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MacqTech Thematic
LED – Ride the lighting wave
Event
In this edition of our MacqTech Thematic, we attempt to dig down to properly
segment the LED lighting market given strong interest in overall LED general
lighting theme. We focus in particular on advantages of 1) commercial over
residential lighting, 2) high power LED over medium/low power, and 3) LED
fixtures over bulb as key differentiating factors in our view for industry players.
Impact – three key medium-term trends
Commercial over residential lighting. While the market’s focus has been on
residential lighting, commercial/industrial lighting likely offers better near/midterm
upside, in our view. Higher upfront LED costs are less an issue for these
segments given greater emphasis on total cost of ownership and a shorter
payback period (~1 year) due to higher daily usage. In a recent OSRAM
commercial lighting study, 73% surveyed are now using (62%) or planning to
use (11%) LED lighting. By contrast, the payback period is still too long for
residential (~4.3 years), and cost continues to be an inhibitor in near/mid term.
High power over low/med. We prefer high power LED lighting over low/med
power due to higher margin (chip: 40–50+% vs 30–40+%) and entry barriers.
High power requires larger and brighter chips (eg, 1W), and is technologically
more complex at both chip and package levels (higher brightness and heat
requirements, system know-how). Outdoor lighting uses high power while
indoor lighting uses both high and low/med power solutions. In the near term,
China and backlight players could transition to low/med power first, creating
more competition in the low/medium lighting segment relative to high power.
Fixtures over lamps. While the market largely focuses on LED lamps, the
lighting fixture (luminaire) market has much greater potential for growth, in our
view. Lamps refer to the actual light source (ie, light bulbs) while a fixture is
the entire lighting device (lamp, reflector, electrical ballast, power supply,
etc.). Cree Inc. sees the overall lighting market reaching ~US$108bn by 2012
with 60% as fixtures and 40% as lamps. The lighting market is relatively
fragmented, and Acuity Brands estimates that while the top four brands
account for ~50% of the North America market, the other 50% is shared
among several hundred other players, creating opportunity for Tier 1 versus
white box brands, in our view (just like LCD TVs).
Outlook
Sector view – prefer high power packagers, cautious on chips. Within
packaging, we prefer high-power plays such as Seoul Semi over conventional
LED backlight packagers. High-power is more complex than backlights, and
lighting needs strong distribution channels, favouring experienced players like
SSC. Edison Opto (3591 TT, NR) is another high power packaging play in
Taiwan, focusing on the whitebox lighting segment via modulization.
We are more cautious on pure play LED chip makers such as Epistar and LG
Innotek due to 1) LED TV premium to fall in 2011, leading to industry-wide
cost-down focus, and 2) for Taiwanese, rising in-house LED of panel makers
will likely limit backlighting to second-source status. While the market is
hopeful about potential Chinese lighting orders, we note some of this is
low/med power, which is lower margin than LED TV per our checks. GPI
(3383 TT, NR) is a Taiwanese chip maker that is exposed to high-end TV chip
models and China’s outdoor display market, and intends to target lighting
markets in China (B2G) and Japan (B2B).
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