Compared with 2009, the LED lighting market has become more and more heated. Like the gleam of the morning's first beam, the global LED lighting promotion began in 2010, especially in developed countries like Japan and Europe where demand of LED lighting products surged rapidly. LEDinside has conducted an exclusive interview with Ben Fan, President of Neo-Neon Holdings Ltd. to explore how LED lighting replaces conventional lighting, as well as the market development of LED decorative lighting.
LED decorative lighting to rapidly replace conventional ones
Mr. Fan stated that LED decorative lighting will soon replace conventional ones. At present, LED decorative lighting and application lighting occupy nearly 100% of the European market due to the high quality and performance expectations in decorative lighting, as well as lower price sensitivity. Although LED decorative lighting costs three times more than conventional ones, the advantages in environmental protection, energy-saving and lighting performance make both LED decorative and application lighting the best choice for European consumers. In the USA, LED decorative lighting makes up 20-30% of the total decorative lighting and applications market, and the figure is expected to reach 90% by the end of 2010.
LED decorative lighting is also developing rapidly in the fast growing China market. Neo-Neon’s former staff alone started more than 500 LED application lighting and decorative lighting businesses. Hence, total LED decorative lighting vendors far exceed 1000 in China.
Neo-Neon’s price solution to the forthcoming LED lighting replacement
Neo-Neon began LED lighting production as early as 2005. In 2009, under the influence of the financial crisis, many LED lighting orders were canceled by customers. As LED lighting takes off again in 2010, Neo-Neon saw LED lighting product sales for 1Q10 surge by 100% YOY. Mr. Fan believed that the price challenge during LED lighting replacement of conventional lighting will soon be overcome. Currently, Neo-Neon’s retail price of 7W LED light bulb is set at 80 RMB, but the company expects to bring it down to 50 RMB shortly after. At that time, brand vendors’ market competitiveness warrants close attention.
Mr. Fan remarked that maintaining the lowest cost requires the integration of the entire supply chain and shared Neo-Neon’s experiences as follows for reference:
First, build up a full supply chain. Neo-Neon has established a mature supply chain from the upstream epitaxy wafer and chip to the downstream applications. The cost of Neo-Neon’s chip is only half that of other makers. With the introduction of 20 new MOCVD systems in 2010, the LED chip cost will further decrease. It is not easy to fully cover the industry chain. For example, there are over 2000 parameters during MOCVD mass production and each machine has different parameters. It is necessary to overcome all kinds of difficulties and meet certain entry requirements if one wants to run it well from chips to applications.
Second, adopt low-power chips. Neo-Neon’s lighting products mostly adopt in-house produced low-power chips. Through good heat dissipation design, the total cost of low-power chip lighting products becomes much lower than that of high power chips: on one hand, power chips have high light efficacy at relatively low cost; further, as many low power chips are adopted, there is no need for an additional optical design to adjust the lighting angle. In the case of a 7W LED light, Neo-Neon uses 96 low power chips, allowing lighting angles to be arranged freely, and eliminating the need for additional optical design. Additionally, the luminous flux reaches 70-80lm/W.
Third, utilize a standardized LED package specification. For general lighting products, Neo-Neon only applies one LED package — 3528 SMD LED. Because of the single low-power SMD LED package, Neo-Neon optimizes the 3528 type. The key principal of minimizing the cost of LED lighting is simplicity, uniformity, and capacity expansion.
Fourth, establish a strong sales network and reduce the intermediary cost. For example, Neo-Neon will set up an office in every province of China. Meanwhile, it cooperates with large channel sellers such as Redstar Macalline, Easyhome and B&Q China to interact with the customers directly. In other words, Neo-Neon has its dealers, and can also directly distribute its products to the customers, thereby reducing intermediary cost. Thanks to the cost control, Neo-Neon is able to achieve profitability while maintaining the retail price within 50 RMB.
Finally, provide high quality products to enhance customers’ confidence. Neo-Neon believes that low price does not necessarily imply low quality. In one of Neo-Neon’s lighting project for a vacation village in Huizhou, the total cost of the project was 40 million RMB while that of conventional lighting was 20 million RMB. Seeing Neo-Neon’s advantage in price/performance ratio, it is an easy for customers after making the comparison. Confident about its good product quality, Neo-Neon offers a five-year quality guarantee, and will replace luminaries for free in the case of any problems.
Mr. Fan added that it is his mission to promote the development of the LED lighting industry. He expects the replacement of conventional lighting with LED lighting to realize much sooner than that projected by most.
Insights from LEDinside
Currently, Neo-Neon still exports over 90% products but the sales in the China market will continue to pick up because of its aggressive market expansion in China.
Today, China’s LED market is still dominated by government projects and the promising commercial lighting is gradually taking off. LED lighting applications in commercial and home spaces are the future development focus for Neo-Neon. With the advantages of a full LED supply chain, the retail price of LED bulbs can be reduced to 50 RMB. With Neo-Neon’s brand image, the company has an advantageous position in China’s LED lighting market.
In future, with the popularization of LED lighting products, LED patents will become a challenge in the short term, and we expect more manufacturers to file for proprietary intellectual property rights.
