A Booming LED Lighting Market Will Brighten GE’s Growth

by Trefis Team
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    Quick Take 

  • LED lights offer improved brightness with lower power consumption compared to CFLs and incandescent bulbs. They also have much a larger life span, which lowers their overall annual cost of ownership for consumers.
  • As a result of these significant advantages, LED lights are expected to capture nearly 70% of the global lighting market by 2020, up from their current share of about 18%.
  • GE, an established player in the global lighting solutions market, has grown its LED lighting portfolio through R&D and acquisitions to take advantage of the growing adoption of LED lights by consumers.

The rapid development in LED lighting technology over the last few years has changed the dynamics of the global lighting market. Improved brightness, lower energy consumption and longer life spans offered by LED lights have forced industrial, commercial and even residential consumers to increasingly adopt LED lights.

General Electric (NYSE:GE), which has been a leader in the global lighting market since Thomas Edison’s incandescent bulb, has seen strong growth in its LED lighting business due this changing market environment. The company’s LED business has also benefited from a strong emphasis on research and development as well as strategic acquisitions that have expanded its product portfolio, market share and penetration.

GE Lighting is a part of GE’s energy management segment, which generated $7.4 billion of the company’s $147 billion revenues in 2012. [1] We currently have a stock price estimate of $22.16 for General Electric, approximately 5% below its current market price.

See our complete analysis of GE here

LED Lighting Market Is Expected To See Strong Growth Ahead

LED lights are based on light emitting diodes compared to incandescent bulbs which are based on filaments. LEDs are highly efficient as they offer brightness of up to 150 lumens per watt compared to CFLs (compact fluorescent), which offer brightness of around 60-70 lumens per watt and incandescent bulbs which offer below 30 lumens per watt. [2] This highly improved quality of light offers advantages in multiple applications like street or parking lot lights where improved brightness enhances safety and security.

In addition, LED lights are more environmentally friendly as they consume less power than either CFLs or incandescent bulbs. These lights require about 8-12 watts of power compared to around 15 watts required by comparable CFLs and 60 watts required by incandescent bulbs. [2] [3] Lower power consumption and a consequent decline in the cost of lighting one’s home or office space is a significant advantage especially in the case of commercial buildings where a significant portion of the total energy consumption comes from lighting.

LEDs also have much larger life spans, which along with their lower maintenance costs ensure that the higher upfront investment in them gets compensated during their lifetime. In all, the improved quality of light, reduced energy consumption and higher return on investment offered by LED lights will grow their market.

Currently, LED lights occupy 18% of the $66 billion global lighting market. According to industry data cited by GE, this share of LEDs is expected to rise to 70% by 2020, when the global lighting market is forecast to reach about $100 billion. [2]

GE Is Proactive In Taking Advantage Of The Growing LED Lighting Market

This rapid growth in the LED lighting market is also reflected in GE’s LED segment where business has grown at strong rates in the last few years – by 35% in 2012 and by 24% in 2011. [2] This year the company anticipates this strong performance to continue.

GE sources components like LED chips and packages and then integrates them with thermals, optics and other control systems to produce an efficient LED lighting device. The company also provides services like customized lighting solutions and management of turnkey project in addition to just selling LED light products. Such value added services will help GE increase its LED sales as consumers are looking for expert advice as they transition to LED over the coming years.

In addition, like in its oil & gas business, GE has supported the organic growth in its lighting business through strategic acquisitions. In December 2012, it acquired Albeo Technologies which brought high-bay industrial LED fixtures to its portfolio. Prior to this, in mid-2011 it had acquired Lightech, which is a leader in LED drivers.

Highlighting the company’s capabilities in the LED lighting space, GE has undertaken some major projects like the GE-Marriott and GE-Las Vegas projects. In the Marriott project, GE Lighting illuminated 2 million square feet of garages and parking lots and integrated LED systems with security cameras to bring 70% energy savings with a 2-year payback on investment. In Las Vegas, GE introduced its LED street lighting solution to the city’s streets, to generate annual energy and maintenance savings of $1.7 million and $1 million, respectively. [2]

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Notes:
  1. GE’s 2012 10-K, February 26 2013, www.ge.com []
  2. GE Lighting at energy efficiency conference, March 21 2012, www.ge.com [] [] [] [] []
  3. LED vs CFLs vs incandescent, June 7 2013, www.designrecycleinc.com []
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