A Niche Product Now Coming of Age

Once considered a niche product sold to government and corporate buyers with cash to spare, the light-emitting diode (LED) light is rapidly becoming a mass-market item as prices fall and brightness increases. The longer life and reduced power consumption of LED lights, compared with tungsten and even fluorescent bulbs, are also piqueing consumer interest.

This is good news for lighting manufacturers in Taiwan. With profits on their traditional tungsten or fluorescent lamps stagnant or falling, lighting makers are betting on LED lamps to raise margins and stay competitive. Once LED lights enter the home-lighting market, profits could be considerable.

According to T.S. Lin, a market researcher with the Industrial Economic and Knowledge (IEK) Center of the government-backed Industrial Technology Research Institute (ITRI), LED production reached US$3.8 billion worldwide last year. "The market could reach US$17.5 billion if more lighting applications are developed. But the reality is that sales of lighting-use LEDs now amount to only about US$85 million annually. If the potential of this market is to be realized, LED suppliers will have to cut their product costs," he states.

Even though prices for leading-edge diodes have dropped considerably, they remain costly for general-lighting use. Holders of crucial LED technologies, such as Nichia Chemical of Japan, have contributed to the high cost of LEDs through the cautious licensing of the technologies, which are critical for making the ultra-bright white-light diodes used for lighting applications.

Green Light for LEDs

Leotek Electronics Corp. has been making LED traffic-light systems since it was established around 10 years ago. Today, this company is the world's third-largest supplier of LED traffic lights to the U.S., which boasts the largest number of LED traffic lights in the world.

According to company president Wu Chen-ho, LED traffic lights are made with mature diode technology, but Leotek has added several patented design innovations that have helped it tap the American market. These innovations include extending the distance from which their light is visible and developing systems that can operate in temperatures ranging from minus 40 degrees to plus 70 degrees centigrade. The lights are also easy to install.

Wu says that the LED traffic-lighting market is huge. Although he declines to release his company's revenue, local industry insiders estimate its 2003 revenue at NT$1 billion (US$29 million at US$1:NT$34), an increase from last year's NT$700 million (US$20.5 million).

LED traffic lights are appealing, says Wu, for their lower power consumption and durability. The U.S., he says, has replaced 20% of its tungsten traffic lights with LED lights and is speeding up the rate of replacement. The U.S. market alone contributes 90% of Leotek's revenue and represents 85% to 90% of total use globally of LED traffic-light systems, according to Wu. With the huge portion of non-LED lights likely to be replaced with LED lights, Wu estimates his company's annual sales in the U.S. will rise around 50% within three years. His company began selling the lights in the U.S. three years ago.

Compared to the U.S., Europe has been slower to embrace LED traffic lights due to the lack of unified specifications for traffic-light systems across the European Union (EU). To date, Europe has replaced only 10% of its traffic lights with LED versions, Wu estimates. Mainland China, he notes, is another potential market for the lights as many local governments there are pushing power-conservation programs.

Wu is skeptical about optimistic forecasts that white-light LEDs will soon be applied to daily lighting purposes, although he is confident that one day they will become a major lighting source. In his judgment, there is still a "long road to go."

Among the hurdles that could delay the arrival of mass-market LED lighting is the high cost and technological bottlenecks facing production and use of such products. Gains in traditional lighting sources are also narrowing the function and power advantages of LED lights over tungsten and fluorescent bulbs. According to Wu, manufacturers already make diodes that give off 25 lumens of light per watt and laboratories have developed 50-lumen varieties. "But all of these products and technologies fall far short of the minimum requirement of 120 lumens per watt per diode for daily lighting purposes," he says. The 120-lumen goal, he says, will be reached in 2015 according to most predictions.

Wu, who earned a doctorate in the United States, began work on an LED-related program at Hewlett-Packard (HP) in 1973, making him one of only a few people of Chinese descent to work on LED technology in the earliest stages. He suggests that Taiwanese manufacturers not necessarily count solely on leading-edge LED technology: "Instead, they can develop suitable applications from selected mature LED technologies," he says.

