LED Market Volatility: Prepare Now for Future Growth
Growth in LED demand—driven by broad adoption of general lighting applications—is expected to come at a fast, furious and sustained pace which analysts predict may last for a few years before the market once again pauses.
The way I see it, the current lull in LED market growth actually may be a great opportunity for LED manufacturers: Those who invest in productivity improvements now, while there is still the luxury of time, could potentially benefit significantly and outpace their competitors during the next high growth cycles.
Many analyst projections tend to show strong growth mid-decade from the adoption of LEDs for general lighting. However, a thought-provoking report from IMS Research last fall asserts that such growth will slow significantly in the years after the boom, around 2019 or so.
Though the growth rate is predicted to decline over much of the decade, through 2016 the average yearly growth is over 40%, this will likely lead to some boom years for the LED manufacturers mid-decade.
While the market then is predicted to be far larger than it is now, manufacturers will have had time to ramp up their capacity to produce in large volumes. However, without simultaneously looking for mechanisms to manage flexibly and squeeze out costs, many manufacturers may find it as tough then as it is today to achieve healthy profit levels. A similar dynamic is currently occurring in the solar cell manufacturing business, where even companies with the best profit margins are struggling as module prices continue to decline.
LED manufacturers who invest now for both the expected upturn, and the likely inevitable down cycle, will be better positioned to sustain profits and gain market share in the long term.
The hard part is taking that leap of faith to invest capital when times are tight. The trick is in deciding which investments offer the greatest long term ROI. Investments in automation software can deliver economic value many times greater than the initial outlay. LED manufacturers can leverage cost-effective technology to focus on higher bin yields and greater product consistency, thereby maximizing profit margins as previously discussed in this blog post.
I recently worked with a customer to implement E3 Fault Detection Control (FDC) software. Using its diagnostic capabilities, the customer discovered the root cause of a perplexing quality issue on an MOCVD tool that had been unresolved for days. By correlating the metrology data to the process tool, the problem was identified in less than an hour, saving days or even weeks of time and lost productivity. The customer also set up an alert to look for this problem in the future and to send out a notification if symptoms appeared again.
On its own, this seems like a small benefit. But when replicated across the production tools and the factory day-in and day-out, the payback can be huge.
I contend the time for productivity improvements is now—not when the boom hits. The remarkable growth forecast by IMS Research and other analysts means that, before long, manufacturers will be preoccupied with filling a steep ramp of orders and there will be no time for engineering projects to improve quality and output.
Equally important is the fact that when the down cycle occurs, the ability to successfully dial back operations and manage costs more efficiently may be too little, too late. The manufacturers who have already deployed productivity solutions will be more favorably positioned to deliver products which are competitively superior and which can be priced to deliver higher margins.
For years, many companies in technology-driven industries have understood that investment in the down cycles can mean success in the boom. But the really smart ones see beyond the upturns to the next slide, and ensure that their businesses are well prepared to switch gears and roll with the cycles. Consider how your company might make the most of this coming opportunity right now.