"LED has gone from being a novelty to a solid reality"

BusinessGreen.com: Lighting Science Group (LSG) recently acquired Dutch lighting specialist Lighting Partner BV (LPBV) for $5m in cash and around $22m in shares. What was the rationale behind the deal?
Govi Rao: Our capabilities are focused on chips, LED modules and all the surrounding controls. What we were struggling with was designing ready to use solutions quickly, ie the fixtures for the light. We had the LED know how, but we tended to struggle in translating that into a plug and play product, which, in fairness, is an issue across the LED industry. What this acquisition has brought us is over 500 different lighting products and we can now integrate the LED technology into those products. The net result is that we'll be able to cut down the time it will take us to turn LEDs into plug and play products.

How rapidly do you expect to be able to complete that technical integration?
We undertook a trial to look at the feasibility of fitting an LED module into some of LPBV's designs and within 10 days we had already converted two of the products. The new LED products delivered like-for-like light output compared to the previous model and used a sixth of the energy. Moreover, we deliberately selected two of the more challenging products to adapt.

Where does the integration go from here?
We have a roadmap to convert several more products in the coming weeks. Our vision is that we can get a large number of the products converted to LED versions in the foreseeable future. We will not convert all of the products, but we will pick out the most suitable designs based on customer feedback and look to offer an LED alternative. What the deal will also give us is extra scale. LPBV has a solid presence in Europe and is also working with a manufacturing partner in Thailand. We are now looking to work with that partner to bolster our manufacturing capacity further and we have already moved the production line for some of our products into the Thailand facility. We are also working on integrated products with OEM partners in the US, Europe, Japan and the Middle East.

How big an issue is manufacturing capacity?
We are constantly struggling to meet demand. We are having to turn down requests due to supply chain issues. To manage that demand we have decided to focus on five core markets: so-called architainment installations, such as the Times Square New Year ball; retail which is a rapidly growing market; public infrastructure, like street lighting; commercial and industrial applications; and the gaming market, where we have a legacy business around slot machines.

How do you plan to tackle those supply constraint issues and meet the growing demand for LED lighting?
That was one of the main motivations behind the acquisition. The extra manufacturing capacity is fantastic and the more we scale up the better the price of the end product becomes. We are also working to develop multiple supply and manufacturing partners and in product lines where we see demand accelerating we are talking to manufacturers about OEM deals whereby we license our technology to existing lighting manufacturers.

There is a lot of hype currently surrounding LED technologies with supporters claiming the technology has the potential to cut lighting's energy footprint by in excess of 90 per cent, but is this hype translating into sales?
The market is expanding rapidly. Before you take the acquisition into account, for the year to date we have already booked and shipped 67 per cent of the sales we achieved from last year. In 2007 we had sales of about $9m, so we are on track for substantial growth this year. The demand is there, the focus has to be on execution.

One of the big criticisms of LED lighting is the upfront costs with even smaller bulbs costs in excess of $50, compared to conventional bulbs that are available for a fraction of the price. How close is the industry to being cost competitive with incumbent technologies?
In certain applications, such as retail, it is already cost competitive, which is why retail and commercial are the fastest growing markets. They are seeing a ROI within two and a half years with these products and they are really beginning to understand those lifetime cost arguments. Moreover, on a lot occasions these new LED lights are replacing fluorescent lamps that contain Mercury and they see the opportunity to get that Mercury off of their premises as a good boost to their CSR credentials. On top of that there are legal issues emerging.

How so?
In some US states there are legal standards that require a certain level of lighting energy efficiency. We have come across incidents where retailers have not been able to open up new stores because of lighting regulations. When that is the case and your expansion plans are being impacted you really start to look at alternatives.

How close are are LED technologies to genuine mainstream acceptance?
Within just a few years LED has gone from being a novelty to a solid reality to now being a serious competitor in certain market segments. Over the next six months we will also start to see growing numbers of mainstream consumer LED products emerging. We have already launched some lamps for the residential market and we are looking to launch further consumer products over the next year, which will be aimed at building firms as a lighting solution for new builds.

About Govi Rao

Govi Rao is chairman and chief executive officer of US LED lighting specialist Lighting Science Group

Rao was formerly vice president and general manager of the Philips Solid State Lighting business in North America, he had previously held several leadership roles in Philips Lighting, including Senior Director of its professional lighting business and Vice President of Business Creation and Brand.

Rao is a founding member of the advisory board at the Institute for Sustainable Enterprise at Fairleigh Dickinson University, and he also serves as an advisor on the US-China Center for Sustainability.