Countless Lighting Projects, But Limited Earnings In Lighting

While searching for the right word to describe the LED lighting world right now, the best analysis came from a TrendForce report from last year.

“Saturated.”

That saturation from LED manufacturing is creating a new problem. The TrendForce report says, “Despite rising LED lighting market demand and the large scale replacement of traditional lighting products, the oversupply situation has caused the average LED sales prices to plunge 30% to 40% year on year. A growing number of manufacturers have incurred heavy losses.”

The crazy part of this is the demand, even months after this initial report, remains incredibly high. One report has the U.S. LED Industrial Lighting market growing by 20%-45% year to year, with that number expected to remain steady or even grow until 2025. And the global street lighting market is expected to reach $4.07 billion in the next two years. The report says the total number of global streetlights that will either be built or replaced by LED will reach 339,000,000 by the year 2025.

And that does not include many of the expanding markets we are currently seeing, like automotive and horticultural. With all of that demand, you would think prices would be up, just to be able to meet it. Prices are not.

There are so many LED lighting manufacturers in China and Taiwan right now that supply is actually dominating all of that demand. Overseas manufacturers are finding less expensive ways to make their LED chips, and using that to drive prices down. The result is earnings report comments like we have seen from the U.S.-based lighting manufacturers.

During their most recent conference calls on earnings, but Hubbell and Eaton were hopeful but not overly optimistic about lighting earnings for 2018. A reporter asked Hubbell Lighting’s David Nord about the lighting business and contractor backlogs translating to firm orders. Nord responded, “I mean there’s nothing enlightening there. It’s pretty spotty. I think the outlooks for lighting and demand are pretty muted. I think we’ve come a long way from the go-go days of double-digit growth expectations. And I think now it’s a case of navigating relatively flat markets, and trying to navigate a tougher pricing environment.”

When asked a similar question during the Eaton conference call, Craig Arnold had a similar response.  “It really has been a bit of a conundrum, the market that has pretty consistently grown and grown faster than many of the other end markets that we saw this period of retrenchment or flatness in 2017,” Arnold responded. “We do think the market itself is probably more competitive today than it has been in the past as LED technology becomes more proven and more of a standard. We think certainly you are probably seeing more competition, more price competition in that market than we have seen historically. And so we will have to wait and see how that plays through.”

And, even during the Home Depot earnings call last week, Edward Decker told reporters, “Lighting recorded a low single-digit negative comp primarily due to LED price deflation.” The DIY did extremely well in its earnings report, and saw strong growth with its Pro Customers. But, it still expects to see even more deflation in 2018.

The question is, what happens next? Are distributors willing to pay more for a name brand? How will manufacturers help distributors market the right lighting to its end users? And will we see more lighting manufacturers disappear as a result of too much competition?

With a couple of upcoming lighting shows on the horizon, you can bet tED magazine will be asking these questions to see how the rest of the year shapes up and how distributors can still see lighting advantages in an extremely competitive climate.