Robust demand will drive the global LED market to $17.8 billion by 2021 By James Carbone
The global market for light emitting diodes (LEDs) will post modest 3.1 per cent growth in 2017, but robust revenue growth will return in 2018 as unit demand stays strong and LEDs supplant other lighting technologies in electronics equipment as well as in homes, business and 
municipalities.
The good news for purchasers is while unit demand will increase over the next four years, the average price per LED will continue to decline. Through July of this year, prices declined by about 5 per cent and will drop 4.4 per cent in 2018, according to researcher IC Insights.
With the average price declining, the LED market is forecast to increase from $13.1 billion in 2016 to just $13.4 billion in 2018. The global LED market will post a 6.2 per cent annual growth rate through 2021 when LED revenue will total $17.8 billion, the research firm said. That is welcome news to LED manufacturers after sales dropped 8 per cent in 2016 as the average unit price declined 5.2 per cent.
“The glut of LEDs in the market has been a problem,” said Rob Lineback, senior market research analyst for IC Insights. “The market fell in 2016 for the first time in 15 years because of price erosion and the number of units shipped fell for the
first time since 2001,” he said.
One reason for oversupply is China. “China has been on a campaign since the beginning of this decade to become self-sufficient in LEDs,” said Lineback. Prior to that, electronics manufacturers in
the country had been buying LEDs from
suppliers in other countries, but “the China government wanted to change that so they started to pump a lot of money into new LED factories and it caused the glut,” he said.
Because the market fell in 2016, 2017 was expected to be a rebound year for LEDs. “But looking at the numbers for the first half of the year, the LED market is still down 3 per cent, but the market is kind of getting better,” said Lineback.
LED manufacturers say market will continue to improve because so many lighting applications have or soon will transition to LEDs from fluorescent and incandescent because the cost of LEDs have dropped making it affordable for use in more applications.
More LED conversion expected
Steve Barlow, general manager of Lumileds’ illumination business unit, said the LED business continues to grow because there are “still a lot of applications out there that use legacy technology that have not yet been converted to LED
technology.”
He said further growth in the LED market will occur because of a combination of new applications that will use LEDS and replacement LED sales.
“I think the tipping point has been reached in virtually all lighting applications where the value proposition of LED technology makes it worthwhile,” said Barlow. LEDs use less energy than other
lighting technologies and last longer, so they don’t have to be replaced as much.
He noted that municipalities have already transitioned to LEDs for streetlights and traffic lights, but many utilities have not.
“There are many light products owned by utilities and they are still in the process of converting” to LED technology which will help drive growth.
The retail industry will also use more LEDs. “Retailers often renovate their facilities every five years” and such renovations often include lighting systems, many of which use LED technology. LEDs are also used by retailers to make merchandise look more appealing.
New office buildings will use LEDs and older buildings are transitioning LED technology further driving demand for LEDs.
Technical improvements to LEDs will attract new applications. “For example, spectrum enhancements should increase the level of participation that we have in the horticultural marketplace,” said Barlow.
One of the major drivers for LED manufacturers is general lighting, which accounts for about one third of the overall LED market, according to IC Insights. Most homes and businesses have transitioned to LED lighting from fluorescent and incandescent.
“You can’t get compact fluorescent lights anymore. They may become collector items,” Lineback joked.
Automotive brightens LED market
Another strong growth segment for LEDs is automotive. LEDs illuminate dashboard displays and automotive interiors and “now they’re moving into headlamps,” said Lineback. Six per cent of LED sales are to the automotive segment and by 2021 that percentage will grow to 20 per cent, he said.
Automotive is a growing part of Lumileds’ business, said Barlow. “We are a big player in automotive. Our focus is on exterior lighting for vehicles, everything from taillights, stop lights, running lights to headlamps, daytime running lamps, fog lights, all those types of applications,” he said.
Backlighting for televisions, cell phones, media players and monitors for PCs, notebooks and tablets account for about 30 per cent of the LED market.
“The television segment was the strongest segment for LEDs about 15 years ago, but that has fallen
off partly because the number of TVs being shipped has been flat or a little bit down,” said Lineback.
In addition, backlighting technology uses fewer LEDs because LED manufacturers have improved light output so fewer LEDs are needed.
“They have ways to get more light out of units. There’s also been a movement toward some other solid-state illumination sources rather than LEDs,” said Lineback.
Improving output per LED enabling the use of fewer LEDs in an application is one reason there is oversupply, said Lineback. Another reason is the transition to larger size wafers in LED production.
LEDs had been manufactured on 75mm and 100mm wafers, but LED companies have transitioned to 125mm and 150mm wafers, said Lineback. Larger wafers mean that manufacturers can get more usable LEDs per wafer without adding production capacity.
“There’ve been some efforts to go to 200mm, which is an 8-inch wafer, but I think because there is oversupply there’s not a lot of incentive to go to 200mm,” he said.
More price erosion
As a result of oversupply prices, will continue to fall indefinitely. Lineback noted that the U.S. Department of Energy (DOE) several years ago set goals for the industry in terms of reducing the cost of LEDs. DOE forecast 17-18 percent annual cost reductions and “that has been on track,” said Lineback.
Despite price erosion, the LED market will grow for years. “It could be high single-digit growth for most years, but there may be some down years when there’s too much capacity” which will slow growth, said Lineback. He said LED sales should grow 8 per cent in 2018 and 2019, 4 per cent in 2020 and 6 per cent in 2021.
While there has been a great deal of consolidation in the overall semiconductor industry, buyers should not be concerned that there will be diminished LED sources because of mergers and acquisitions at least in the near future.
“There’s been very minor consolidation that took place in Asia,” said Barlow. “There is an opportunity for consolidation long-term, but not in the short term.”
However, while there may not be a lot of consolidation, some LED companies may engage in joint ventures. For instance, earlier this year Cree announced a joint venture with San’an Optoelectronics Co., Ltd of China. The two companies plan to manufacture high-performance, mid-power lighting class LED packaged products for markets in North and South America, Europe, Japan and China.