Research Report: LED Lighting

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Research Report: LED Lighting

Analyst: Martin Jackson

Table of Contents Figures ... 1 Introduction ... 2 Market ... 3 Legislation ... 6 Intellectual Property ... 7 Design Issues ... 8 Supply Chain ... 9 Opportunities ... 10 Disclaimer ... 13 Figures Figure 1 Haitz's Law (Source: Materials Research at Wisconsin-Madison)... 3

Figure 2 GaN LED Applications (IMS 2011) ... 4

Figure 3 Worldwide Lamp Market (Source: ELC/CELMA) ... 4

Figure 4 Worldwide Luminaire Market (Source ELC/CELMA) ... 4

Figure 5 60W Equivalent LED Bulb Prices (LEDinside, Jan 2012) ... 5

Figure 6 Lighting Legislation (Various Sources) ... 6

Figure 7 LED Intellectual Property (© WCPI, LED Lighting Company) ... 7

Figure 8 Typical Lamp Design Considerations ... 8

Figure 9 LED Supply Chain ... 9

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Introduction

According to the 2011 European Commission green paperi up to 50% of total electricity consumption in office buildings is used for lighting and the comparable figure for residential buildings is 10-12%. Overall, lighting represents a significant proportion of electricity usage and the worldwide drive to conserve energy and reduce CO2 emissions is driving the adoption of low energy lighting technologies.

In 2010 the global lighting industry was estimated to have revenues of $90B growing to $130B by 2020ii. In Europe alone the industry is estimated to have revenues of $25B and employ over 150,000 people (European Commission). The emerging markets such as India represent considerable opportunities for growth as they transition to electricity based lighting solutions.

The traditional incandescent lamp has been in production for over one hundred years and, although many value the quality of its light, its very low efficiency is becoming increasingly expensive for users. Consequently many countries have introduced phased legislation to ban incandescent lights and replace them with higher efficiency technologies such as fluorescent, LED (Light Emitting Diode) and OLED (Organic Light Emitting Diode).

LED lighting technology is attractive because of its high efficiency, long lifetime and the range of applications: backlighting for displays, automotive and general lighting.

In recent years there has been considerable investment in lighting technologies with a total estimated $800M of venture capital invested in 2008-2010. This does not count the considerable investments by established players such as Cree, Osram and Philips.

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Market

Demand in plentiful supply

The continued population growth and modernization of the world is increasing the worldwide demand for lighting. The lighting industry has been given further impetus by legislation of governments across the world to lower the carbon footprint, eliminate hazardous substances and increase energy efficiency; the timescales for action under this legislation is relatively short and this has driven the lighting industry to change and opened up opportunities to new players.

Historically the main lighting technologies have been incandescent and fluorescent technologies; in more recent times halogen technology has been popular and this has had its lifetime extended with the introduction of low energy technology. LED technology, the most recent entrant in lighting has seen considerable investment in recent years, as it is much more efficient than the alternatives and does not use hazardous substances such as mercury.

LEDs have long been used as indicators on equipment but more recently have found application in new areas as their efficiency has improved. In 2000 Haitz, working at Agilent, noted that LED light output approximately doubles every year, see Figure 1, and the progression of improvements has opened up new applications as the output increases and the cost decreases. An LED, provided the system considerations are heeded, is much more reliable and has a significantly longer lifetime than alternative technologies.

Figure 1 Haitz's Law (Source: Materials Research at Wisconsin-Madison)

Mobile phones, with their tight space constraints, were an early adopter of LED based LCD backlight technology and televisions are now supplanting CCFL backlights with LED ones as the LEDs enable thinner, more reliable televisions with better contrast ratios thanks to adaptive backlights; in the longer term it is likely that OLEDs will supplant LEDs in these two applications and although mobile applications are starting to adopt OLEDs the large form factor of televisions is still early in the learning curve.

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Figure 2 GaN LED Applications (IMS 2011)

Two other new application areas for LED lighting are automotive and general lighting. IMS Research predicts significant growth in general lighting, see Figure 2, over the next few years. In the general lighting field the alternative technologies will gradually be displaced by LED lighting. Over time the number of lamps required will fall, see Figure 3, since LED reliability will lengthen the replacement cycle considerably. The demand for luminaires (light fixtures) will continue to rise, see Figure 4, driven by new building and refurbishment cycles.

