Overcapacity and stiff competition among suppliers will result in a 10–15% annual price drop for light emitting diodes (LEDs) over the next several years, although price erosion will be less for higher-end white LEDs.

However, despite price erosion, strong unit demand will result in the global LED market doubling from $4.2 billion in 2006 to $9.4 billion in 2009, according to researcher Strategies Unlimited in Mountain View, Calif.

"LED market growth is cooling down compared to the 40–45% growth of a few years ago," says Bob Steele, director optoelectronics practice for Strategies Unlimited. He says the mobile phone market, which accounts for about 57% of global LED revenue, has "beaten down prices" resulting in slower LED market growth.

He says blue LEDs, commonly used as backlights for cell phones, cost about 10¢ each about four years ago. Today, they cost about 3¢.

Buyers can expect LED prices to continue to fall, but not at the same rate, according to Steele. "Price erosion is starting to level off on the lower end because suppliers aren't making any money," he says. "Some years there had been 30–50% per year price erosion. Those years are over. There may be 5–10% erosion annually from now on," he says.

High-power white LEDs made by suppliers such as Lumileds, Osram, Cree and Nichia are more profitable and there will be less price erosion for those devices than for low-end red, green and blue LEDs. The average price for a high-power white LED in the U.S. and Europe is in the $2–3 range although the price is less in Taiwan, says Steele.

Demand continues to grow for light-emitting diodes as prices decrease.

LED headlamps consume less power and typically will last for the lifetime of the car, but automobile designers use them for the styling, according to Steele.

LEDs will also be used increasingly in general illumination applications in homes and businesses. In addition, some governments are starting to set deadlines for replacing incandescents with more energy efficient lights in new buildings.

"The incandescent fixtures are cheap, but they use a lot of energy," says Janie Hanie, product marketing director for Optek Technology, an LED manufacturer in Carrolton, Texas.

"There is a push to go to fluorescent because it is more efficient, but it has mercury which is hazardous to the environment," says Hanie. "LEDs are seen as more environmentally friendly."

However, they also cost a lot more than incandescents and fluorescents. For example, a recessed-ceiling down-light incandescent bulb costs about $3–5. A similar compact fluorescent light would cost about $7–8, according to Steele. A comparable LED light for the fixture would cost in the $70–80 range, says Steele. But the LED version will be more efficient. Incandescents produce 10 lumens per watt in that application; compact fluorescent, 50 lumens per watt and LEDs are 60 lumens per watt hour.

The lifetime of an incandescent is about 2,000 hours for the incandescent, 10,000 hours for the fluorescent and 50,000 hours for the LED. "But there is still a big price gap. That will shrink over time and performance will get much better," says Steele.

While pricing is a key trend with LEDs, it is not the only one. Increasing efficiency and getting more light output with LEDs is a continuing goal for LED manufacturers. Some LED makers are doing so by using thin-film technology. For example, a gallium nitride blue LED often has a sapphire substrate, says Steele.

"With a sapphire substrate, a lot of light is lost because it bounces around in the substrate," he says. "If you remove the sapphire and replace it with an opaque substrate and a reflective layer between the gallium nitride device and the substrate, the light is reflected upward and you basically get a doubling of light output."

Another issue with high-power LEDs is heat. "Older LEDs never generated heat and they were used because of that," says Richard Saffa, vice president of visible LED business unit for Optek. "An LED on a radio was better than a miniature light bulb because there was little heat."

But high-power LEDs used in equipment have a drive current of 150 amps and heat is generated. "And the heat doesn't come out of the lens like an incandescent bulb. It comes out of the leads or the backside and it needs to be dissipated out into the ambient," he says. If heat isn't dissipated it could result in the part failing.

In many cases, LEDs have to be designed with heat sinks, heat pipes or cooling fans.

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