Roughly 22 percent of the electricity consumed in the U.S. goes toward lighting, according to the Department of Energy. With such a big market, companies big and small are working on developing and selling energy-efficient lighting. Durham, N.C.-based Cree (CREE), maker of light-emitting diodes (LEDs), sells its chips for use in a variety of applications, from displays to lights that illuminate parking garages.
On Wednesday, as CREE CEO Chuck Swoboda met with us to discuss his company’s progress in LEDs for energy efficient lighting, Bloomberg reported that the company’s stock had dropped the most in 10 months (falling more than 11 percent to close at $28.97) after Canaccord Adams analyst Jed Dorsheimer cut the stock to “sell” and noted that Cree was unlikely to meet sales estimates for the current quarter. Prior to that, Cree shares had soared on speculation that General Electric (GE) would buy the company.
Here’s an excerpt from our chat with Swoboda:
Q: Energy-efficient lighting is taking off as a viable alternative to traditional incandescent lights, but fluorescent lighting is leading that competition. Wal-Mart (WMT) just reached its goal of selling 100 million compact fluorescent light bulbs, and they did that three months ahead of schedule. How does LED technology fit into the equation?
A: The LED we sell today is 100 percent more efficient than the one we sold 17 months ago. In the past year, it’s gone up 70 percent. The technology is moving at an incredibly fast rate. If you look at electricity demand in the U.S., 22 percent is from lighting. It’s a huge piece of the energy pie. If you take what’s possible with LEDs, you could reduce the amount of this energy consumed in lighting by 62 percent.
Q: Aren’t LEDs too expensive to compete with the traditional incandescent light bulb?
A: If you look at the total amount of energy consumed by light, over 75 percent of it is not residential. It’s commercial and industrial. We’re targeting how you drive the biggest impact. As far as the bulb itself, that’s one of the last places we’ll see [LED technology.] If we convert everything else but the bulb, the vast majority of energy savings will have been realized.
Q: Last time I spoke with you, Cree was announcing a partnership with the city of Raleigh, North Carolina, to install LEDs in government offices, parking structures and other public buildings. Where else can the Cree technology be found?
A: There’s a Friendly’s restaurant in Massachusetts that used 5,100 watts of electricity with incandescent light. The same restaurant with LED fixtures uses 930 watts. They’ve got better light quality and use significantly lower power. This is not a subsidized program, this is Friendly’s deciding on making a straight-up business decision. It’s happening. These same fixtures come in a version you can buy for your home. One of these six-inch can lights cost $90, and under residential use will last more than 20 years.
Q: Who are your main competitors?
A: It’s basically the traditional bulb companies. Although some of them have investments in LEDs, none of them have the opportunity to pursue driving the adoption of LEDs. Even if I’m a bulb company with some LED activities, I make money every day I sell a bulb. I make a lot of money selling that bulb. So they have a business model challenge.
Q: As I’m sure you’re aware, there’s been a rumor that General Electric was considering buying Cree, but a recent analyst report said that’s not true. Can you tell us any more about this?
A: I can’t speculate on that specifically, but conceptually I think we take a different look at it. We see lighting as this giant industry that’s been around for a long time. We believe that because of what we’re able to do with the technology, we’re in a pretty neat position to drive adoption. I can tell you that we’re going to be pretty successful in lighting. What [GE] may or may not do is a better question for them.
Q: How do you think the rest of the traditional lighting industry will respond to the growing adoption of LED and other energy-efficient lighting?
A: Any time disruptive technology takes over an industry, something like 20 percent of the incumbents survive in the business. The people who drive the technology have the best opportunity here. What do the incumbents do? That’s a question for them, whether in lighting or anything thing else. Are they willing to adapt their business model to be successful?
Q: A lot of people say that LED lighting for general illumination purposes isn’t ready yet. What would you say to that statement?
A: This isn’t not ready. This is happening. We’re saving energy. I don’t know any technology available in the next five to 10 years that can do more to change the energy equation than LED lighting.