($M) Lamps Market World & Europe

Figure 3 Worldwide Lamp Market (Source: ELC/CELMA)

($M) Luminaires Market World & Europe

Figure 4 Worldwide Luminaires Market (Source ELC/CELMA)

0 5000 10000 15000 20000 25000

Lamps LED Europe Lamps All Europe Lamps LED Lamps All World

0 20000 40000 60000 80000

Lums LED Europe Lums All Europe Lums LED Lums Total

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© Woodside Capital Partners International Page 5 LED Lighting The overall market for LEDs is estimated to grow strongly with the lighting segment alone forecast to grow at a CAGR of 33% (Strategy in Light (US), Feb 2011) over the next three years.

There has been considerable investment across the LED supply chain in recent years, from LED production through to LED based lighting systems.

China is a major producer of LED technology and the Chinese government, in addition to closing incandescent factories, has subsidized LED production plants. SEMI (www.semi.org) reported that equipment spending on LED fabs in China alone increased from $606M in 2009 to $1.79B in 2010 estimating that GaN wafer capacity will increase by 300% to over 1.28M 2” equivalent wafers per month in 2012. 6” wafer production is now being installed as LED manufacturers have transitioned from 2” wafers through 4” in order to take advantage of the cost and production advantages of the larger wafers. SEMI estimates that worldwide equipment spending after a 36% increase in 2011 will decline by 18% to $1.8B in 2012, led by $719M investment in China. Overall 29 new LED fabs came online in 2011 with a further 16 expected in 2012, with Taiwan still accounting for 25% of worldwide LED capacity and China 22%. In 2011 solid state lighting revenues were $2.5B with a predicated growth to approximately $20B in 2020.

Established players such as GE, Philips, Osram, Nichia and Cree have made significant investments in LED technology. In addition, the venture capital industry has invested over $800M in the lighting industry from 2008-2010 (Source: Cleantech Group, Mar 2011) with the top funding recipients being Bridgelux, Luminus Devices, Lattice Power, Luxim and Lemnis Lighting; note that Luxim has developed “Light Emitting Plasma” technology, which is not LED based, for very high brightness industrial and commercial applications.

Overall the supply capability within the LED industry has risen faster than the demand and this has served to drive down LED prices; prices fell by an average of 16% alone in December 2011, see Figure 5.

Equivalent to 60W Standard Bulb

800-810lm, Warm White (US$) Dec. 2011

High Low Avg Change K-IM, Avg

Japan 39.8 38.6 39.2 -15% 48.4

Worldwide 47.9 18.9 33.5 -16% 41.6

Figure 5 60W Equivalent LED Bulb Prices (LEDinside, Jan 2012)

Although prices have declined rapidly they are still too high, compared to alternatives, for mass market adoption. The combination of the continued downward price trend, bulb lifetime, improvements in light power output and quality of light are required to bring true mass market adoption. Commercial applications have been shown to have a positive ROI now but mass residential applications are not expected to appear until 2015/2016.

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Legislation

Legislation is driving change in the general lighting market

Figure 6 Lighting Legislation (Various Sources)

Many countries, as shown in Figure 6, have a timetable for the phased banning of incandescent lamps, starting with the most inefficient, 100W or more, devices; uniquely Australia completely banned incandescent lamps from the end of 2010. The United States has Federal legislation to ban incandescent lights starting in 2012 although this date has already been pushed back once; some states within the union have a more aggressive timeline for the banning of incandescent lamps with California looking to ban incandescent lamps by 2018.

2010

2015

2020

EU

US

Japan

China

Russia

Korea

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Intellectual Property

Intellectual Property is already critical

Figure 7 LED Intellectual Property (©

Across the LED lighting value chain, from the basic LED through to luminaires, i The relationships between companies, as

in the ecosystem such as Nichia, Philips lighting and are actively licensing and

the space charging between 3% and 5% of net revenues unless the LED components are licensed from a qualified supplier.

The IP activity is across the entire LED lighting supply chain from

through to final luminaires. For instance white LEDs use a phosphor to convert between the LED’s blue light and the white light required. The phosphor can either be built into the LED or remote from the LED within the lamp housing; Cree has crucial patents i

other players in the market and is actively looking at companies that use a remote phosphor that have not licensed their technology.

