Philips and Osram Compete for Lighting Solution-based Multi-Year City Contracts
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LEDs are tooted as having long lifespans, but as more traditional light sources are being switched out for SSL, manufacturers are realizing that long lifespans are not good for a sustainable business model. Therefore, companies such as Philips and Osram are looking into long-term installation contracts. Philips has secured such a contract with Washington’s transit authority to upgrade around 13,000 fixtures in parking lots, according to a recent Bloomberg Businessweek report.

By 2020, SSL will make up around two-thirds of global lighting, according to Osram. This is a massive increase from 18 percent in 2011. Market growth has been spurred by the move to energy efficient lighting by urban areas over the past few years. “The budget of cities and local communities are getting smaller and smaller and the pressure to be more efficient with budget is increasing,” said Florian Wunderlich, Director at consultancy McKinsey & Co. in an interview with Bloomberg Businessweek.

As more cities move to replace traditional lighting sources with more efficient SSL, and less need to replace said SSL owing to its long lifespan, companies such as Philips and Osram are looking to secure a steady flow of revenue through long-term contracts. “Key to the new business model is to provide installation and management services over many years,” said Eric Rondalat, CEO of Philips’ lighting sector. LED lighting manufacturers have begun to place more importance on systems and services instead of solely on products. 

Osram and Philips are now looking into emerging markets such as in Asia and Africa. “We focus on Africa as we regard this as a big untapped market,” the report quoted Nick Kelso, spokesperson for Philips lighting in Africa.

Growth of the LED industry has also led to a rise in Asian competitors. Japanese manufacturer Toshiba and Korean manufacturer Samsung have both seen strong performance in their lighting sector recently. The addition of service margins will be able to protect manufacturers against decline in profit margins as LEDs popularize, said Wunderlich.

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