Taiwan and China Move to Brighten LED Lighting Market

Since about mid-2011 the LED lighting industry has been suffering from tepid demand, which the authorities in Taiwan and China are trying to counter with subsidies and incentive projects.

The LED, which used to be mainly used in computers, mobile phones and other electronic industries, has become a highly-touted source of illumination. Its widely publicized merit of being energy-efficient has drawn considerable investments from existing operators and newcomers. But excess investments, exasperated by declining international markets due to the languid U.S. and European economies, have made LED companies' survival tough in the second half of 2011. Some companies have seen their bottom-lines turn red while smaller ones have gone under.

The LED lighting sector remains a promising long-term prospect despite short-term turbulence, hence being prioritized for development in many areas like Taiwan and China.

　　

Taiwan's “Golden Decade” Plan
In Taiwan, the LED sector along with DRAM, TFT-LCD, and solar panel, are dubbed the four “slum” industries due to their recent sharp reversal in fortune. To the rescue comes Taiwan's official “Golden Decade” Plan, to be implemented starting in 2012, with a major subsidized project under the plan to replace all the 320,000 streetlights around the island in the following years, with a budget of NT$2.4 billion (about US$80 million).

Meanwhile, the Taiwan Cabinet will continue its “Green Technology Industry Promotion Plan” announced earlier in November 2011, under which the government plans to develop Taiwan as a major supplier of LED lighting and LED modules globally. So far and as part of such goal, the Bureau of Energy under the Ministry of Economic Affairs (MOEA) has completely replaced all the island's traffic lights with LED ones in September, making Taiwan the world's second nation with all LED traffic lights only second to Singapore. The next step is to ban all traditional mercury road lamps by 2018.

Also the MOEA convened a meeting in November presided by the Minister of Economic Affairs Shih Yen-hsiang, which gathered industry representatives including Everlight Electronics chairman Joseph Yeh, EPISTAR President Chou Chun-ming, as well as senior executives of Delta Electronics, Lextar, China Electronic Manufacturing Corp., LiteOn, Taiwan Lighting Fixture Export Association (TLFEA), and the Taiwan LED Street Light Industry Alliance.

　　

Minister Shih said that the MOEA will accelerate efforts to set up national LED lighting standards and protect intellectual properties of companies, as well as help companies establish cross-industry alliances to develop markets; but he denied requests by suppliers to subsidize LED lighting purchases for the inappropriateness to subsidize one single item.

Big Price Gap
According to the Bureau of Energy, around 15.31 million incandescent bulbs and 24.58 million so-called compact fluorescent bulbs are in use in Taiwan. To subsidize consumers to replace existing lamps with LED ones will cost the government significantly given the current price gap between LED bulb and conventional types, being around NT$200 or so.

The Bureau also said the government has budgeted NT$330 million (around US$11 million) to replace illumination equipment, of which NT$180 million, or around US$6 million, will be used to replace streetlights and the rest for some public buildings. The replacement projects will follow the ESCO (Energy Service Company) model, which has been practiced in foreign countries to guarantee energy-saving effect.

Everlight spokeman Liu Ban-yen said the company is very glad to see the government's determination to set up national standards for LED lighting as a requisite to develop the LED lighting industry; while Weng Tsung-chih, spokesman of Unity Opto Technology Co., said that the government is creating a favorable environment where each company can find a profitable niche. Such sentiment is reflected in the official statistics compiled by the Bureau of Energy: Taiwan's annual LED output remains on an uptrend since figures have been in 2008, with the output to hit a record high in 2011.

China's “12th Five-year National Plan”
China's LED lighting sector is also considered a major green technology industry in which many companies, however, are battling rough times due to the flickering international market and severe competition. News of company shutdowns were regularly reported in the Pearl River and the Yangtze River Basin in the second half of 2011. In Shengzhen alone, around 80 LED lighting companies have filed for bankruptcy in 2011, and it's rumored the situation will worsen in 2012.

In China, LED lighting companies have proliferated over the past few years on market optimism, with most companies being small and lacking international competitiveness, hence making them very vulnerable to market fluctuations. Sizable reductions in orders often drive them under, which is exasperated by reckless underselling among themselves to further undermine profitability.

LED lighting, however, is an industry marked for priority development under the 12th Five-year National Development Plan announced by the Beijing government, as well as one to support national industrial upgrading and help move China toward green-consciousness. The Beijing government has announced projects to boost domestic demand, especially critical when the international market is struggling.

The Topology Research Institute (TRi) estimates that China's annual LED output will jump to 500 billion RMB in 2015 from 125 billion RMB in 2010, with an annual compound growth rate of 32%. David Li, president of TRi's Shanghai Office, said: “China's LED industrial supply chain has been a rough model during last five-year plan, and has to grow rapidly based on the current 12th five-year plan.”

Earlier in November, China's National Development and Reform Commission (NDRC) announced the “Incandescent Bulb Replacement Project” to replace incandescent bulbs with LED ones in China with a five-year phase-out approach starting from Oct. 2012.

　　

The LEDinside's report of street-lighting in China titled “2011-2012 China's LED Lighting Market Scale and Development” shows that China has replaced 150,000-200,000 units of street lamps as of the end of July 2011 under the “Two Million LED Street Lamps for 50 Cities” plan scheduled for 2010 to 2012. The project will be accelerated in 2012 to boost deployment.

　　

China actually started to replace street lamps in 2009 in a plan to replace one million street lamps in 21 cities, having replaced by the end of July only 20% of the targeted number due to technical problems.

　　

LEDinsight estimates that the global lighting market (LED and traditional) reached US$79.3 billion in 2010, of which the U.S. and European markets accounted for 50% and China around 15.4%. While the U.S. and European markets slow, China could soon become a major lighting market especially driven by governmental policies.

Price Trend
In December, Korean Sumsung and LG groups both announced plans to introduce 60W LED bulbs at a targeted price between US$10-US$12 per unit in the second half of 2012, a low-price strategy that is commonly considered a big threat to the leadership held by Philips or Osram.

South Korea, under governmental plans, has cultivated the world's third LED crystal-growing group. Meanwhile, the Sumsung Group has acquired an LED epitaxial company to become the second Korean group, after LG, to have integrated LED lighting production, which will greatly help the Korean makers to produce lower-cost LED bulbs.

Earlier, the American LSG Group has just announced a faster introduction of the 60W LED bulb at a unit price of US$15 in 2012, which is higher than the US$10-12 offered by the Korean groups, with EPISTAR chairman Lee Ping-chieh predicting a wave of underselling. He further explained that an LED bulb lasts as long as three traditional energy-saving bulbs, so a US$10-12 (around NT$300 each) Korean-made LED bulb is more cost-effective than three traditional energy-saving bulbs which is now priced at NT$200 (around US$6.6) each. So the Korean low-price strategy will definitely help to drive popularity of LED lighting products.

　　

Surveys show that the prices of the LED bulbs to replace traditional 40W or 60W energy-saving bulbs have kept falling this year. According to LEDinsight, the lowest priced 40W LED bulbs used to be in Japan, but has been in South Korea since May.

Despite the current feeble market, LED lighting manufacturers' commitment to lowering prices will help to build popularity. Goldman Sacks predicts the global LED lighting market to see annual production of US$11 billion by 2015, with annual compound growth rate to exceed 30% by 2020 when the LED market penetration rate will have exceeded 50%.