LED Lighting Driving Demand for New Phosphors

Published August 2012

LED Lighting Driving Demand for New Phosphors

Today, the bulk of phosphors sold to the LED industry are used for the production of white LEDs for the fabrication of LCD backlighting units. They are made, typically, by coating blue LEDs with yellow and other down-conversion phosphors to create white emission. But all is not well in the LCD backlighting sector. LED phosphors for display backlighting applications will struggle to gain ground over the next several years in the face of near saturation of LED-based backlighting in LCDs, reductions in phosphor prices, reduced LED-per-unit values, softening of display demand, and increased competition from backlight-free technologies like organic LEDs, especially in smartphones, tablets, and TVs.

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But the situation is very different in the solid-state lighting sector. In fact, a major shift is occurring in the lighting industry toward more efficient, long-lifetime LEDbased lighting, which will more than make up for the disappointments of the display market. Going forward, growth in sales of LED phosphors will be driven by sales to the LED lighting industry.

SUMMARY: The LED Phosphors Market

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Adding to the momentum is the fact that governments around the world are using the regulatory process to encourage the use of higher-efficiency lighting products. Since LEDs are potentially more efficient than any other alternative lighting source, LED lighting will preferentially enjoy the benefits of these mandates. This shift is already occurring; while LEDs for backlighting is growing at rates of well under 5

Market Value ($ Millions)

percent, the LED lighting market is expected to grow at compound annual growth rates of around 30 percent (based on number of LEDs). In order for LED lighting to keep up with these expectations and live up to its potential, better phosphors are needed. In fact, phosphors are one of the keys to achieving the ambitious LED lighting market penetration goals and differentiating the quality of LED lighting products versus other technologies. Specifically, improved light quality, or at least the consumers p erception of the quality, can be addressed with new phosphors. In a world in which a LED light bulb is several times more expensive than the tried-and-true (if inefficient) incandescent light bulb, consumers will think more seriously about their purchasing decisions when buying new bulbs and will simply expect more from the new lighting technology. At the very least, the light quality will need to be just as good as delivered by conventional technology, and light quality is inextricably linked with the choice of phosphors available to the LED makers. A large addressable market: The sheer size and application variability in lighting, which includes residential replacement bulbs and lamps, indoor and outdoor architectural and decorative applications, commercial/industrial lighting applications, street lighting, and automotive lighting, means that many different types of phosphors (and phosphor suppliers) will be part of the story. Overall, the lighting sector is characterized by region- and application-specific requirements for light output quality and performance, although materials that enable both higher efficacies and warm emission with high color rendering indices (CRIs), especially for indoor applications, are a major trend. Thus, we see an ongoing opportunity for phosphor firms to create products that are better able to provide the most appropriate color rendering and color temperatures for the various applications. Materials trends: LED phosphor technologies can be broadly separated into the following categories based on the inorganic lattice or matrix composition. And, while each type of phosphor will benefit from the general trends and opportunities set out above, each also has its own unique roadmap.

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Garnets: Garnet-based phosphors are the industry standard and can be found in
almost all lighting applications. The yellow garnet phosphors, mostly cerium-doped garnets, make up the bulk of the phosphors used in LED lighting today. They are used in combination with the typical blue InGaN LEDs, and increasingly in combination with red nitride-based phosphors to improve the warmth and color quality of the emitted light. The advantages of garnets are that they are widely available and that the procedures for manufacturing and using them are well established. The biggest downside to the use of garnets is that the intellectual property (IP) surrounding them is heavily

controlled by the key LED firm Nichia. As a result, some LED manufacturers may opt for lower-performance alternatives to obtaining a license from Nichia.

Silicates: The silicates come in a variety of colors and are known for high brightness,

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although they are also known for instability at high temperatures. Another potential downside to silicates is that they tend to be more suitable for cool white systems. Cool white lighting is popular in Asian markets, but less desirable in most European or American ones, a fact that may limit the addressable market for silicates somewhat. The good news, however, is that Asia is presently the largest market for LEDs.

