Prices fall as LED demand slows despite wider use

James Carbone -- Purchasing, 8/11/2005

Buyers can expect prices for high-brightness, light-emitting diodes (LEDs) to fall between 10-15% over the next year, despite their growing use in cell phones, automobiles, traffic signals, and outdoor lights.

While LEDs are being designed into more products, unit shipment growth of LEDs compared to 2004 is slipping, resulting in falling prices and a slower LED market. Last year, the LED market grew a hefty 37% to $3.7 billion in 2004, says market researcher Strategies Unlimited.

Much of that growth was driven by increasing use of white LEDs for backlighting in cell phones. However, cell phone growth is expected to cool in 2005. The market will grow about 3% to $3.81 billion.

"We are expecting a substantial slowdown in growth in 2005 because the mobile- phone market is maturing," says Robert Steele, director optoelectronics practice at Strategies Unlimited. "Last year we had 28% growth in handsets. This year we expect 10% growth. Use of white LEDs in backlights in cell phones is close to being saturated."

He says in 2003, 42% of cell phones used white LEDs backlighting. In 2005, 75% of cell phones use them. "They can't grow much more. It will grow to 85-90%."

However, cell phones will continue to be an important market for LED manufacturers.

"Nokia, Motorola and other cell phone makers have done an excellent job creating new features that people want," says Jovani Torres, regional product manager for Optoelectronics for LED manufacturer Agilent of Palo Alto, Calif.. While growth may be slower in 2005, LED demand from cell phone manufacturers will be healthy, he says.

The slowdown in demand and increased competition for market share by emerging Asian LED manufacturers will mean that LED tags will continue to fall in 2005 and beyond.

"LED prices have been falling continuously year over year, but the most price pressure is in the handset market," says Steele. "A number of companies in Asia are making chips for backlights for keypads. Tags have gotten beaten down."

Prices fell from about 6-7¢ at the beginning of 2004 to about 3-4¢ at the end of the year.

There is also price pressure on white LEDs for display backlighting. Japanese manufacturer Nichia had a stranglehold on the white LED market and prices came down slowly, says Steele. But Asian chip suppliers have jumped into the market, putting pressure on prices.

White LED tags fell about 20% to 30¢ in 2004.

Prices will continue to fall in 2005, but won't be as severe. Price declines should be 10-15%. "A lot of suppliers in Taiwan and China are getting into the LED marketplace and win business on price alone, says Torres."

"Price erosion is great because it will increase the adoption of LED technology," he says.

Prices falling is good news for electronics manufacturing services providers such as Solectron in Sunnyvale, Calif. Solectron will buy about $20 million of red, green, white, and blue LEDs this year. The components will be used in automobiles, set-top boxes, networking equipment and industrial controls that Solectron builds for OEMs.

Michelle Long, director of linear, logic and discretes purchasing at Solectron, says it is a buyer's market and she sees no price increases in the immediate future.

"We recently sent out request for quotations and no price increases came back," she says. "We aren't expecting any supply issues, which is good news," she says.

While LED demand in 2005 is weaker than previous years, it will rebound as more applications will use LEDs. Such applications include automobile headlamps and backlights for liquid crystal displays televisions. LED manufacturers say eventually LEDs will also be used for general lighting in homes and businesses, replacing incandescent and fluorescent lighting.

Many of those emerging applications will use indium gallium nitride-based, white LEDs. In fact, white LEDs already make up about 50% of the overall market because of their use in backlighting applications in mobile phones, signs and some interior automobile applications.

Many manufacturers are excited about automobile headlamps as an application for LEDs. All automakers have an LED headlamp program, says Steele. Audi uses LEDs as daytime running lights on one of its most expensive models.

LED performance for headlamps though, is not where it needs to be, and the cost is too high. "There are thermal issues because headlights are right next to the engine compartment and it is a demanding environment," says Steele. Some car models may be using LEDs in headlamps by 2007.

The other big emerging application is backlights for LCD TVs. "LEDs will provide a better color range than cold cathode fluorescent," which are currently used in LCD TVs, says Steele. Red, green and blue LEDs are used for TV backlighting.

There are advantages to using LEDs in LCD TVs, says David Reid, chief sapphire product manager for Honeywell Electronic Materials. The company supplies sapphire substrates to LED manufacturers. LEDS used in LCD TVs are "bright and consistent and don't degrade over time," says Reid.

LED uses in LCD are larger, which means Honeywell and other substrate suppliers need to make larger substrates. "Instead of 2-in. diameter, they will move to 3 or 5 in.," says Reid.

He adds LCD TVs have the potential to be an important driver for LEDs. As prices come down, it could be a big market. It will pick up in 2008 or 2009.

Sony has introduced a couple of LCD TVs that use LEDs for backlighting and more manufacturers will follow suit.