Cree Launches Step-Up Quality LED Bulb as Prices Fall, Competition Heats Up at Retail

While Durham, North Carolina-based LED maker Cree has an immediate, and ambitious, goal to drive 100 percent market adoption of LED light bulbs, led by its single-channel distribution through Home Depot stores, the company is simultaneously building a consumer brand for the first time. The company is about “changing the world to LED light and it starts with the basic application,” Mike Watson, vice president-product strategy, told us on a news-media tour in New York Thursday.

When asked how Cree hopes to build on its growing brand awareness, Watson downplayed the company’s product roadmap beyond filling the lighting market’s installed base of incandescent-filled light sockets -- some 98-99 percent of lights today. He acknowledged there are natural extensions to Cree’s solid-state bulb lineup through sensors and connected smart home applications such as Z-Wave or ZigBee. “You can assume there are things like that in our future,” he said. Cree could “go out now with an awesome demonstration of the future of lighting,” he said, but that would “become an immediate distraction to the present of lighting,” he said.

Cree is in the early stages of educating consumers about LED bulbs and building the brand, and “we have a long way to go in replacing lighting,” said Watson. He cited the need for a “critical mass” of market adoption before moving to a next level. At 5-10 percent market penetration, “then you can bring the power of solid-state to the market,” he said. “Once people accept LED, then it’s possible to introduce them to all the things LED technology enables.” He listed several features that future bulbs could incorporate, including more efficient designs, motion and light sensing, automatic dimming with ambient light detection and lighting control.

The company is well on its way to control, having launched its SmartCast system for the commercial market earlier this year. Watson’s enthusiasm for the simplicity of SmartCast indicated the product is positioned for the residential market, too. He noted its single-button operation for control of up to 240 lights at once and that “anyone can do it.” SmartCast will automatically tell where a light is relative to a window, sense how much light is coming into a room and use its motion- and ambient-light-sensing technology to determine when lights need to be on, he said. In a SmartCast system, an LED bulb will “only be on when people are in a room and only be lit to the level it needs to be given the amount of light that’s in a room,” he said. “That saves even more” on energy, he said.

For now, Cree is intent on seeding the LED market and trying to position LED technology as the market leader in the government-mandated transition to energy-efficient lighting ahead of competing bulb technologies including compact fluorescents, halogen and energy-efficient incandescents. The New York event was designed to show that Cree LED bulbs created a more pleasing light in typical household vignettes the company set up in a room at a hotel.

Cree demoed its True White (TW) series of LED bulbs that it launched earlier this week. TW bulbs have a Color Rendering Index (CRI) of 93, which Cree positions as “true and natural” light suited for use in kitchens, bathrooms and closets “where color quality matters most.” The bulbs were engineered to meet the California Energy Commission’s LED bulb spec that includes a minimum CRI of 90. The goal of the rating is to help utilities and consumers find LED bulbs capable of delivering incandescent-like color rendering while also using far less energy.

The TW bulbs also give Cree a way to sell a more expensive bulb, although it wasn’t clear during the event how much more the TW series costs to engineer and build. The bulb uses a purplish neodymium coating that’s baked into the bulb’s glass, which “carves out part of the yellow” of the color spectrum, enhancing reds, greens and blues, said Phil Primato, product marketing manager. The result, Primato told us, is a “more natural” light at the expense of lumens. The TW series, available in 40-watt-equivalent and 60-watt-equivalent versions, sells for $13.97 and $15.97, said a news release. Cree’s lowest-priced comparable non-TW bulbs at Home Depot Thursday were selling for $9.97 for the 40-watt version and at a “new low price” of $6.97 for the popular 60-watt version, said the website.

Price is key to Cree’s strategy, even if it comes at the expense of gross margin, which dropped in the Lighting segment in Cree’s most recent quarter ended March 31 to 27.4 percent from 30.6 percent in the year-ago quarter, according to the company’s 10-Q SEC filing. Revenue in the Lighting Products unit grew from $130 million to $176 million year-over-year, it said.

On enhanced LED technology, Watson said as “fun” as LED products like Philips’ color-changing Hue lighting system are, Cree believes “putting bulbs in two-packs that are $100 a bulb … actually hurts the perception of LED lighting more than it helps.” The $199 Hue bundle -- including three bulbs and the Wi-Fi bridge -- actually prices out at less than $100 a bulb, but it’s still steep and far more expensive than Cree’s sub-$10 white-light LED bulbs at Home Depot, we found. The premium-priced lighting bundle “reinforces the belief that LED is too expensive,” when “even unrebated, these things will pay for themselves pretty quickly,” Watson said. “We're not into parlor tricks and fun demonstration products,” he said. “We're about changing the world to LED light.”

Philips, which invented the light bulb, has a vested interest in growing the replacement light bulb market, too, and it’s also taking aim at price. Philips’ 60-watt-equivalent bulb was selling Thursday at Home Depot for $8.97 with a limit of one per customer, underscoring what Cree’s 10-Q referred to as “intense” competition in the LED and lighting industry.

Cree’s filing cited the “significant investments” many companies have made in LED development along with the new entrants coming into the market as LED adoption grows. Traditional lighting companies, it said, “have taken steps to try and limit access to their sales channels, including lighting agents and distributors.” That has led to “product pricing pressures” among competitors undertaking pricing strategies “to gain or protect market share, increase the utilization of their production capacity and open new applications to LED-based solutions,” the company said. “To remain competitive, market participants must continuously increase product performance and reduce costs.” The company has invested in R&D “to support new product development to deliver higher levels of performance and lower costs to differentiate our products in the market,” it said.