Aluminates:

The aluminate phosphors are more expensive than the garnets, but have high stability (thermal and environmental). Their excellent stability makes them most suitable for high power LEDs and outdoor lighting markets. In addition, they reportedly give the best possible CRI and light quality when used with the right red phosphor.

Nitrides and oxynitrides: The nitrides, especially europium-doped (oxy)nitrides,

represent a key development. The latest high quality, high purity red nitride phosphors can be used with the classic blue LED plus yellow phosphor systems to create better, warmer light with minimal reductions in efficacy. Intematix and Mitsubishi Chemical Corporation have both introduced new deep red phosphors that enable the production of warm white, high color rendering LEDs. (And, the two firms are currently engaged in a battle over the IP.) The Intematix phosphor reportedly enables the production of LEDs with 98 CRI and 2700 K CCT indeed very high quality, warm white light. In addition, by the end of 2012, LED lighting leader Philips says it will be selling a dimmable, warm white, 100-W equivalent bulb (1700 lumens and 23 W) with 20+-year lifetime under the name EnduraLED. The price of this bulb is estimated to be under $50. Where are the opportunities? The developments and trends described above are setting increasingly high standards for both the LED lighting industry and the LED phosphor industry that supplies it. Within that context, one can identify several key opportunities for phosphor suppliers to create a strong competitive advantage, including the following:

Higher efficacy products: LED phosphors that provide better luminous efficacy, such
as through higher internal quantum efficiency, will help LED lighting better compete for market share. Phosphors that fine-tune the emission in key parts of the visible spectrum that match up with human eye sensitivities, th ereby avoiding wasteful efficacy-lowering emission, and phosphors with reduced Stokes and down-conversion losses associated with absorption from the LED and re-emission, represent key opportunities.

Light quality at reasonable cost: Phosphors that provide better color rendering and
better, application-specific color temperatures are also still in demand, because todays LED lighting products still perform poorly in comparison to the traditional incandescent bulb. Historically, consumers have viewed LED lighting as cold and harsh and indeed many early-to-market LED lighting products were accurately described using these terms and were not always judged attractive by consumers. Major improvements have been achieved on this front, but most of the highest light quality products are still very expensive. Phosphors that enable a convergence of high color quality and reduced costs present an opportunity for phosphor suppliers.

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High stability products: Phosphors that provide both high brightness (like so many of the silicate-based phosphors) and high temperature stability are also in demand. These attributes would be especially advantageous in the street lighting and automotive lighting sectors. Note that these sectors are less influenced by the need
to match precise color rendering and color temperature characteristics than are the consumer and architectural lighting markets, so a wider array of phosphor types might meet the requirements. In addition, there is little to be gained from a focus on pure efficacy improvements, because phosphor-coated LED lights already perform better than the competition (sodium vapor, high-intensity discharge, halogenincandescent).

High uniformity products: The importance of highly uniform, or at the very least
carefully engineered, phosphor particle size distributions, and the development of better deposition processes for the phosphors, are recognized throughout the industry. Tightly specified phosphor powders and optimized phosphor coating uniformity lead to improved LED efficacy and color quality performance and help to reduce costly binning. Often, incorporation of nanoscale phosphors is part of the strategy, because they may, in theory, lead to even better phosphor performance. IP and the phosphor supply chain: In NanoMarkets opinion, the LED phosphors business is exciting not just because it is a volume play, but also because it is a business in which there is still plenty of room for phosphor firms to create proprietary, IP-protected products. In fact, IP development is a cornerstone of the competitiveness of this industry. Overall, the importance of phosphor technology to the emergent LED lighting industry is evident in the high level of patenting, licensing, cross-licensing, and patent infringement litigation activity that goes on among key industry players. Of course, pioneering LED phosphor firm Nichia is a clear leader in this regard, but the big three lighting firms GE (US), Philips (The Netherlands), a nd Osram (Germany), as well as more specialized firms like Toyoda Gosei (Japan), Cree (US), Seoul Semiconductor (Korea), Optiled (Hong Kong), Intematix (US), and others are now also in the mix.

