LED prices to fall despite strong demand
Staff -- Purchasing, 8/17/2004 2:00:00 AM
The market for high brightness light emitting diodes (LEDs) will grow from $2.5 billion in 2003 to $5.9 billion in 2008 driven by LED demand from automobile and cell phone manufacturers.
The good news for buyers is that prices will continue to fall. Prices dropped 10%-20% over the past 12 months and will decline at a similar percentage over the next year for most LEDs. The exception will be white LEDs. Tags for these devices will fall, but at a smaller rate of decline because there are fewer suppliers and less capacity than for blue, green and yellow LEDs.
Blue and white LEDs will drive much of the overall LED growth. The two colors are widely used in cell phones, which represent about half of the total LED market, according to Bob Steele, an analyst with LED researcher Strategies Unlimited.
Mobile phones are the biggest user for high brightness LEDs. More than 500 million cell phones shipped last year and the number will increase in 2004, says Steele. Besides cell phones, automobiles are a growing driver for blue and white LEDs, which are used in dashboard and interior lighting. Volkswagon models use blue LEDs for instrument panels while Mercedes, Audi and Honda models use white.
Cell phones use white LEDS for backlighting in liquid crystal display panels and blue to illuminate keypads. White LEDs are also used for flash in cell phones equipped with cameras.
Blue is being used in cell phones because it is "aesthetically pleasing," says Jovani Torres, regional U.S. product marketing manager for Agilent's optoelectronics division. "Demand for blue is more robust than what we expected. It has been helped by companies like Motorola, Nokia, Sony Ericsson and Samsung converting cell phones to blue LEDs and giving the phones away for free," he says.
"It's become a fashion trend. If you have a cell phone with the traditional green display, it's old fashion," says Torres.
Fashion aside, one reason that cell phone makers are using blue LEDs is the price. Tags for blue LEDs in cell phones, which use indium gallium nitride (InGan), cost about 8-9¢ cents. A year ago they were twice that price.
Buyers can expect a 10%-15% drop in LEDs made with aluminum indium gallium phosphide (AlInGap) and a 15%-20% drop in tags for LEDs that use indium gallium nitride (InGan). InGan produces blue and green LEDs while AlInGap produces red, orange and yellow LEDs.
Prices for larger LEDs used in outdoor signs are in the 30-40¢ range and will decline about 10% over the next year, according to Steele.
Prices will fall
One reason prices will continue to drop despite growing demand is more capacity is coming online. "The big story is Asia," says Steele. "There is a huge amount of capacity coming online in Taiwan, Korea and China. Where will all the capacity go? There could be overcapacity and manufacturers won't be able to sell all the parts."
In June prices seemed to have flattened out temporarily. "Over the last three months we have seen demand exceed supply for popular products such as blue," says Torres. "There has been a flattening of pricing and leadtimes have gone out from four weeks to six to eight weeks," he says. In some cases leadtimes have stretched to 10- plus weeks.
However, that trend will likely be short lived. Steele says over the next 12 months, prices will come down 10%-15% for low-end LEDs, and 10%-20% for LEDs used in keypads.
"Aluminum indium gallium phosphide (AlInGap) prices have hit rock bottom," says Torres. "Price erosion is about 10%-12% and we expect similar price trends in the next year as more manufacturers start playing in the LED market. InGan (blue and green LEDs) price erosion will be about 10%-20%."
For white LEDs the pricing picture is more clouded. "White LED prices have gone down a little, but are mostly holding because of Nichia," says Torres. "If there is a hint of a company infringing on Nichia's patent, Nichia goes after them," he says.
More competition
Nichia owns the markets and is aggressive in protecting its intellectual property. However, other manufacturers say they will license other white LED technology and produce parts. If new manufacturers are able to produce white LEDs in volume, tags will fall significantly. The best bet is that white LED tags will fall about 5% over the next 12 months.
Longer term, buyers can expect robust price drops for white LEDs because Nichia and other manufacturers will have to reduce the cost if they expect white LEDs to be used in applications that currently use incandescent and fluorescent technologies. White LEDs cost five or six times more than incandescents and fluorescents.
Torres notes that 10 years ago a 5 mm AlInGap chip cost about 75 cents. Today it costs about 10 cents and the same trend will happen with white LEDs.
"There is a huge potential for white LEDs," says Steele. Besides being used for backlighting for LCDs, white is used for architectural and theatrical lighting. But as the price declines, white LEDs will be used in headlights for cars and for interior and exterior lighting in homes and businesses.
"Right now they're too expensive. Their performance is better than incandescent, but not as good as fluorescent in terms of efficiency, which is measured in lumens per watt," says Steele.
He says the best commercial white LEDs average about 25 lumens per watt while fluorescent's rating would be 60-80 lumens per watt.
However, LEDs' efficiency will improve and eventually will replace other lighting technologies because they last much longer than other types of lighting. A white LED is rated at about 50,000 hours while a fluorescent is rated at about 10,000 hours and an incandescent at about 1,000 hours, says Steele.
Their long life makes them ideal in commercial buildings where lights may be on for 24 hours or where a light is in a hard-to-get-to spot in a building.
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