In order to play successfully in this field new companies will need to take licenses and one way to reduce the cost of these licenses is to ensure that they have developed tradable intellectual property.

many opportunities to develop such IP because innovation is required acros

materials and components but also in areas such as the challenges of integrating a LED light into existing infrastructure and developing LED based luminaires where the unique properties of LEDs can be exploited. For example, US based Bridgelux, a relatively new player in lighting has over 100 patents and patent application filed in the US in the field of LED manufacture and design

tal Partners International Page 7

Intellectual Property is already critical

LED Intellectual Property (©Woodside Capital Partners International, LED Lighting Company)

Across the LED lighting value chain, from the basic LED through to luminaires, intellectual property is key. The relationships between companies, as exemplified in Figure 7, are already complicated. Key companies Philips, Osram and Cree have significant patents in the field of LED licensing and enforcing them. Indeed Philips claim to own 70% of the patents in the space charging between 3% and 5% of net revenues unless the LED components are licensed from a

The IP activity is across the entire LED lighting supply chain from Nichia, a key LED manufacturer, For instance white LEDs use a phosphor to convert between the LED’s blue light and the white light required. The phosphor can either be built into the LED or remote from the LED has crucial patents in the field of remote phosphors that it has licensed to other players in the market and is actively looking at companies that use a remote phosphor that have not

this field new companies will need to take licenses and one way to reduce the cost of these licenses is to ensure that they have developed tradable intellectual property.

many opportunities to develop such IP because innovation is required across the value chain: not just in materials and components but also in areas such as the challenges of integrating a LED light into existing infrastructure and developing LED based luminaires where the unique properties of LEDs can be exploited.

a relatively new player in lighting has over 100 patents and patent in the field of LED manufacture and design.

LED Lighting LED Lighting Company)

ntellectual property is key. , are already complicated. Key companies have significant patents in the field of LED claim to own 70% of the patents in the space charging between 3% and 5% of net revenues unless the LED components are licensed from a

, a key LED manufacturer, For instance white LEDs use a phosphor to convert between the LED’s blue light and the white light required. The phosphor can either be built into the LED or remote from the LED n the field of remote phosphors that it has licensed to other players in the market and is actively looking at companies that use a remote phosphor that have not

this field new companies will need to take licenses and one way to reduce the cost of these licenses is to ensure that they have developed tradable intellectual property. There are s the value chain: not just in materials and components but also in areas such as the challenges of integrating a LED light into existing infrastructure and developing LED based luminaires where the unique properties of LEDs can be exploited. a relatively new player in lighting has over 100 patents and patent

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Design Issues

Design issues are an opportunity

The design of a lighting solution is a multi-disciplinary problem whether for a lamp that has to be compatible with an existing socket (Incandescent, CFL, Halogen) or for a new luminaire. Figure 8 shows some of the design issues that have to be addressed in the design of a lamp replacement.

Figure 8 Typical Lamp Design Considerations

In the lamp replacement market LED lamps must conform to the existing constraints whilst not introducing new issues:

• Dimming – existing infrastructure uses a variety of dimming circuits that provide some challenges for LED based solutions.

• EMI issues – for efficiency LED drivers typically use switching inverters to convert between the input voltage and the current required by the LED. The currents can be high so there is the potential to generate electromagnetic interference (EMI).

• Heat – although LED lamps are significantly more efficient than conventional solutions the lamp still generates heat. The LEDs themselves need to be managed carefully to avoid exceeding critical junction temperatures so cooling is critical – the heatsink is typically a significant proportion of the lamp cost. Heat is also the enemy of other components such as electrolytic capacitors that can dry out and cause reliability issues.

• Power factor – incandescent and halogen lamps are essentially resistive elements but LED lamp drivers can look capacitive so that power factor correction is required.

• Phosphor – white lamps use blue LEDs to drive a phosphor that generates white light. The phosphor can be within the LED or remote from it. Conventional phosphors can be used but there are also companies such as Nanoco (UK) developing quantum dot based materials.

• Optics – LEDs emit over a relatively narrow solid angle compared to existing technologies.

Similar issues arise with the design of luminaires although the increased reliability presents new design opportunities. Overall there is considerable scope for innovation in the design of LED based solutions.