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All of these firms continue to be major players in the LED market, either from the materials or the components side, or from both, and the generation (and licensing/cross-licensing) of additional IP along with the usual development and commercialization efforts continues in earnest. A key strategy for survival is to outinnovate the competition with new materials systems and platforms, and it does not hurt to have enough cash on hand to vigorously enforce and defend generated IP. Despite the seemingly crowded nature of the market, NanoMarkets has identified several of incentives for LED phosphor suppliers to get into this market, or to expand their market share: The myriad of possible phosphor types means that even though the intellectual property space appears to be already very saturated, there is still plenty of room for new materials to be developed and patented. And, because the LED lighting market is still open to new types of proprietary phosphor solutions, there is significant potential for phosphor firms to build their brands and create protectable IP. Although it has been around for a while, the LED lighting industry is still at a relatively early stage of technology and market development, so the barriers to entry for new phosphor firms are weak, and the potential for high margins remains strong. NanoMarkets believes that some phosphor suppliers will be able to break away from the rest by not only doing the obvious things, like improving performance and color quality of their phosphor offerings, but also by establishing more downstream or value-added products, which can be done as a way to both capture more value and hedge against IP battles. The Intematix move toward selling phosphor-coated components for use in its remote phosphor technology is a key example of this trend.

Long-range competition for LED phosphors in lighting applications: All of the opportunities and good news discussed above should not be taken by the industry as a sign that it may rest on its laurels and simply enjoy an ever-growing market. Indeed there are several factors that may, eventually spell trouble for either the LED lighting industry overall or for the use of phosphors in LEDs specifically.

Changes in the LED lighting market: With respect to the LED lighting industry overall,
there are two challenges that it may face. First, the LED lighting market may eventually be partially self-limiting. With very long lifetime LED products, the replacement market, which makes up the largest chunk of general lighting market today, dries up. Second, there is always the possibility that development in another alternative lighting technology will outpace that of LED lighting. Breakthroughs in

fluorescent technologies and in the nascent organic LED lighting industry that render LEDs non-competitive, while unlikely, are certainly possible.

Chinas control of rare earths: Relatively expensive rare earths are used in the

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production of LED phosphors. China controls most of the market for these metals and has, at times, placed restrictions on rare exports. Thus, the industry must keep an eye out for unexpected rare earth price increases or unexpected gaps in supply. The good news, however, is that very small amounts of metal are used in LEDs on a perunit basis, especially when compared to fluorescent lighting, so issues with price or supply of rare earths may actually encourage faster adoption of LED lighting over the fluorescent competition. In addition, many LED components are made in China anyway, and even Western LED and LED materials suppliers are establishing a manufacturing base in China, which will mitigate any restrictions that China may place on rare earth exports.

Competition for phosphors from emerging materials: There is also potential

competition on the material front. Quantum dots, which can be precisely tuned to deliver only the needed/desired emission colors, may be the next big thing in solid state lighting and could pose a long-term threat to conventional phosphor technologies. 3M has recently partnered with QD firm Nanosys on the commercialization of a QD-coated film for use in both display and lighting applications. Although much is still to be proven reliability of supply, price, lifetime, etc. this partnership adds credibility to the notion that QDs might one day replace conventional phosphor coatings. Firms to Watch in LED Phosphors and Related Industries The importance of phosphor technology to the emergent LED lighting industry is evident in the high level of patenting, licensing, cross-licensing, and patent infringement litigation activity that goes on among key industry players. Of course, pioneering LED phosphor firm Nichia is still a clear leader, but the "big three" lighting firms GE (U.S.), Philips (The Netherlands), and Osram (Germany), as well as more specialized firms like Toyoda Gosei (Japan), Cree (U.S.), Seoul Semiconductor (Korea), Optiled (Hong Kong), Intematix (U.S.), and others are now also in the mix. All of these firms continue to be major players in the LED market, either from the materials or the components side, or from both, and the generation (and licensing/cross-licensing) of additional IP along with the usual development and commercialization efforts continues in earnest. IP development is a cornerstone of the competitiveness of this industry. A key strategy for survival is to out-innovate the competition with new materials systems and platforms, and it does not hurt to have enough cash on hand to vigorously enforce and defend generated IP. The table below contains a table with NanoMarkets' thoughts on some of the key firms to watch in the LED phosphors development space.

