Toshiba Corp. (6502) plans to sign at least three partnerships in the next 12 months to manufacture lighting fixtures in Europe as it seeks to become the region’s third-biggest supplier of light-emitting diodes.
The fixtures -- which attach lamps to ceilings and walls -- are key for expansion as clients increasingly demand complete systems to integrate LEDs into homes, offices and factories, Francois Seguineau, head of Toshiba’s European lighting operations, said in a phone interview.
LEDs are replacing traditional light bulbs as they’re smaller and more energy-efficient. They also have a longer lifetime. Tokyo-based Toshiba, which until 2009 only sold LEDs in Japan, plans to reach a top 3 spot in Europe by 2020, threatening the dominance of Royal Philips NV (PHIA) and Osram Licht AG (OSR) in a global market forecast to reach $42 billion by 2019.
Seguineau estimates that Toshiba, whose products range from flash-memory chips to steam turbines, currently only ranks among the 20 largest LED companies in Europe by unit sales.
“It’s not with LED lamps that we will continue to grow, it’s by moving to the fixtures business,” he said. “In 2013, 20 percent of our revenue came from the fixtures business and for 2014, we target 40 percent.”
The local partnerships are important as they’ll allow Toshiba to sell Asia-made LEDs in Europe with the help of fixtures manufactured by European companies, the executive said. The company already has an existing partnership with a German company, he said, declining to name the partner. A single LED lamp may cost 6 euros ($8.4) to 7 euros, while the average price of a fixture is between 200 euros and 300 euros, he said.
Toshiba has so far focused on sales to businesses as the corporate world was first to use energy-efficient LEDs. The company will start selling a full consumer range of LED products in September and it predicts that this segment will eventually account for 10 percent of sales, he said.
Osram and Philips are also expanding their LED business as new regulations to enforce energy savings are accelerating the demise of traditional light bulbs.
Amsterdam-based Philips, the world’s largest lighting company, saw sales in that segment drop by just under 1 percent last year to 8.4 billion euros. Munich-based Osram was spun off by Siemens AG last year as Europe’s largest engineering company divests units whose profitability or growth potential it deems inadequate. Osram last year extended a program of job cuts.
Toshiba’s lighting unit is part of the company’s home appliances division, which also includes air conditioning and products such as refrigerators. Sales at the division rose 2.8 percent in 2012, with the company saying higher profitability was driven by LED sales.
Still, Toshiba may struggle to offer the right packages combining LED lamps and fixtures in Europe, according to Peter Olofsen, an analyst at Kepler Cheuvreux.
“A supplier needs to build a good relationship with architects, as they are the ones deciding on the lights in a new building,” the analyst said. “This will cost time and money.” As the European luminaire market is very fragmented, Toshiba will need to reach agreements with many partners, he said.
“When it comes to LEDs, Toshiba already is quite the supplier,” he said. “But I doubt Asian parties will be successful in the European luminaries and fixtures business.”
Seguineau agreed that Toshiba needs more partners, adding that it already has distribution deals with French electrical equipment company Rexel SA (RXL) and appliances company Sonepar Group.
“We need to have more partners, because it is the only way to succeed.”
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