The Land of LEDs

<b><i>For Cree Inc., some real-world applications of its LED lighting systems are telling the story of the market-changing savings of this new technology.</i></b>

Everyone is talking about how LED lighting systems will one day revolutionize the lighting business. LED manufacturer Cree Inc., Durham, N.C., recently went on record with an extraordinarily aggressive goal to do just that. When the company announced its acquisition of LED Lighting Fixtures Inc., headquartered near Research Triangle Park, N.C., Chuck Swoboda, the company's chairman and chief executive officer, said, “We are out to lead the LED lighting revolution and to obsolete the light bulb.”

Its R&D engineers are working hard to reach that goal. Last September, the company announced it had developed an LED that produced 1,000 lumens in lab conditions — equivalent to what's produced by a standard household light bulb. The company said its R&D demonstrations generally are ready for commercial applications in 12 months to 24 months.

While it may be some time before LED lighting systems make traditional light bulbs obsolete, there's no question that Cree and other manufacturers of LED lighting products are in the middle of one of the most fascinating technological transformations in the history of the lighting business. LEDs that produce the white light necessary for the biggest lighting niche of them all — general lighting in indoor applications — will one day offer comparable light quality at four to five times the life of today's incandescents. They aren't quite there yet, but LED manufacturers are pumping millions into R&D to make this happen. Cree Lighting spent $58.8 million on R&D in 2007. Its competitors, including market leaders Nichia and Lumileds (acquired last year by Philips Lighting), as well as GE, Osram (which sells LEDs through Sylvania) and several other companies, are also racing to provide dependable white-light LEDs for general lighting applications.

While commercially viable LEDs for indoor lighting may still be a few years off, Cree has had some notable successes in the outdoor arena through its LED City program, where it works with cities to deploy LED lighting systems to save energy and reduce maintenance costs. Since announcing the program last year, Raleigh, N.C., Toronto, Ontario, and Austin, Texas have signed on. Austin is looking at Cree's LED lighting products for use in a parking garage, park, in signage and for street lighting. In a press release announcing its intentions to move to LED lighting through Cree's City Lighting program, Will Wynn, the city's mayor, said he is expecting major savings in the costs of operating the city's street lights by changing them over to LEDs.

“One of the workhorses in the city's lighting inventory is the 250W high-pressure sodium cobra-head roadway fixture,” he says. “We plan to evaluate LED solutions that have the potential to reduce energy consumption by 47 percent to 90 percent over traditional lighting solutions. Just by retrofitting 5,000 streetlights — a mere portion of all of the streetlights within the city — the city could realize savings of up to $500,000 a year. And that doesn't include additional maintenance and labor cost savings if we won't be sending out a worker in a boom truck an additional six-to-seven times just to change a light bulb. Because LEDs typically last five-to-seven times longer than the prior fixture bulbs, the city anticipates it could achieve an additional savings of $27,000 in replacement lamp costs over the life of the LEDs.”

A rebate program offered by Austin Energy, the local utility, will pay for a substantial piece of the installation. Austin is no stranger to the savings provided by LED lighting. In 1993, it retrofitted 5,200 traffic lights and 3,700 pedestrian signs with LEDs. This removed 830 kW of demand from the city's electrical grid and has saved taxpayers an estimated $1.4 million per year, plus additional maintenance and labor savings.

While Cree had for years sold its lighting products direct to OEM manufacturers, in the last two years the company announced two distribution agreements with international electronics distributors. The company sells its XLamp products in China, Japan and the Asia Pacific market through World Peace Industrial Co. Ltd., a Taiwanese company. In 2006, the company announced a global distribution agreement with Arrow Electronics, Melville, N.Y., to sell Cree products at its 290 locations in 53 countries and territories. Arrow Electronics recently launched a lighting group staffed with engineers to provide lighting OEMs with support for optical, thermal, and control electronics design.

A Look at Cree Inc.

$394.1 million in 2007 sales

Revenues from Sumitomo Corp. accounted for 24 percent of revenues. Other large customers include Seoul Semiconductor and OSRAM Opto Semiconductors, which each accounted for more than 10 percent of sales.

Global presence

Founded in 1987, the company now has 2,578 employees at its headquarters and manufacturing facility in Durham, N.C., and in sales offices in Shanghai and Shenzhen, China; Hong Kong; Tokyo and Vienna.

R&D investment

$58.8 million in 2007. Cree has 380 U.S. patents as of June 24, 2007.

Competitive challenges

Providing white-light LEDs for general-lighting applications. While the company appears to be well-respected for its advances in this niche, according to its own annual report, Nichia, a Japanese manufacturer, currently “has the majority of market share for white LEDs.” Cree's annual report also said the white LEDs its customers now produce with its chips are not as bright as Nichia's white LEDs.

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