Selected Key Firms to Watch in the LED Phosphors Market

Firm Cree (U.S.) Products LED components, IP NanoMarkets' Analysis Cree is no longer the first or second largest LED manufacturerit has dropped down to about third or fourth in linebut it does have a strong reputation for outinnovating other players in the LED space. NanoMarkets expects that it will continue to be an important pioneer for adoption of new phosphor technologies, and we expect that it will continue to maintain strong relationships with key suppliers (like Intematix) and development/licensing partners (like Philips). Dow recently acquired SRI International/Sarnoff Corporation (U.S.) spinoff Lightscape Materials after forming an LED technologies business unit in the last quarter of 2011. The acquisition appears to be part of a broader Dow strategy to expand and augment its LED materials business. It is too early to tell whether or not the acquired Lightscape technology will be a major factor in the LED phosphors market, but Dow does have the financial resources and the supply chain, service, and support capabilities to establish itself in the market quickly. Intematix is one of only a few "pure play" phosphor companies, and it is certainly one of the biggest. It also has the broadest product portfolio and is one of the major participants in the licensing/litigation culture of the LED industry. Intematix has also recently made a value-added, downstream move with its launch of remote phosphor components. Traditionally, most LED lighting firms fabricated their own remote phosphor coatings (if they used them), often under license from Intematix (or Cree). With Intematix's new business strategy, a wider array of LED makers can now opt for remote technology without having to establish their own manufacturing processes. MCC is currently battling with Intematix for control of the high stability/high efficacy red nitride phosphors, which represent a key enabler of warm white/high CRI general illumination applications. Nichia's hold on the LED phosphor market is largely due to its control of key garnet (YAG)-based phosphor technology. Although some patents are expired or expiring soon, Nichia has taken the position that all those wishing to use garnets must first go through Nichia. Because garnets are still the most widely used phosphor, Nichia's grip on the market is substantial. Nichia is also a key maker of LED components for lighting applications; as such, any directions taken by Nichia with respect to phosphor materials have major implications on the phosphors market as a whole.

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Dow Electronic Materials (U.S.)

LED phosphors, new entrant

Intematix (U.S.)

LED phosphors, remote phosphor components

Mitsubishi Chemical Corporation (Japan) Nichia (Japan)

LED components, LED phosphors (especially red nitride phosphors, captive use) LED components and IP

Selected Key Firms to Watch in the LED Phosphors Market

Firm Osram Opto Semiconductors (Germany) Products LED components, LED phosphors (captive use) NanoMarkets' Analysis Osram is a key firm to watch based on its (current) position as the largest LED manufacturer in the world. In addition, Osram has a reputation for innovation, quality and customer service, which could help it retain its position of authority, but we think that Osram should carefully avoid resting on its laurels as the biggest supplier, even as it may be reeling from internal turmoil resulting from last years' LED supply problems, Chinese competition, and the fact that its parent company (Siemens) has been trying to sell it or spin it off. Osram cannot ignore its technology development programs or it risks being surpassed by Philips, Cree, and others, with respect to innovation. Philips is a major producer of LED lighting products, and a clear leader in the generation of LED lighting-related expertise and IP. Philips' LED components remain the industry standard in terms of quality and lifetime, and Philips was an early adopter of remote phosphor technologies under cross-licensing agreement(s) with Cree. As such, any moves that Philips makes, especially in the general illumination sectors, can be taken as signals that indicate the direction(s) that the rest of the industry will take.

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Philips Lumileds (The Netherlands)

LED components and downstream LED lighting products, LED phosphors (captive use)

Source: NanoMarkets Summary: NanoMarkets believes that major opportunities are currently emerging for LED phosphor manufacturers. Broadly speaking, these opportunities are being driven by three factors: The underlying market for these phosphors is rapidly growing as LED-based solid-state lighting is on the rise. Phosphor performance and characteristics are vital to the success of LED lighting products. It is still possible for phosphor makers to create proprietary products and brands that can give these firms superior margins.

The information contained within this paper was drawn from the NanoMarkets report, LED Phosphors Markets 2012 (Nano-541). Additional details about the report are available on the NanoMarkets website at www.nanomarkets.net