Last week, I had the opportunity to speak at the Lazard Capital Markets Annual Alternative Energy Investor Summit in New York City. What is a private company doing at a Wall Street confab? Well there are two answers to that question – one from the private company perspective and the other from the investment bank perspective.
As a private company, I have found that Wall Street analysts typically have a rigorous and skeptical view of the market. These analysts are the source for critical market information and they spend their days trying to figure out how markets will develop and who will benefit. It’s great to hear their close-to-the ground commentary which provides a nice balance to an entrepreneur’s exuberance. In the LED space, all of the action has been early in the value chain at the manufacturing and component level. Companies like Cree, Veeco, and Rubicon have been burning up the charts. If I had invested $1,000 in each of these companies when I started at Digital Lumens on June 2, 2009. I would now have over $17,000, or an almost 600% return in 18 months. In contrast, the fixture and the systems parts of the LED lighting business are tough to invest in. There are no pure-play investments…yet.
As an investment bank, private company participation in conferences give insight into what the future looks like in terms of technology and competition. A private company is also not bound by the Safe Harbor terms and we tend to be a little bit outspoken in terms of comments and predictions. Below are some I made at the conference:
- LED share of general illumination will grow to 30% over the next decade from its current sub-1% position.
- A high-quality manufacturer will release a 60-watt light bulb into general distribution for under $20 in 2011.
- This same light bulb will be under $2 by the end of the decade.
- The current leading LED component manufacturers will continue to outpace the market in terms of technology and performance, but that additional capacity and vendors (at the high end from Korea and at the commodity end from China) will create pricing pressure.
- The leading lighting manufacturers will come under great pressure from LEDs from multiple directions. First, LED technology (plus software and networking) is not a natural fit to their legacy capabilities. Second, the distribution channel is going to change from an exclusivity-based multi-tiered channel to an energy and efficiency value added reseller network. Third, the annuity from bulb sales is going to diminish as long-lasting LEDs penetrate the installed base.
Earlier in my career I was an analyst for Forrester Research. I really enjoy predicting the future – but it’s more fun making it come true.