Silicon Valley looks to LED lighting

Silicon Valley firms are moving their focus onto LEDs as legislation forces manufacturers away from tungsten-filament based lighting.

“Lighting is going to completely change over the course of this decade,” said Alan Salzman, chief executive of Silicon Valley-based venture fund VantagePoint Venture Partners. His firm has $4.5bn in committed capital in startups across different sectors, but lighting is an area he is very bullish on.
“The largest sector in terms of companies in our portfolio is lighting,” Salzman said.

Nations around the world, including the United States, are phasing in efficiency standards that will eliminate the incandescents if no major energy improvements happen. Compact fluorescent light (CFL) bulbs so far have been the only real alternative to conventional bulbs but they contain mercury and many don’t like the quality of the light. LED lights, on the other hand, contain no mercury, have a long life and are energy efficient.

LEDs, made of diodes or chips, have come a long way since the first practical LED was a developed in 1962. Its sole color was red. Now developers produce light colors across the spectrum. They consume only about 20 per cent of the energy used by incandescent bulbs. With about 20 per cent of the world’s electricity used for lighting, switching to LEDs would generate significant energy savings and cut greenhouse gas emissions while nations debate how to price carbon dioxide pollution.

There is one major hurdle for mass adoption of LEDs -- they cost too much. Experts say that for the market to take off, good quality LED lights need to available under $10. Current bulbs cost many times that.

Investors are betting heavily the cost will fall quickly as LED start-ups achieve scale and the technology advances.

“The market really started shifting in the last 12 months,” said Warner Philips, co-founder of LED start-up Lemnis Lighting and great grandson of the founder of Dutch electronics giant Philips Electronics.

Lemnis introduced its first LED bulb, called Pharox, that can go into a standard light socket about four years ago. The latest version can last around 25 years, based on four hours of daily operation, but it costs $25.

The price has halved in a short time. Lemnis had been selling LED bulbs around $50 only about six months ago and Philips expects the price to fall below the crucial $10 level soon. “That will be probably be in the first half of next year,” he said.

LEDs by 2020 will account for nearly half of the $4.4bn US market for lamps in the commercial, industrial and outdoor stationary sectors, predicted Pike Research, which tracks the market.

Even at the current high price, some commercial establishments and retailers are switching. Late last year, retail giant Wal-Mart said it would install LEDs in 650 of its stores and picked Cree Inc, one of the few public companies in this space, to supply the lights.
Other companies switching to LEDs include coffee retailer Starbucks Corp, Red Robin restaurants and Yum! Brands.

In the first quarter of 2010, venture capitalists invested $100m in 14 LED lighting companies, up from $14m in the same quarter a year ago, according to Cleantech Group.

California’s Bridgelux, which makes high-power LED chips specifically for the lighting industry, is in the process of opening a Silicon Valley plant. Bridgelux raised $80m earlier this year and turned away some would-be investors. “We had a lot of people pounding on our doors,” said chief executive Bill Watkins.

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