The big news this week was the Philips acquisition from Agilent of 47% of Lumileds Lighting, giving the Dutch lighting giant a 96.5% stake in the high-power LED manufacturer (the rest is owned by an employee group).
The $950 million deal gives Philips controlling ownership of the San Jose-based LED maker, which had revenues of $324 million in the year to July 2005, with an operating profit of 26%. For more details of the deal, see Philips takes control of LED maker Lumileds.
Lumileds is the leading manufacturer of high-power (one-watt class) LEDs with its Luxeon product line, although it faces increasing competition from Cree's XLamp, Osram Opto's Golden Dragon, Seoul Semiconductor's Z-LED, Cotco's Dorado and of course high-power products from Nichia, Toyoda Gosei and other Japanese LED manufacturers.
The deal combines Lumileds' chip manufacturing and packaging activities with Philips' solid-state lighting division, which manufactures LED modules and luminaires. Although this is only a small business for Philips at present, the company clearly sees solid-state lighting as a huge market opportunity.
Competition
The deal will bring Philips' solid-state lighting sales more in line with its European lighting rival Osram (part of Siemens). Osram had sales of EUR 4.2 billion in 2004, of which 11% came from its Osram Opto Semiconductors unit as well as LED sales from other divisions. This amounts to EUR 462 million or around $570 million. However, it is worth noting that the majority of this revenue comes from lower-brightness products.
Another lighting giant, General Electric, has a much smaller solid-state lighting division, GELcore, which is a joint venture with Emcore, a semiconductor materials specialist. GELcore had revenues of around $70 million in calendar year 2004, and was profitable. The company's anticipated revenue for 2005 is around $90 million. Most of this revenue comes from traffic lights, channel letters and other signage and display products.
Once the deal is completed in the fourth quarter of 2005, both Osram and Philips will be fully vertically integrated with in-house chip fabrication, LED packaging, module manufacturing and system integration.
Alongside Osram and Lumileds as leading suppliers of high-output LEDs targeting current and future lighting applications are Nichia of Japan and Cree of the USA. These are independent companies that manufacture chips and packaged devices, but don't have integration further up the supply chain. Cree's LED revenue for the fiscal year ended June 2005 was $322 million, almost all of which was for unpackaged chips. Nichia, the world's largest LED manufacturer, had sales of about 160 billion yen ($1.45 billion) in 2004.
Vertical integration
Philips executives were keen to stress the benefits of vertical integration, citing synergies in marketing and manufacturing which could lead to enhanced productivity and cost savings. The benefits of bringing an entire supply chain in-house, rather than outsourcing certain aspects, depend largely on the maturity of the technology. While applications for mobile phone handsets are relatively mature, the applications targeted by Philips, such as LCD backlighting, automotive headlights and of course general illumination, are at a very early stage of development. This presents the opportunity for rapid innovation within an integrated supply chain.
Perhaps the most revealing segment of the press conference announcing the Lumileds deal came when Philips management team talked about the enhanced influence that Philips will be able to exert over the LED development activities of its soon-to-be in-house supplier.
But where will this leave external customers? Small companies using low volumes of Luxeon devices – companies which Lumileds has been happy to serve in the past in order to get the technology out into many varied market segments - may feel the squeeze when Lumileds' attention becomes focused on its giant parent.
Lumileds is of course keen to stress that this will not be a problem, and Mike Holt, the company's CEO, said that Lumileds' customers will "remain unaffected as the company moves forward."
Waiting for K2
Incidentally, the industry is still waiting for Lumileds to begin supplying its new Luxeon K2, the updated version of the Luxeon I (one-watt) LED package which was announced to a great fanfare in April at Lightfair. LEDs Magazine was expecting an update on the K2 last week, but this was obviously overtaken by other events.
Unofficial sources suggest that the red, green and blue versions of the K2 could become available in the fourth quarter of 2005, with white to follow in the second quarter of next year, in time for Lightfair 2006.
About the author
Tim Whitaker is the Editor of LEDs Magazine. We welcome any commments you may have about this article.
