applications like lasers for laser pointers and DVDs in this category.

Think about it: you are still buying groceries, and maybe even replacing some of your electronic appliances. But a lot fewer people are buying new cars these days.

When a 5% decline in the market looks great

You know the times are tough when a market is forecast to decline 5% and people are in a good mood. That's how it seemed at our SIL event this year. SIL is our Strategies in Light conference and expo for high-brightnesss LEDs. Even in the midst of the biggest recession in decades we broke our previous record and had over 2,000 total attendees.

My colleague Bob Steele forecast that the HB-LED market will drop 5% in 2009, mainly due to falling sales in end-use applications in mobile phones (a first for that business), automobiles, and LED video screen. Actually, it will drop more like 10% if you take out the emerging application of back lights for LCD TVs. That's a promising application, but restricted to some vertically-integrated players, so it's very hard to break into.

Of course, as with any forecast right now, this one is looking ahead based on what we know now. Actual results may vary. We'll keep you posted.

It's our 10th year doing SIL, and this year it had 6 workshops and 2 conference tracks: one on HB-LEDs and one on solid-state lighting. Another fellow analyst Vrinda Bhandarkar ran the new lighting track, bringing in the people who do lighting fixture designs, kind of taking things to a new level for our event.