Lamp

Heat Power Factor Dimming Phosphor Optics EMI Issues

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Supply Chain

Size matters

Figure 9 shows a partial view of the LED supply chain in Taiwan, the leading producer of LEDs,

2,200 manufacturers of LEDs, packages and luminaires in China. In addition, according to Strategy Analytics, China consumes 46% of high brightness LEDs in 2009 with the USA at 30% and Europe at 17%. LEDs not only offer significant user bene

manufacturing benefits: the process innovation in the semiconductor industry that has driven Moore’s law for transistors can be applied to LED manufacturing, improving devices whilst driving

major players in the industry, such as

wafers; a line making this move approximately doubles production capacity. This level of manufacturing innovation has not been possible in the lighting industry before and requires significant capital expenditure. As with the semiconductor industry it is likely that only the gorillas of the industry will be successful. China, as evidenced elsewhere in this note, is investing heavily in this space, subsidized by the government; undoubtedly several large players will

companies.

tal Partners International Page 9

Figure 9 LED Supply Chain

LED supply chain – there are many more players than this, especially ding producer of LEDs, and China: The Climate Group estimates that

2,200 manufacturers of LEDs, packages and luminaires in China. In addition, according to Strategy Analytics, China consumes 46% of high brightness LEDs in 2009 with the USA at 30% and Europe at 17%. LEDs not only offer significant user benefits but also, for those who can afford the capital expenditure, manufacturing benefits: the process innovation in the semiconductor industry that has driven Moore’s law for transistors can be applied to LED manufacturing, improving devices whilst driving

major players in the industry, such as Philips and Osram, have already made the move from 4” to 6” wafers; a line making this move approximately doubles production capacity. This level of manufacturing innovation has not been possible in the lighting industry before and requires significant capital As with the semiconductor industry it is likely that only the gorillas of the industry will be successful. China, as evidenced elsewhere in this note, is investing heavily in this space, subsidized by the government; undoubtedly several large players will emerge to compete with the established Western

LED Lighting there are many more players than this, especially The Climate Group estimates that there are over 2,200 manufacturers of LEDs, packages and luminaires in China. In addition, according to Strategy Analytics, China consumes 46% of high brightness LEDs in 2009 with the USA at 30% and Europe at 17%.

fits but also, for those who can afford the capital expenditure, manufacturing benefits: the process innovation in the semiconductor industry that has driven Moore’s law for transistors can be applied to LED manufacturing, improving devices whilst driving down the cost. The , have already made the move from 4” to 6” wafers; a line making this move approximately doubles production capacity. This level of manufacturing innovation has not been possible in the lighting industry before and requires significant capital As with the semiconductor industry it is likely that only the gorillas of the industry will be successful. China, as evidenced elsewhere in this note, is investing heavily in this space, subsidized by the emerge to compete with the established Western

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Opportunities

Despite the massive capital investments required to be successful in LED lighting there are still opportunities across the supply chain. Companies may be able to carve out niches for themselves or develop IP that is attractive to the large players and be acquired as Lumileds was by Philips in 2005. Within each stage of the supply chain there is potential, for example:

• Materials: Phosphors, for example, are a key component of LED lights and the ability to tune the spectrum of a light to match, say, the sun is critical. Presently many phosphors use heavy metals, such as Cadmium, in small quantities and have escaped governmental bans on hazardous substances; over time it is possible that these may need to be removed. Some companies, such as Nanoco (UK) and QD Vision (US), are pursuing the development of quantum dot based materials to replace phosphors; quantum dots have the advantage of higher efficiency and a better color gamut but have to be proven to be low cost in high volume.

• Drivers: Improving the efficiency and meeting the constraints of LED lamp design provide an opportunity for improving driver design. Reducing the component count and eliminating unreliable components such as electrolytic capacitors are immediate opportunities but in the medium term there are opportunities to provide higher integration using some of the advanced transistor technologies. In the longer term drivers can provide the ability to control and monitor LEDs can be built in to the driver that can couple into lighting control systems.

Many mainstream analog semiconductors company such as Texas Instruments, Fairchild, Infineon and STMicroelectronics are pursuing this opportunity. A number of interesting startups such as iWatt, Ikon and CamSemi are also finding ways to innovate in integrated drivers. There are also opportunities for more efficient discrete devices at higher power levels for larger systems. LED ballasts, etc: here we expect Superjunction MOSFET providers such as Infineon, Fuji Electric, and IceMos to participate.

