Lighten Up
Bob Johnstone, 10.17.05
China wants to go easy on energy by using LEDs. For now
that means a lot of imports.
At a recent investor conference in Boston, Silicon Valley's
Robert C. Walker asked his audience a trick question: Is China
(a) a land of 800 million poor peasants, (b) a giant factory
with plentiful cheap labor, or (c) the bleeding edge of the
solid-state lighting revolution?
The answer is, of course, all three.
The revolution he refers to is the transition, now under way,
from Edison's lightbulb to tiny chips called light-emitting
diodes (LEDs). It began with niche applications such as traffic
lights and displays like the Nasdaq screen in New York's Times
Square. But industry experts predict that energy-efficient LEDs
will sooner or later sweep away all other forms of lighting, up
to and including household lights.
"China will be the first country to adopt the solid-state
lighting revolution," Walker says. "You're going to see China
first, the rest of Asia second, Europe third and the U.S. last
in adopting that technology." A bold call perhaps, but as the
chief executive of ELite Optoelectronics, a Sunnyvale,
California supplier of LEDs, and a senior adviser to the
Chinese government's solid-state lighting committee, it is one
that Walker is qualified to make.
China's government has pressing reasons for embracing
solid-state lighting, which in the West is still a fringe
technology. Prime among them is the fact that LEDs will consume
roughly 50% to 80% less energy than conventional (incandescent
and fluorescent) lights.
Rapid economic growth is already outstripping China's ability
to supply energy. According to Wu Ling, the dynamic former
medical doctor who directs the China Solid-State Lighting
Alliance, a Beijing nonprofit organization that develops
strategy for the government, 12% of electricity currently goes
to lighting.
Wu estimates that if over the next ten years LEDs were to take
30% of China's lighting market, then the saving would be 58
billion kilowatt-hours per year. She points out that that is
almost as much as the yearly output of the Three Gorges Dam,
the world's largest power plant, under construction at a cost
of $24 billion.
"Faced with a great shortage of energy, the government will
push solid-state lighting," Wu says. And in China when the
mandarins want something to happen, they have all sorts of ways
of making sure that it does.
Top-down strategies include financing, both direct and
indirect. Wu expects Beijing's next five-year plan, to be
announced at the end of October, to contain a major increase in
spending on solid-state lighting R&D at Chinese
universities and national institutes (up from the $17 million
spent since the project began in January 2003).
Wu estimates that $725 million has thus far been invested in
China's domestic solid-state lighting industry. Some of this is
private investment, but industry insiders believe much of the
money has come from government banks in the form of soft loans
to LED startups.
Regulations--in both positive and negative forms--are another
powerful lever. For example, officials can mandate that LEDs be
used for certain applications, such as the illumination of
tourist landmarks like Beijing's Tiananmen Square. Or, where
the codes haven't caught up with technology, authorities can
turn a blind eye to early adoption.
"China is different, in terms of regulations," says Bingwen
Liang, chief executive of Nanjing Handson Semiconductor
Lighting, a leading LED packager and fixturemaker. "It's not so
tight as in Europe or the U.S. As long as you have good
relationships with the leaders, anything can happen."
Also auguring well for the rapid take-up of new lighting
technology, Wu points out, is that China's infrastructure is
still a work in progress. "The whole country is like a
construction site," she says.
"In the U.S. I'm not going to go to the Marriott Hotel and have
them change their whole electrical system," Walker explains.
"In China I get to go to a guy who's building a new hotel and
say, ‘Design your building around LEDs.'"
In particular, the country is scrambling to prepare for the
Olympics in Beijing in 2008. These are billed as
environmentally friendly games. (Of necessity: It would be
embarrassing if the city's appalling air quality were to affect
the health of athletes.) LEDs are among the officially
designated environmental technologies.
The Olympics are also an opportunity for China to show itself
off to the world. And it is in colorful outdoor decorative
lighting rather than general-purpose white illumination--the
implementation of which remains several years off--that the
solid-state revolution has initially been manifesting
itself.
"The whole country's gearing up for the Olympics, not just
Beijing. They expect a lot of foreign tourists all over China,"
says Robert V. Steele, an analyst at Mountain View, California
market researcher Strategies Unlimited. "They want to dress up
the country, and they see LED lighting as a key element in
improving the appearance of buildings, bridges, fountains and
ancient sites."
For example, the Full Moon Tower, a 52-meter [170-foot]
structure in Galaxy Park, Tianjin's civic center, is
illuminated at night by a dazzling computer-controlled colored
light show. City officials decided on an illuminated landmark
to help raise the profile of Tianjin, a port city of 10 million
inhabitants about 200 kilometers southeast of Beijing.
In urban centers across the country the story is the same.
"Every single local government is trying to do this kind of
thing," says Xiao Guang He, executive vice president of Dalian
Lumei Optoelectronics, China's second-largest LED maker. "If
one lighting project turns out good, then people just keep on
copying. And the cost is now so low that people can afford
it."
Outdoor decorative lighting accounts for almost a quarter of
the Chinese LED market, which was worth $1.4 billion in 2004.
In southeastern China's Fujian Province alone, according to
Xiao, consumption of white LEDs is running at 500 million a
month. Currently most of the LEDs and fixtures used in China,
especially the high-end ones, are imported.
Companies such as Cree (U.S.) and Nichia (Japan) provide the
LED chips, while architectural LED fixtures are supplied by
firms like Boston's Color Kinetics and Vancouver's TIR Systems,
which was responsible for lighting up Tianjin's Full Moon
Tower.
Per annum the LED market is growing at 40% in terms of units
and 23% in sales. It is serviced domestically by some 600 firms
employing as many as 40,000 workers; almost all are small
outfits at the low end of the industry, doing labor-intensive
jobs such as packaging LED chips.
But the Chinese are determined to work their way up the value
chain. Already four Chinese companies have begun to produce
their own chips, with maybe twice that number gearing up to
follow. Xiao's company, Lumei, leads the field, largely thanks
to having acquired the optoelectronic arm of AXT, a U.S. firm
in Fremont, California, for $9.6 million in 2003.
For the moment Lumei continues to make its LEDs in California.
But the technology is migrating across the Pacific, carried to
the mainland by returning Chinese-born, American-trained
engineers. Xiao, for example, formerly worked for U.S.
lasermaker Spectra-Physics. Liang of Nanjing Handson spent
seven years at HP-Agilent.
And though they may be late starters, the Chinese can
draw inspiration from the success of their archrivals, the
Taiwanese. The island has rapidly made itself a force to be
reckoned with in LEDs. Steele reckons that around 40 Taiwanese
companies now manufacture LEDs, including Lite-On Technology, a
member of FORBES ASIA's new Fabulous 50 list of top-performing
bigger corporations (Oct. 3).
"Four years ago, when I was telling people about Taiwan and
LEDs, everyone pooh-poohed me," Bob Walker says. "Now nobody
talks about this industry without mentioning Taiwan." The same
will soon be true of the mainland.
|