Linear Lights

Over the last four years, Lei Yueh Enterprise Co., Ltd. Has carved out a market niche in LED linear lights for decoration, security and indication purposes. It has won at least 90 patents in seven countries for such lights.

According to general manager David Lin, Lei Yueh invented incandescent belt lights and rope lights and is the exclusive Taiwanese supplier of LED linear lights, which his company calls "Micro LED Light Strip". He says LED linear lights command higher margins than incandescent models.

Lei Yueh entered the LED lighting-product market 12 years ago with the rollout of its LED English-lettering displays. However, it stopped production shortly thereafter due chiefly to the high rate of bulb burnout, which he attributes to immature chip-packaging techniques. "Over the years, the defect-free ratio at packaging factories has risen to an average of 99%," he states.

Lei Yueh says it has increased the luminosity of its LED linear lights by 15% this year. Although the brightness remains far short of the level delivered by compact fluorescent lamps or other power-miserly lamps better known to consumers, Lin expects the gap to evaporate completely in five to 10 years. "The market for white-light LED lights will not take off until then, so we will not jump into this market before it is mature," he says.

Compared with many other suppliers of LED linear lights, Lie Yueh has several advantages, including its investments in an LED epitaxy wafer factory and a packaging factory, says Lin. "These facilities allow us to develop diodes specifically for use in linear lighting systems, making our products much more workable than those of others," he says. Engineers at the wafer factory and the packaging factory co-build diodes with chip-on-board methodology for his company, significantly shrinking the size of the diodes so that each line can contain more diodes.

The company has also been improving the quality of the PVC lines that wrap the diodes to make them more transparent and toxic-free. One way it has done this is by replacing lead with zinc as the material for inducing transparency and flexibility in the PVC material. Lead, Lin says, gives off toxic smoke when it is burned whereas minor amounts of zinc are toxic-free.

The PVC plastic material Lei Yueh chooses for its lighting lines are just below medical-use quality and can endure a wide range of temperatures from minus 40 degrees to plus 70 degrees centigrade. Recently, the company developed LED security lighting for use in the vests of security personnel. The patented light has a hard PC cover to protect the LED lamps from damage by fire, shock and explosion.

Although Lei Yueh can produce eight-ampere LED linear lights with a maximum length of 1.2 kilometers, it only supplies products ranging from 50 to 100 meters.

Most of the company's LED lights are exported to Europe. Such products now represent around 20% of the company's total revenue, with the remainder made up by rope lights and belt lights. Lin explains that European buyers are more inclined to accept costly LED linear lighting systems than American buyers, which put a premium on price in purchasing decisions. Most of Lei Yueh's rope lights and belt lights are shipped to the United States.

Lin says that orders for his company's LED lighting products have increased since beginning of second half this year and estimates that revenue from this business will double next year. Over the past five years, his company has grown steadily thanks to its focus on the enterprise market rather than the end-user market, he says.

Sign of the Times

Gen-Home Technology Co., Ltd.'s niche products in the LED-lighting market are signboards and displays incorporating microcontrollers, in which the company has specialized since its founding seven years ago.

"LED displays and signboards are low voltage items that generate only moderate heat after a long period of operation run and can be easily controlled by programs," explains Gene Chen, the company's general manager.

Chen's company is now promoting a 16 x 16 LED matrix signboard on which LEDs are capped with golf ball-sized plastic cases capable of resisting ultraviolet radiation. The frosted cases enlarge the LED dots and make the words or patterns appear bigger than they actually are. This design has been patented in Taiwan, mainland China and the United States. According to Chen, the 80cm x 80cm board is very competitive against boards at the same size offered by other suppliers. "If our rivals want to supply a board of this size, they have to mount many more diodes in order to make the board words and patterns as big as ours," he says. His company's standard board is priced at around NT$70,000 (US$2,058), positioning them for the small and medium business market.

Currently, LED lighting accounts for 40% of Gen-Home's revenue, with micro controllers making up the rest.

