Philips: Lord of the Lights

In the race to convert the world to earth-friendly LEDs, its lead has put GE in the shadows

This Christmas, Royal Philips Electronics (PHG) is vividly displaying its dominance in the lighting market. It supplied the 50 giant illuminated snowflakes that festoon the front of the flagship Saks Fifth Avenue (SKS) store in New York. The flakes are aglow with light-emitting diodes, or LEDs--semiconductor devices that produce bright beams of light using a fraction as much electricity as incandescent bulbs. The 40,000-plus LEDs in the display sip about the same amount of power as three toaster ovens.

Philips also will provide the lights for the New Year's Eve Times Square Ball in New York. Instead of 600 incandescent and halogen bulbs, the ball will be fitted with more than 9,500 LEDs, which burn twice as brightly and can create a palette of 16 million colors. Depending on their hue, they'll be up to 98% more energy-efficient than the bulbs they replace.

Philips' latest LED installations give the company much-coveted green bragging rights. Lighting accounts for about one-fifth of all electricity used, in part because, with traditional incandescent bulbs, most of the energy is wasted in heat. LEDs burn cooler and last much longer. So the company that leads in this area can claim to be helping planet earth.

General Electric (GE), Philips' biggest rival in lighting, has spent millions to bolster its own environmental credentials in a high-profile campaign whose slogan is "ecomagination." But it hasn't matched the billions of dollars Philips has spent on LEDs and other energy-efficient lighting systems. This year alone, Philips has paid $4.2 billion to acquire five companies in the lighting sector, including the Nov. 26 purchase of Genlyte (GLYT) in Louisville, the No.2 U.S. maker of lighting fixtures. As a result, Philips has vaulted past GE as the leading supplier of lights and fixtures in the all-important U.S. market.

Over the next ten years, as much of the world makes the transition to LED lights, Philips' lead over GE is expected to grow. "A building contractor can go to Philips and get everything he wants," says Janardan Menon, a financial analyst at Dresdner Kleinwort in London. The same, he argues, is not true for GE.

That said, GE will also be doing some seasonal boasting this year. It's supplying 30,000 multicolored LEDs to light up the Rockefeller Center Christmas tree in New York. Perhaps more important, GE won the contract to replace the fluorescent lighting in more than 500 Wal-Mart Stores (WMT) across the U.S. with LEDs. While the company has avoided making the kinds of acquisitions Philips has pursued and purchases its LED chips from Japanese manufacturer Nichia instead of making them itself, GE executives deny they are surrendering the field to Philips. "Investment in products and evolving technologies is clearly a cornerstone of our business," says Michael Petras, a GE vice-president responsible for the company's global LED business.

Philips and GE both face risks as they chart energy-efficient lighting strategies. Because LEDs last so long, there's no significant replacement market, as there is for incandescent bulbs. A typical LED will work for more than 11 years if burned 12 hours a day.

To make up for the lost bulb income, Philips gradually has maneuvered its way into every corner of the lighting market. The thinking is, to take full advantage of LED lighting, customers also must install fixtures and control systems. Between retrofits and fresh construction, Philips figures it has decades of sales ahead, stoking the expansion of next-generation lighting.

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