• LEDs: High lumen output LEDs with better color characteristics are required to be able to truly replace some of the higher power incandescent lamps.

• Packages: The lighting industry has developed standardized form factors for their products that have lasted for decades. Presently there is no standardization for LED packages, which is a potential problem, but recently (2010) the Zhaga consortium was founded to standardize the interfaces around LED light engines system and has already attracted over 170 companies including the industry majors. Established players can benefit from standardization since they already have a position in the market and newer entrants won’t be able to differentiate themselves. However in the long term this standardization provides an opportunity for innovative companies to enter the supply chain without having to design a complete system.

• Luminaires: LEDs themselves have significantly longer lifetimes than conventional devices, are available in many colors, have much lower power and are easily controlled. These new characteristics can remove constraints from existing luminaire design and allow them to be rethought.

• Control systems: LEDs are easily controlled and available in many colors. Although building wiring has traditionally been AC based there are opportunities to use LEDs with DC based schemes with built-in communication which can be used to build more reliable, better controlled and fully monitored systems.

There are numerous companies operating within the LED value chain. Some, such as Philips, span practically the entire space whilst others, Intematix, concentrate on a small part.

Figure 10, below, shows a sample of the companies operating in the space but it should be noted that it is incomplete, in particular there are many Asian companies operating in the sector that are not listed. Future notes will look at the opportunities in these areas in more detail.

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Sector Company Notes

Lighting Companies

General Electric Lighting Philips

Osram Zumtobel

In general the lighting companies operate across almost all of the lighting value chain and are public companies. Osram is an exception as it is a subidiary of Siemens although it is expected to be spun off at some point. Equipment Manufacturers Aixtron Applied Materials ASM International Halma Novellus Systems Suss MicroTec Towa Veeco Instruments

The equipment suppliers have done well in recent years as the industry has invested in capacity. Upgrades are coming, which is also good news, as companies strive to increase capacity further by investing in larger wafer sizes. Wafers

Crystal Applied Technology Crystal Wise

CrystalOn Iljin Display Lanjing Science & Technique

Monocrystal Rubicon

Sapphire, SiC and GaN wafers are all used as substrates for LEDs although there are some companies looking to use silicon. Silicon is attractive because of its price and performance. Phosphor Intematix Lorad Chemical Merck Chemicals Mitsubishi Chemical Nanoco Phosphor Technology QD Vision

For white lighting the industry typically uses blue LEDs with either a local or remote phosphor to convert the blue light to white. Phosphors usually use rare earth based materials although quantum dot technology is being developed by some companies to elminate these materials. Within the lighting market there is also an opportunity for color LEDs for 'mood' lighting.

LED Manufacturer Cree Everlight LG Innotek Nichia Osram Opto Semiconductors Philips Lumileds Samsung LED Seoul Semiconductor Sharp Toyada Gosei

There are countless companies supplying LEDs to the industry between them

companies in China and Taiwan supply over half the market.

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Figure 10 Sample Companies in the LED Value Chain Packaged LED IPLED Vexica Xicato

Although the replacement bulb market is big in the longer term luminaries designed for LEDs, rather than incandescents, are

appealing since they can be designed to use the LED advantages. LED modules are an attractive way to target this.

LED driver

Bright LED Electronics Cambridge Semiconductor Cypress Semiconductor Diodes Fairchild Ikon Semiconductor Infineon Technologies International Rectifier iWatt Light-Based Technologies Linear Technology Macroblock Maxim Microsemi

Monolithic Power Systems NXP Semiconductors ON Semiconductors Power Integrations Richtek Technology STMicroelectronics Texas Instruments

The reliability, efficiency, compatibility and features of LED lighting is driven in a large degree by the driver ICs: Driver circuits that can eliminate electrolytics will be more reliable. Temperature, and hence efficiency, is critical to LEDs. For replacement lamps compatibility with existing infrastructure such as voltage standards, dimming, is key to early adoption. Adding features such as monitoring and communication will be important as the market moves to replacement luminaires.

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i

2011 European Commission green paper “Lighting the future- accelerating the deployment of innovative

lighting technologies”

ii