Global demand for LED lighting will peak in 2018, with LED applications to acount for 70% of all lighting products availabe in the market, according to Lawrence Lin, president for the largest China-based LED packaging service provider MLS. The company has also been marketing own-brand LED lighting products.
Digitimes recently had the opportunity to talk to Lin about the company's operations and the outlook of the LED industry.
Q: MLS has extended business operations from LED packaging to making own-brand LED lighting products. What is its brand positioning and market appeal?
A: Founded 18 years ago, MLS stepped into own-brand LED lighting in 2012, positioning itself as a vendor of standard LED lighting products in large volumes like Philips and Osram. To support the brand positioning, MLS has large production capacities. MLS has a monthly capacity of packaging 24 billion LED chips and producing more than 15 million LED light bulbs and tubes, with the former being expanded by 100,000 LED chips every month and the latter to 20 million units in 2015.
In terms of pricing, MLS in principle sets its retail prices at 50% of those set by international vendors and 80% of those by local (China-based) first-tier vendors. For different channels, MLS offers a 50% discount off retail pricing for general sales agents, 40% for secondary sales agents and 45% for engineering project contractors.
In the China LED lighting market, MLS has established a retail network consisting of more than 40 provincial-level general sales agents, over 1,000 secondary sales agents and about 25,000 retail outlets. In addition to retail, MLS has provided indoor and outdoor LED lamps for adoption by engineering project contractors. MLS extended marketing of own-brand LED lighting from China to overseas markets in 2014, with the US being the first one and India the second.
Q: How does MLS evaluate the characteristics and potentials of different overseas markets?
A: MLS evaluates the potentials of overseas markets on four factors: population, government policies, power prices and GDP. The population is basic to demand for lighting. Government policies in favor of LED lighting will drive demand, such as the India government's procurement of 200 million LED light bulbs. It is relatively difficult to promote LED lighting in countries with low electricty pricing. The Philippines, for example, has almost the highest power pricing in relation to income levels around the world and therefore LED lighting sales there are growing fast. In comparison, the electricty pricing in the US is relatively low, and promotion of LED lighting should emphasize energy efficiency based on Energy Star standards rather than low prices. And the market development potential and purchasing power are likely to be high along with high GDP growth.
Q: What are MLS' global marketing plans and goals for LED lighting in 2015?
A: While the overseas markets accounted for less than 10% of its total LED lighting revenues in 2014, MLS expects the proportion to increase to at least 20% in 2015, 50% in two years and 70% eventually. With a marketing focus on commercial LED lighting in the US, MLS expects LED lighting shipments to the market in 2015 to hike tenfold and the corresponding revenues by 5-10 times. In 2015, the US will continue to be MLS' largest overseas market, followed by the Middle East and Southeast Asia.
Q: MLS has been known for its low pricing in LED lighting industry. Is low pricing the company's main operational strategy?
A: Low pricing is a strategy for initial operations in a new market and the marginal utility will diminish. MLS cut prices by almost 50% on year during 2012-2013 and expects pricing to fall at much slower paces in 2015. Particularly in the China market, MLS sells LED bulbs from CNY7-8 (US$1.13-1.29) to CNY40-50, compared with CNY8-9 offered by international vendors, and LED light tubes from CNY30 to CNY100 while Philips models are over CNY30.
Q: When international vendors lower retail prices, how will MLS maintain its competitive edge?
A: As MLS is positioned as a vendor of own-brand standard LED lighting products in large volumes, it has to maintain global market shares for light bulbs and tubes. Since there will not be significant differentiation in technology, production cost and sales price among vendors when LED lighting product development becomes mature, competitiveness will hinge on brand recognition and sales channel. Therefore, it is important for MLS to set up a complete marketing network in each of the major markets by the end of 2016. MLS spent CNY200 million on brand promotion in 2014, equivalent to 5% of its revenues, and will continue investment in promoting brand.
Q: Is MLS expanding its production capacity?
A: MLS was the globally 10th largest LED packaging service provider in 2014 according to IHS and will be the 9th largest in 2015 according to Strategies Unlimited. MLS' capacity expansion is to maintain relatively high performance-cost ratio and to hike global market share. MLS aims to expand its overall production capacity by 30-50% and increase total revenues by at least 30% on year in 2015. The revenue proportion for own-brand LED lighting sales is expected to rise from nearly 20% in 2014 to over 20% in 2015.
Q: Taiwan-based Epistar is the largest LED chip supplier for MLS currently. Will the cooperation further expand in 2015?
A: Epistar supplies about 30% of MLS' demand for LED chips while the remaining is supplied by China-based makers. MLS may take up 50% of Epistar's production capacity in China and about 30% of the corresponding revenues. As MLS' LED lighting products for sale in Taiwan and the US are made of LED chips produced by Epistar, MLS will increase procurement from Epistar in 2015.
Q: What are your opinions on development of smart LED lighting?
A: MLS has formed strategic alliances with smartphone vendors to probe the potentials of smart LED lighting but has yet to make substantial moves. For residential use, LED lighting products featuring smart functions see neither pressing demand nor mature models for the time being. However, there is a possibility and necessity of realizing smart LED lighting for commercial and industrial applications which consume much more power than residential ones. It will take 5-10 years to realize smart LED lighting due to issues with specification, platform and information security.
Q: How will the mid-stream and downstream segments of the LED industry develop?
A: The development of the whole LED industry will be in intense competition over the next three years. Many LED chip makers will be forced out of competition, and some of them may merge with those with technological competitiveness and patent strengths. LED packaging houses in the midstream will be in the same situation, with few of them being able to make a profit. For the downstream segment, it is easy to enter or withdraw from the LED lighting market but very difficult to become a major vendor.