The global lighting market is undergoing considerable change as LEDs begin to cut into conventional luminary sales. While the market is projected to continue to grow at the 3% enjoyed between 2010 and 2014, increasing from $112 billion last year to hit $133 billion in 2020, LED market share will increase from 5% in 2010 to 45% in 2020, research by BCG shows. Profits will remain relatively stable, increasing from $4.9 billion today to $6 billion in 2020.
The Boston Consulting Group (BCG) recently released an analysis into the global lighting industry in terms of revenue and market share. The report, titled ‘How to Win in a Transforming Lighting Industry’, is based on BCG’s 2020 Lighting-Market Model, which has been developed to forecast the future of the worldwide lighting market. The market value was developed from a bottom-up analysis that used existing market reports, investor reports, BCG expertise, and close to 100 interviews with external experts.
The global lighting market continues to see steady growth, with revenues exceeding $112 billion in 2014. The largest segment is the professional luminaires segment, and its associated services and systems, accounting for $43 billion (or 39% market share), followed by automotive lighting at $21 billion (19% market share) and consumer luminaries and systems at $19 billion (17% market share).
The industry has enjoyed growth close to the global average of around 3% on a compound annual basis from 2010 through to 2014, and is expected to continue growing at this rate until 2020, when revenues will top $133 billion. The growth will predominantly be through development in emerging markets, as more and more households gain access to electricity. According to the report, the “rapidly developing economies such as China and countries in Latin America accounted for about 70% of lighting-industry growth over the last five years.”
The research highlights considerable shifts internal to the market. In 2010, 51% of the market was made up of conventional luminaires, while 14% came from conventional lamps. In 2014, market share for both categories dropped, to 41% and 12% respectively. The same period, between 2010 and 2014, saw the initial rise of light emitting diodes (LEDs), which jumped from 5% market share to 15%.
By 2020 however, much will have changed. By then, LEDs will dominate the market, with a 45% share, followed by automotive lighting, whose share increases from 17% in 2010 to 19% in 2020. The share of conventional luminaries is expected to plummet to 11% and conventional lamps to 4%.
More and more offices are investing into LED lighting systems that produce considerable cost savings over traditional systems. As a result, the LED segment for professional spaces will, measured by volume, hit 80% by 2020. Investment will also be considerable in systems that control building lighting, a market that will grow at 15% CAGR. The percentage of all luminaires (measured in revenues) that are sold as part of a connected lighting system is expected to be 25%, up from 5% in 2014.
The reason for the high investment in lighting systems is their potential to further improve the already large savings that LEDs brings to companies. Smart systems, the BCG report cites, could add further savings of up to 40%.
Total profit margins, in terms of earnings before interest and taxes, are projected to continue to do well in the coming years – growing by between 3-4% per year. Increases stem primarily from top-line growth (most notably in LED luminaires). Consumer luminaries will increase from ~3.2% to ~3.5%, while the total profit pool will increase from $4.9 billion in 2014 to $6.0 billion in 2020. Return on invested capital (ROIC)—which reflects the asset level required to produce profits— is also expected to be healthy across all segments of the industry, even within the low-margin LED-lamp segment. According to the report, “that solid financial foundation will be a critical asset as lighting players adapt to an industry being rapidly transformed by technology.”