Is the lighting party over? What’s next?

Wow.  Samsung is backing away from the lighting business, abandoning its nascent lamps effort (and presumably whatever strategies it had for luminaires) in favor of just producing LED components (which it needs to do for LCD production, anyway).

So it leads me to ask:  Is the solid-state party over?  Are the grand promises of radical disruption to the lighting business going to slowly fade away, leaving an industry merely “LEDified” without much else in terms of transformation?

No…but I see problems brewing that will restrict the innovation potential of the lighting market as a whole.

There are some major structural issues in the lighting business.  Upstream, the demand for LED components can be expected to be a brutal, high-volume & low-margin business, dominated by players such as Cree, Nichia, LG, Lumileds, Samsung, and an endless array of Taiwanese companies.  Downstream, the luminaires business is highly fragmented, low-volume, and controlled by established and inefficient sales channels; manufacturers remain willingly or forcibly isolated from the service opportunities in the market.  There are profits to be had here, but none of these businesses scale enough to attract major capital investments (not to mention frustrating customers to no end), plus it is generally in the interest of these “channels” to hinder the development of industry standards that are crucial for 2nd-level innovations (they want to control the “packaging” of lighting companies on projects).

The largest structural issue is the huge pressure that China’s massive-but-low-profit supply chain puts on any “innovative” market.  The solar photo-voltaic industry is the “poster child” of such “profitless prosperity”:  China’s solar producers have sucked out nearly any profit from the global production of solar panels, and are now $16b in debt.  Any sort of commodity product in the lighting industry faces similar ridiculous price pressure.

And at last week’s Strategies in Light Europe, presentations from Philip Smallwood (Strategies Unlimited) and Jed Dorsheimer (Canaccord Genuity) gave me the sinking feeling that in about 5 years, the lighting market is going to start a long, slow downward trend, as “socket saturation” of LED products starts to set in.  Basically, the durability of LED fixtures severely curtails the replacement market.  Even if manufacturers can grow in the new-construction and services business, if they have any exposure to the traditional replacement lamp market, it will be a “tough slog” in terms of managing that loss of revenue and keeping the stock price up.  That’s a tough place for the old-timers to be positioned on a quarter-to-quarter basis.

Innovation under such conditions is still possible; but will it be limited to ventures who are willing to tailor their products to support creative customers and manage channel profit margins by either cutting-out non-value add partners or working through them to snag some disruptive, distinctive methods for servicing customers.

R+D will continue outside of the industry; I see little incentive for any company in the lighting business to actually develop fundamental new technologies; they will continue to repackage primary innovations from other industries.  Hopefully, more academia will step up and start introducing some novel tech into lighting, but that is a stretch to imagine.