Household Market

Taiwan Lonsai Technology Lighting Co., Ltd. Has recently expanded its LED lighting line from reflector lamps to LED wall lamps and LED belt lamps. The company entered the LED lighting sector two years ago from the decoration-lamp field to stay ahead of mainland Chinese competitors, according to company general manager Huang Yaofeng.

"LED lights require higher-end technique to make than do most of traditional lamps," Huang emphasizes. "So, LED lighting products are more profitable. Also, there is a lot of room for this market to grow due to the many different applications of LED lights."

Huang says his company will focus on the household markets, which he thinks bigger players tend to overlook because of the small volume. He suggests that small companies underscore the innovations and functions of their products and stay away from markets that already have standard specifications.

Boosting Lumens

Leadtech Electronics was founded in 1977 as a manufacturer of LED digital displays for heavy-duty equipment, such as aircraft and armored vehicles. In recent years, the company has diversified into the production of LED lamps for various appliances, such as personal computers, personal digital assistants (PDAs), household appliances and information appliances.

Since it joined the Semiconductor Lighting Industrial Association last year, Leadtech has begun developing diodes for daily lighting applications. At the Oct. 9-13 Taitronics-Component & Equipment trade show, the company showed off an LED flashlight and an LED desktop lamp. The handheld lamp is equipped with six 10-lumen diodes, while the desktop lamp is bundled with 40-some 10-lumen diodes.

T.H. Liao, a Leadtech manger in charge of domestic sales, estimates that Taiwanese lighting manufacturers will develop high-bright white-light LEDs by the end of next year, when a locally developed 25-lumen diode is scheduled to be rolled out.

His company, an LED-chip packager and a member of the semiconductor-lighting association, is responsible for increasing the luminescence of LED lamps in the project within a year. "So far, our lamp gives off 10 lumens," Liao reports, suggesting that his company will have no difficulty achieving the project's goal on time.

Liao notes that chips, manufacturing process and packaging materials are closely associated with the brightness of an LED. "For our part, the mission is to locate encasing materials of good transparent quality," he says. So far, epoxy resin is still the mainstream material for the packaging although Japanese manufacturers have discovered some plastic materials that have good transparency.

He is optimistic about the future of the LED-lamp market, citing a U.S. study showing that electricity use could drop by 20% if all American families used LED lamps. In addition, a U.S. regulation requires that all neon lamps be phased out by 2006 based on environmental concerns. "LED lamps have many merits, including long life span, moderate heat generation, non-blinking, and brightness," he says. LED lamps, Liao adds, can last for at least 10,000 hours and function well in the rain.

As to the high cost of LED lights, Liao is confident that the benefits of LED lamps justify the price. He also notes that the cost of LED lights has fallen by about 10% a year over the past decade while the brightness has doubled in the same period. To drive home his point, he says his company retailed the flashlights demonstrated at the Taitronics show at about NT$200 (US$5.8 at US$1:NT$34) apiece. However, the desktop lamp still costs around some NT$1,000 (US$29.4) to make, according to Liao.

Still, Liao admits that LED lamps will only become popular as a lighting source until they become cost-competitive with traditional lamps. "Whether the prices will slump or not will depend on Nichia. If it still refuses to license its white-light LED technology, the prices will stay high," Liao notes. Currently, Nichia's white-light LED methodology, which enables blue chip to give off white light by coating it with yellow fluorescent powder, is the world's highest quality white-light LED technology.

Leadtech, according to Liao, will not begin to launch a high-profile promotion of its lighting-purpose LEDs until next year, when it projects to have a fuller range of products ready.

Diodes for consumer electronics and lighting fixtures will help boost the company's revenue by 30% next year from this year's projected NT$1 billion (US$29.4 million). This year, consumer-electronics diodes alone will inject NT$300 million (US$8.8 million) into the projected revenue.

As a maker of LED digital displays for sophisticated equipment, Leadtech is better positioned than most newcomers to develop LED lights for consumer electronics, says Liao. "We diversified into the consumer-electronics sector because it is a much bigger market than the industrial-equipment segment, though it may not be as profitable as the latter," he explains. Another factor is that industrial products usually take longer than consumer class products to develop before hitting the market, he says.