The Coming Rise and Fall of LED Lighting Profits

People frequently complain about corporations making huge profits at our expense. Well…we finally have a story that’s the opposite case. Pretty soon, you’ll be able to replace those compact fluorescent (CFL) lightbulbs from Walmart, cut your lighting costs in half again (another excuse to leave the lights on despite reminders from your spouse), and use bulbs that will last 2500% longer than incandescent bulbs and 150% longer than CFLs. For a few years you’ll pay the big corporations a premium for these benefits, but pretty soon profits for those manufacturers will vanish and we’ll all enjoy bright, long-lasting lighting as well as reductions in both our home electricity bills and global carbon emissions.

According to a recent IEEE Spectrum magazine article about the LED lightbulb, a 40-watt-equivalent LED bulb starts at around US $20, and 60-W versions retail for far more. In addition, you’ll have to buy new ballasts, which contain power electronic switching components and provide another source of revenue.

$20 for a measly 40 W bulb is too rich for my blood. Fortunately, these costs will drop significantly over the next 2 to 3 years.

…and Then Costs Will Keep Dropping

LEDs are similar in constructions to the transistors that make up your computer’s microchips. The information age was fueled by the rapid miniaturization and falling costs for computer chips, known as Moore’s Law.

Moore’s Law  states that the density of transistors doubles approximately every two years.

Image credit: Wgsimon. Used under Creative Commons license.

LEDs are also subject to Moore’s Law, which means that they will quickly become more efficient. Fewer LED chips and less power conditioning hardware will be needed to provide the same amount of lighting.

I’ve been told that the industry expects LED lighting to quickly become a commodity. That’s good for the rest of us, but not so good for a long-term growth business. LED and power semiconductor manufacturers see only a narrow (maybe 5-year) window to make a profit off of this technology.

Expect a gold rush as companies try to capture all the profits possible before Moore’s Law zeros them out. Then score one for the consumer and planet earth.

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3 responses to “The Coming Rise and Fall of LED Lighting Profits

  1. Erik, while Moore’s law does state that the density will double every two years, the light output of LEDs is more strongly related to the silicon area, which only decreases slowly. (most manufacturers are not moving beyond 300mm wafers due to the very high costs, and hence the per-mm cost will not go down much. With logic devices you can put in more per mm so the cost for a fixed unit of functionality does decrease, but not per fixed area.) I am therefore less optimistic that we will see a sharp decrease in cost due to Moore’s law effects, but fairly certain we will see a slower one due to decreased cooling costs (better efficiency products) and higher competition.

  2. Fall in LED profitability will also be because of how long these damn things will last, obviating the need for replacements!

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