Jun 24 2013
The transition to LED technology is shaking up the lighting industry. Existing players are struggling to compensate for traditional lighting's decline with LED lighting growth. LED's pure plays with the right application exposure are now showing meaningful growth, while others are struggling with muted demand in a competitive and fragmented supply chain. This report is a guide to the opportunities and threats that exist for each lighting sub-segment and each part of the value chain.
A ubiquitous and multi-faceted industry
LED lighting is potentially a $60bn industry with an expected CAGR of 45% to 2016. Replacement of incandescent, CFL and other lighting types is being driven not only by the high energy efficiency of LEDs, but also by other benefits such as improved robustness/lifetime, improved colour mix and wider form factor options versus traditional alternatives. However, it is a very fragmented market and each application has its own requirements, into which the key benefits and drawbacks of LED play very differently. Thus the rate of LED adoption and the predominant technologies used will differ greatly from application to application.
Supply chain shake-up ongoing
The long lifetime of LEDs will disrupt the lighting industry, undermining the established replacement market and shifting value toward fixtures and fittings. Meanwhile, LED's growth potential, combined with the environmental benefits, has attracted high levels of investment from both the investment community and governments globally. This has created a crowded competitive landscape with multiple competing technologies, over-capacity in some areas and margin pressure being felt throughout the supply chain. Broader end user adoption will alleviate some of these issues, but a wave of consolidation is needed to optimise manufacturing margins. Many technologies will inevitably be drawn up evolutionary dead ends, creating inherent risk to investing at this level.
We see risks particularly prevalent in the middle of the supply chain - the wafer, chip and module manufacturers, which bear competitive, technology, end market and supply chain risk. Thus for public market investors, we see the most obvious investment opportunities at the extremities of the supply chain. The shift in value to fixtures and fittings is likely to continue and companies that have focused on addressing niche markets where the benefits of LED play strongest should continue to grow strongly. At the other end of the supply chain, the two main suppliers of MOCVD equipment look the most reliable beneficiaries of a broad-based demand upswing, although the timing of such an event is hard to predict.
View the full report: http://www.edisoninvestmentresearch.com/research/sector/research/#a-10000
Source: http://www.edisoninvestmentresearch.com/