Philips looks to LEDs to restore lighting profits

Philips looks to LEDs to restore lighting profits
As margins are hit by weak economies and high materials prices, Philips revises down its growth expectations for the lighting market.

Pricing pressure and increases in raw materials costs have badly impacted Philips’ lighting business in the second quarter of 2011, off-setting a 21% year-over-year increase in sales of LED-based lighting products.

The giant company, headquartered in The Netherlands, posted revenues of €1.78 billion from its lighting business for the three months that ended in June. Although that represents a decline from €1.86 million in the equivalent period in 2010, Philips said that “comparable” sales were actually slightly up, and that the company was hit by unfavorable currency fluctuations.

But the real impact was felt on the company's bottom line, with a €1.4 billion impairment charge relating to lowered growth expectations leading to a net loss of €1.2 billion for the second quarter.

Philips CEO Frans van Houten added that the weak performance reflected a “sluggish post-crisis environment”, with the company now intending to raise prices to restore its margins. Despite that, the growth in LED-based general lighting applications has been strong, with consumers in Japan said to be buying the new technology to help mitigate the impact of restrictions on electrical power supplies following the earthquake and tsunami in March.

But because of the slower-than-expected recovery from the economic crisis, and the uncertainty generated by worries over debt burdens and austerity measures around the world, Philips has revised downwards its expectations of growth for the lighting market over the next few years.

Whereas it had previously forecast compound annual growth of 7-9% between now and 2015, Philips is now anticipating only 5-7%, with the annual global lighting market reaching a size of around €80 billion by mid-decade – and with LED-based technologies accounting for just under half of the market by then. The current level of LED penetration in general lighting is estimated at below 5%.

LED-based lighting products accounted for 15% of the company’s overall lighting sales in the latest quarter; equivalent to €267 million. Paradoxically, Lumileds – Philips’ LED chip manufacturing subsidiary based in San Jose, California – saw its revenues decline.