I’ve just returned from Strategies in Light in California which is always a great event to measure the pulse of lighting industry at a core technology level, and gain a valuable insight in to what going to transform the industry over the coming years.
As ever my colleague Philip Smallwood of Strategies Unlimited gave some fascinating market insight data which covers a wide gamut of applications. He described what I will coin Smallwood’s Law. After years of pulling together market research data in LED lighting products, Philip and his team have recognised that LED lighting price erosion slows down when the payback period within the market it’s targeted at reaches around one year. So in other words, the price of the product equals the cost of energy it saves in a one-year period.
So let’s take the workhorse and price whipping boy of office lighting, the 600 x 600 mm LED flat panel, as an example. They are typically used to replace a 4 x 18W fluorescent fixture drawing about 80 watts. So let’s replace that with a 30W LED panel and assume this is for an average office used for eight hours a day, paying around 10 pence (15 cents) per kilowatt hour. That equates to a saving of around £14.60 per year.
Therefore – according to Smallwood’s Law – £14.60 is the floor price for an LED flat panel, and the price in which the pain of price depreciation will stop for the manufacturers. Philip didn’t say if this was the factory door price, the distributor price or the end user price. However, at the last Hong Kong Lighting Fair, many of the Chinese manufacturers were already selling at below the floor price. In fact, the lowest price for a panel we could find in 2015 was $11. This could be because we work in a global market and energy prices are typically lower in other parts of the world than we would find in Europe. Or it could be a political ploy: just as Saudi Arabia continues to pump cheap oil to force US shale and Russia out of the market, China pumps ever-cheaper LEDs to wreak havoc with the global lighting industry. It then buys up – at rock bottom prices – distressed lighting businesses with their established brands and years of heritage.
Politics also plays out in the lighting industry at the bi-annual Viagra-fest that is the Light + Building trade show. The Chinese manufacturers have, of course, long been ghettoised in Hall 10, a Siberia you would only consider visiting at end of a long week, when the beer has ran out in Hall 3, the oompah bands have packed up and you want to see if you can get some of the newly released lighting creations copied before you get back on your flight.
The frustrated Chinese manufacturers have for years attempted to escape the ghetto of Hall 10 and it looks like they’ve formed an escape committee as they’re starting to have some success. Opple has made it across the fence to hall 6, using a cunning disguise of strong branding and an office in the Netherlands. Feilo has launched an attack on Hall 4 from their newly-acquired London HQ, having scooped up the Sylvania brands from Havells. Konka has just made it to Hall 4 with a last-minute purchase of Toshiba’s lighting business. The escape isn’t over yet as Osram puts its lamp business up for sale and the Steve McQueen of the venture capital industry, GoScale Capital’s Sonny Wu, starts sniffing around Philips Lighting having been thwarted in his attempt to buy Lumileds.
Philips, perhaps with a eye to Chinese ownership, has adopted the principles of Smallwood’s Law in its latest advertising campaign from Malaysia. Gone is the sophisticated messaging about quality of light, connectivity and beyond illumination peopled by Dutch nuclear families with perfect teeth. They’re replaced with a light bulb that can be yours for the price of a hamburger.
As ever, the Lux Review team will be out in force at Light + Building next week so look out for the trademark red shirts. Lux TV will be recording daily from our studio on the Osram stand so drop by and share your opinion with us, if you don’t want to talk to us on camera, you’ll find us in the Irish Bar near the railway station.
- Philip Smallwood of Smallwood’s Law fame will be chairing this year’s Strategies in Light Europe 2016 conference co-located with LuxLive in November.
- Gordon Routledge will be speaking at the LuxLive Middle East 2016 exhibition and conference on Wednesday 13 April and Thursday 14 April at the Abu Dhabi National Exhibition Centre. Entry is free if you pre-register. View the full programme here.