Take Lumileds, a former division of Hewlett-Packard that's becoming a major supplier of the next-generation lighting components. Its LEDs will light up the, a 46-inch liquid crystal display television due out from Sony this spring. Samsung Electronics, the biggest maker of LCD panels, will use LEDs in future displays. And this summer, LED-based portable projectors small enough to fit in the palm of your hand will be released by Mitsubishi.
"LEDs are a genuine improvement, and you can always charge more for that, which is especially useful in markets with rapidly declining prices," said Bob O'Donnell, vice president of research at IDC. He added that despite heftier price tags and dimensions, LED-based TVs offer picture quality that consumers will find hard to ignore.
Light-emitting diodes have become bright enough for use in flat-panel TVs and other consumer electronics.
LEDs could give a significant boost to brand name consumer electronics makers struggling against rapidly deteriorating margins. But how much will consumers pay for the bright lights?
LEDs, chips that light up when a charge is applied to them, last up to 10 years longer than current lighting systems and use less power. In addition, they don't contain mercury, which makes them environmentally friendly.The $3.7 billion LED industry is made up of several markets--mobile appliances, automotive, traffic lights and more. Mobile appliances, mainly handsets, represent 58 percent of the total market. However, with market saturation in handsets, LED makers such as Lumileds and competitors Cree, Nichia and Osram are eyeing the electronics business.
Established industry players such as Sony and Royal Philips Electronics have been feeling the heat as unknown Asian manufacturers enter the U.S. market and gain share by cutting costs. What's one way to combat the effects of falling margins? Build products competitors can't make, and charge a premium for them, at least for a while.
The Sony Qualia 005 LCD-based television uses more than 400 Lumileds chips and costs about $15,000, which could yield healthy margins. The LEDs are only used in the backlighting system of the set and thus don't completely account for the exorbitant price--Qualia is part of Sony's highest-end product line, featuring advanced technologies meant to carry a hefty premium--but backlighting systems are among the priciest elements in a set, and LEDs cost.
"Products using LEDs are ridiculously expensive, which likely translates to high prices for the LEDs, but it's abundantly clear they will be the standard in backlights for LCD TVs," O'Donnell said.
LCD TVs are locked in fierce competition with plasma and rear-projection sets for consumer dollars, and LEDs could give liquid crystal displays an advantage in the flat-panel battle. But while LCD sets represent the top of the line in appliances that can use LEDs, more mundane high-volume opportunities exist in products such as flashes in digital cameras.Color me LED
Backlights, the light source in LCD televisions, shine light through the LCD panel to display the images viewed by consumers. The LCD panel absorbs some light, so the full strength of the backlight isn't viewed.
Many current LCD sets use backlights with cold cathode fluorescent light, or CCFL, tubes as the light source. Those televisions meet only about 70 percent of the National TV Standards Committee's color range specification for broadcasting in the United States; cathode-ray tube sets meet about 85 percent to 90 percent. More vibrant colors are one of the reasons TV buffs sayto flat-panel TVs. But LEDs can improve the picture for LCD TV makers.
"Samsung is pretty excited about LEDs, particularly because of the increase in color gamut that LEDs can provide versus traditional fluorescent-tube backlight systems," said Jim Sanduski, vice president of marketing for the visual display products group at Samsung. "We're looking at an NTSC color gamut reproduction of about 105 percent."
Companies other than Lumileds are working on LEDs, which will help to drive down costs and expand the overall market, but Lumileds has a significant head start with electronics makers. That advantage means shorter development times and a faster route to market. Adding Lumileds' LEDs, brand-named Luxeon, to Sony's Qualia 005 took only a few months, according to Steve Landau, Lumileds' worldwide manager of marketing and communications.
"We've worked with complementary infrastructure partners so they can make components that work with our Luxeon LEDs," Landau said, "and we're rapidly developing the expertise to work and deliver products for manufacturers."
As a division of HP, Lumileds has been creating LEDs since the 1960s. However, it was only in 1999 that it became a separate company--it's a joint venture of HP spin-off Agilent Technologies and Royal Philips Electronics. The company has been doing well without the electronics market, but the volume of LEDs needed for use in gadgets will likely help business and attract much-needed competition.
Lumileds--whose CEO is Mike Holt, chief financial officer is Neil Bostock and chief technology officer is George Craford--has seen an average annual growth rate of 43 percent from 2002 to 2004, and sales for 2004 reached $280 million, according to financial results from Philips. Every year, the company has been sufficiently supplying its markets with billions of LEDs made in its San Jose, Calif., fabrication plant. However, competition should drive down costs and expand the market.The costs of backlighting
To stay ahead of rivals, Lumileds in early February announced its latest LED, which offers up to 30 percent more light output than previous generations of chips.
But backlighting systems with LEDs can cost about five times as much as systems using cold cathode fluorescent light, or CCFL, tubes. That's why equity research analyst Jed Dorsheimer of Adams Harkness said he will remain skeptical about LEDs and Lumileds until prices come down.
"Longer-term, they're a reasonable solution," Dorsheimer said, "but in the near term you'll only see prototype levels reach the market, until there is further commoditization and lower costs."
It will be about three-to-four years before LEDs are used in popular television sizes, such as 42-inch sets, in the sub-$2,000 range, Dorsheimer predicted. The LED industry is driven by a law similar to theused in the microprocessor industry. Called Haitz's Law, after former Agilent Technologies scientist Roland Haitz, it says that each decade LED prices fall by a factor of 10, while performance improves by a factor of 20. That law, however, doesn't account for another issue faced by LED-based LCD TVs--heat.
Cumulatively, the number of LEDs used in a large-screen TV (in the hundreds, depending on the display size) produce enough heat to require additional fans to be used in sets, increasing the thickness of the televisions. This may be a deal-breaker for consumers concerned with sleek design.
Or they may want their LED anyway.