Summary of Perspectives on The Global Lighting Market Report of McKinsey

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Summary of Perspectives on The Global Lighting Market Report of McKinsey

After the post we shared yesterday, some of our visitors requested me about finding global lighting market forecast or some report about it. To respond your request I decided to share a summary of McKinsey Report for 2020 forecast of lighting market.

From Perspectives on The Global Lighting Market Report of McKinsey

The findings in “Lighting the way” report of McKinsey 2011 – the first to provide a holistic view of the fragmented and complex global lighting industry – still hold true in general today. The market is on a clear transition path from traditional lighting technologies to LED. However, world events over the past year have given clearer contours to the lighting industry’s development, and some market parameters have shifted or accelerated.

The market is on a clear transition path from traditional light- ing technologies to LED

On the one hand, the world’s ongoing financial turbulence and Europe’s debt crisis have inevitably had a negative impact on global and regional economic growth, both actual and projected. This has also adversely affected the lighting market. On the other, regulation across the globe has become more stringent, fueling the penetration of more energy – efficient light sources, such as LEDs. For example, China has now passed legislation to ban incandescent lightbulbs. Governments have also reacted to the disaster in Fukushima by debating (and in some cases deciding on) a nuclear phaseout. This is expected to boost the uptake of low-energy light sources that help to close the looming energy gap.

Regulation across the globe has become more stringent, fueling the penetration of more energy-efficient light sources

Another vital metric has altered. LED prices have eroded more aggressively, pulling forward the payback time of LED lighting. The inflection point for LED retrofit bulbs in the residential segment, for example, is now likely to be around 2015. McKinsey’s 2012 Global Lighting Market Model calculates the LED share in general lighting at 45 percent in 2016 and almost 70 percent in 2020 – 2 and 5 percentage points higher, respectively, than predicted in 2011.

LED prices have eroded more aggressively, pulling forward the payback time of LED lighting

Both the shifting macroeconomic context as well as the accelerating LED price erosion have affected long-term forecasts of the size of the lighting market. The updated McKinsey market model indicates revenues of around EUR 100 billion for the global market in 2020 – a decline of over 5 percent versus last year’s forecast. The total market is expected to grow annually by 5 percent through to 2016, and by 3 percent thereafter until 2020. A breakdown by sector shows that general lighting has been impacted the most. The forecast of market size for this segment in 2020 is around EUR 83 billion – some EUR 5 billion lower than last year’s projection.

The total market is expected to grow annually by 5 percent through to 2016, and by 3 per- cent thereafter until 2020

The figures for automotive lighting (representing around 20 percent of the total market) have changed only slightly. Adjustments to vehicle unit production and sales forecasts due to macroeconomic volatility have partially been offset by a modified methodology. In addition, lower exposure to LED price erosion given the smaller LED share in this segment has further reduced the impact of market changes. The revenue outlook has remained stable, at around EUR 18 billion by 2020. Backlighting, by contrast, is antici- pated to shrink faster than previously estimated. Lower sales forecasts for LCD TVs and monitors, accelerated penetration of OLED (organic light-emitting diode) products, as well as higher LED price erosion are key contributors to a swift decline in market size, falling to EUR 1.0 – 1.5 billion by 2016.

As last year, general lighting was divided into seven applications: residential, office, shop, hospitality, industrial, outdoor, and architectural lighting. The faster LED price erosion has raised forecasts for LED penetration in many of the segments – office, shop, and hospitality, for example, while decreasing the size of the lighting market overall by value. Forecasts for LED uptake in the residential segment remain high, at almost 50 percent in 2016 and over 70 percent in 2020. Architectural lighting remains the early adopter, and its LED market share is expected to reach close to 90 percent by 2020.

In terms of the regional split, Asia is expected to account for approximately 45 percent of the global general lighting market by 2020. Asia currently leads the market transi- tion to LED in general lighting, driven especially by swift penetration in Japan and China. A new analysis this year – market segment by product grade for global general lighting – reveals that the fastest growth is in the commodity segment, forecasting an increase of EUR 10 billion by 2020. Again, it is mainly Asia driving growth in this market segment.

Asia is expected to account for approximately 45 percent of the global general lighting market by 2020

Meanwhile, disruption of the industry structure is becoming more apparent. Value in the LED chip and package market is set to shift from backlighting to general lighting, and players are beginning to expand downstream along the value chain. The evolving LED market is impacting industry dynamics along the entire general lighting value chain, with effects on light engine standardization, the fixtures market, replacement versus new installation, and channel mix.

Value in the LED chip and pack- age market is set to shift from backlighting to general lighting

New business opportunities are also emerging as the industry landscape is redrawn. The lighting control system market is already mushrooming, with a growth rate antici- pated at almost 20 percent p.a. through to 2020. While office is currently the largest segment in this area, expansion is expected in residential and outdoor. Service-related businesses in the fields of maintenance, technical solutions, and financial services represent merely the beginning of what promises to be a new era of business models in the lighting arena.

The lighting control system market is already mushrooming, with a growth rate anticipated at almost 20 percent p.a.

The transition of the global lighting market towards LED is triggering and accelerating ever more pronounced discontinuity in industry structures. Players will be well advised to analyze the coming repercussions in their segment of the value chain, and position themselves for change.

McKinsey & Company


Source: McKinsey – Perspectives on The Global Lighting Market Report
Download the Global Lighting Market Report of McKinsey here.
McKinsey & Company official site.

 

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