LED Lighting Market Has Room for Less Fancy

Tom Griffiths - Publisher

August 12, 2010...In a pair of May editorials (Driving down the costs - Part 1 & Part 2) we talked about some of areas where cost will be driven out of LEDs and solid state lighting solutions. In both, we discussed how we might hit price floors that the industry will settle on and simply add features to, similar to how laptop PCs have stubbornly clung to something around a $500 price point as the floor for something fairly full featured. That doesn't mean everyone will head to the low point with their products. There is going to be plenty of room for varying levels of quality and engineering that will reflect as "commercial" versus "consumer" or "feature rich" versus "base model". There will also be examples of products that are thoughtfully designed to be commercial grade, without having to be particularly pretty, for the job they do. How many of us have marveled at the artfullness of the gymnasium lights?... Fair to say 'none'?.
As an example of cost-optimization, we're seeing some interesting examples play out in the virtual aisles of Home Depot. Back in the May/June time frame, Home Depot added an A19/Edison type incandescent replacement under the EcoSmart brand name (their in-house private label brand), courtesy of Lighting Sciences Group. I haven't seen it show up in my local Home Depot yet, but it does show up online as a "40w equivalent" for $19.97. LSG hasn't commented that I know of, but the industry consensus is that we're looking at the same product as their Definity A19 3000K model that puts out about 430 lumens on about 8 watts (54 lumens/watt). Interestingly, while it's priced for less than $20 at Home Depot, it sells for substantially more inside the commercial lighting channels. It looks like a good placeholder product that LSG would presumably plan to cost engineer, and perhaps "feature down" as time passes, while "featuring up" the commercial versions to justify the higher selling price. One can only guess if LSG is making any money on the EcoSmart version, given that Home Depot needs some margin in order to carry the product. Survey says... well, it doesn't seem to be a hard guess. Keep in mind, cell phones are all sold well below cost in order to make it up in service, so as long as your plan includes making money "with the business model" it can all work out.
In another move at Home Depot, Cree has apparently cut a deal to add the giant as a retail channel for their CR6 downlight. The CR6 was announced a bit ago as a cost-optimized approach to compliment their popular LR6 which was the original "good enough for prime time" commercial market entry product acquired as part of the LLF deal. There hasn't been an official announcement yet, but Cree President, Chuck Swoboda, let it be known in their recent earnings conference call that the CR6 would be stocked under the EcoSmart brand, and selling for less than $50. As Chuck said, Cree's goal is to, "...challenge people's addiction to inefficient lighting," and this looks like a good way to move that agenda forward. The product has shown up on Home Depot's website, and according to the statement on the call, it should be in the stores this fall.
Since their conference call, Cree's stock price has been punished for forecasting $270M - $280M in revenues next quarter, when the analysts were averaging a guess of $284M. How dare they... They did turn in a 48 cents a share net (up 400%+ from a year earlier), which came in short of analysts expectations, and they aren't getting much credit for 56 to 59 cents a share forecast beating the 54 analysts say they expected. The stock market is a fickle mistress, no doubt, and one suspects the analysts either didn't hear, or didn't much care about the Home Depot deal. Of course, this is all reported by folks that can miss on their interpretations of "the why" in probably the same way they might make a small goof on "the who" (cached version of "supercomputer maker Cree..."). Oops, that would be C-R-A-Y. Personally, I think it's a jittery market that is looking for excuses to to explain bits of irrationality, or "guilt by association" when it shows up. Cree, LSG, and Nexxus are the only publicly traded LED/SSL fairly pure-plays, so you're never sure what "the street" really thinks they are, and what success is going to look like.
On the other track, regarding "engineered but not fancy", we had a chance to visit a rare local-to-Austin SSL manufacturer named Ringdale. It was an interesting visit, with their facility located in the not-fancy area of nearby Georgetown, right next to the airport, in an unassuming building that is being remodeled with their own solid state lighting and controls. It was difficult to pin down exactly what Ringdale's expertise was ahead of time, as LED lighting is a new avenue for the 30+ year old company. We had the pleasure of spending some dedicated time with Klaus Bollmann, who is CEO and head visionary for the company. Klaus has been "extracting light" from things for a similar 30+ years, going back to days at the epitaxial level with semiconductor lasers. What we saw was some non-glitzy common sense engineering that appears to be backed up by results. A big part of their ActiveLED product line is built around a custom implementation of Nichia die and phosphor that they have packaged (not by Nichia) into a neat 4x9 array that is mounted to their secondary heat sinks with clips that allow the metals to expand and contract without stress as you would find in other bonding approaches (they have the IP on that trick). They have also designed their extrusions that reflect and direct the light to take advantage of the natural imperfections that come any time you have light passing through materials, whether it be lenses or simply air. By harnessing imperfection, they are able to get the light where they want, without having to take "exotic" or "perfect" approaches to get it to do that.
They've also taken a general approach of not eeking out every bit of performance into the smallest package, and lo and behold, the "relaxed" system isn't pressing the envelope of anything. Big, nearly mil-grade capacitors were selected for their highbay's power supply so that getting to rated life wasn't going to need to be a 'hopefully' proposition. How long do lightly-taxed power LEDs run when you keep the junction temps at a sane level? The answer is 'a long time' (ask again after the ActiveLED luminaires been running for 10 years and we'll probably have an even better estimate of how much longer they'll go for). Ringdale also developed their own controls, taking advantage of lessons they learned from years in the printer protocol and networking environments. The wall control is intuitive and simple, with high and low settings, as well as motion sensor timeouts all easy to program, at a price that appears easy to swallow. The control itself typically connects to the fixture nearest the switch (which is usually battery backed-up with nearly a week of runtime), and then the rest of the fixtures wirelessly sync levels with whatever the master has been set to. The controls and back-up side has set them up to take advantage of solar systems, including incorporating an approach that slightly dims the lights as the battery state slowly declines. That results in radically extending the useful amount of light without taking the batteries to the levels than can impact their lifetime.
They've got some artsy products as well, including a nice shiny walkway bollard, but even that uses the same simple building blocks, without having to get fancy. There's always room to bring common sense to the party. www.ringdale.com/lighting