Lighting: Bright Idea,Philips

December 5, 2008

phillipsThe next time you flick on a light switch, consider this: about one-fifth of the world’s electricity is used for lighting, and most of it is squandered. Traditional 
 incandescent light bulbs invented more than a century ago remain the norm, but they are horribly inefficient. Only about 5%-10% of the energy they consume is used to produce light, while the rest is burned off as useless heat.

For Allard Bijlsma, that spells opportunity. Standing in a conference room in a suburb of Antwerp, he picks up an oblong silver object slightly smaller than a rugby ball, brandishes it triumphantly, and makes the sales pitch. “We will shape this market; we will change the rules of the game,” he says.

Bijlsma runs the consumer luminaries business for Dutch company Royal Philips Electronics. He’s feeling particularly upbeat these days because he’s about to launch a new line of high-tech products that use only a fraction of the energy of traditional lighting. The oblong object he’s holding is a table lamp. It’s just one of 50-plus lighting fixtures (luminaries, in the industry jargon) in a new range based on the latest in digital light-emitting diode (LED) technology, which can produce a warm, white light that comes close to rivaling halogen lamps but uses only a fraction of the electricity. And, unlike traditional bulbs, there’s no need to stock up on spares: Philips estimates the new lights will have a 20-year life.

Energy-efficient lamps have been around for more than two decades, but until recently they’ve had a mixed track record. The earliest fluorescent models were expensive and clunky, and that put many consumers off. “A lot of people still think that energy-saving light bulbs are too large and too dim,” says James Russill, a lighting specialist at Energy Saving Trust, a British nonprofit consumer advisory group. That’s finally starting to change, for three reasons. The first is that the technology has improved immeasurably thanks to LED, which consists essentially of semiconductors coated with phosphorus. Second, prices have come down to the point where a high-tech lamp doesn’t need to be much more expensive than a traditional incandescent one. Perhaps most significantly, governments are now getting involved in energy-saving efforts. Last year, Australia became the first country to announce it is banning incandescent bulbs (from 2010). Britain is also moving to phase them out: from January, no incandescent bulbs of 100 W or more will be sold. In October, a meeting of European Union energy ministers supported calls for an E.U.-wide ban on these bulbs, but the exact timing has yet to be decided.

Business is starting to catch on, too, not least because of the potential long-term cost savings. While the initial investment in new digital lighting is steep, the long life of the lights means that it can be a smart one-time buy. In Britain this year, supermarket giants Tesco and Sainsbury have both announced plans to substitute fluorescent with LED lighting in their freezer sections. Hotel chains are also making the switch.

Lighting companies the world over are scurrying to capitalize on these shifts, including heavyweights Osram and GE. “The industry has been extremely proactive,” says Russill of the Energy Saving Trust. Philips is making some of the biggest bets. Over the past two years, it has spent more than $4 billion on acquisitions aimed at positioning itself as a leader in digital, low-energy lighting. The plant outside Antwerp belonged to the consumer-lighting market leader Partners in Lighting, which Philips bought in 2006. The company followed that purchase a year later with the $2.7 billion acquisition of Genlyte, a big U.S. player that makes lights for offices, highways, factories and outdoor advertising. Those deals come on top of its own massive in-house research efforts in R&D labs from Silicon Valley to Eindhoven in the Netherlands.

There’s a lot at stake. The worldwide lighting market is worth about $78 billion a year, and consumer luminaries alone — excluding the market for bulbs — is almost one-third of that. Philips is moving fast to expand from its traditional European base. Bijlsma reckons the firm’s sales of LED and other low-energy lighting will double every year in emerging markets, and grow “at a fast pace” in mature markets. Philips is targeting Latin America, and also Asia, where it is planning branded showrooms in stores.

Will consumers go for it this time around? Yes, says Russill: “LED is here and it’s moving very quickly.” Back in Antwerp, Bijlsma and Philips are betting he’s right.

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