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Jed Dorsheimer comments on this year’s most talked about solid-state lighting
acquisition – the purchase of Color Kinetics by Philips.
It has been over a month since the close of this
year’s largest solid-state lighting acquisition,
namely the purchase of Color Kinetics by Philips.
With a hefty price tag of just under $800 million
(by our estimates, roughly 7x forward sales and
over 10x trailing sales), this acquisition was sizable
even for the multinational Philips.
The transaction has left many industry participants
curiously pondering its market implications,
and investors scrambling to find the next CK-like
opportunity.
The benefits
What did Philips see in CK? Was it the product
portfolio, distribution, or IP? Our guess is a combination
of each, as well as a general commitment
to the market. Remember, Philips is also leading
a coalition to phase out incandescent lamps –
amounting to roughly 80% of all lamps sold by our
estimates - within the next 10 years. (For more on
this subject, see the news article on page 7.) Clearly,
Philips believes in this technology at a high level,
and $800 million may just represent a small price to
pay to own a market that is worth over $100 billion
annually, according to the Freedonia Group.
Overall, I view the acquisition as being very positive
for the SSL industry. Why? First, CK had built
a rather questionable reputation in the industry regarding its early
tactics of enforcing their IP. However, in recent years the company
has done an amazing job, in my opinion, of creating access to, and
value around, its patent portfolio and licensing program, a turn of
events that many had openly debated, even doubted.
Rumors of “being served” [with cease-and-desist orders for alleged
infringement] at trade shows permeated the industry. This created
a fear that was palpable among both small start-ups and established
companies, and the situation may well have limited the number of
new entrants into the market. However, we believe these “skeletons”
will be buried under the Philips name.
The IP question
The major question, in my opinion, is what will happen with the CK
IP portfolio now that it is part of a much larger entity. In common
with most other observers, I would have liked to see the CK vs. TIR
lawsuit play out to final verdict, to put an end to the broadly-written
patents that CK owns.
Further, recent USPTO changes in late August would have added
a very interesting element to the once-pending lawsuit. However,
one can only speculate, as Philips now owns both CK and TIR, and a verdict has not been reached.
But what does this mean to the industry? A
primary consideration is the lack of equivalent,
alternative IP holdings. Philips now holds a commanding
IP position that could put many other IP
owners at a substantial disadvantage, should they
choose to distance themselves from this new IP
center of gravity.
Will Philips aggressively pursue licensees (and
possibly assertion)? Or will it take a more laid back
approach with partnerships in hopes of empowering
the SSL industry, recognizing that broader adoption of solid-state lighting will ultimately benefit
the company more than a 3-5% royalty? Only time
will tell, however, early discussions with industry
participants suggest Philips is set on building the
solid-state lighting “ecosystem” as distinct from
maximizing near-term royalties.
That is not to say Philips will not look to build
a licensing business. Will Philips be offering free
license terms if Lumileds LEDs are used? Perhaps,
yet we believe this would be a mistake. We hope
that Philips sees its long-term interests being better
served through empowering early-stage participants,
and encouraging established players to join
in the accelerating development of LEDs.
Future developments
Further consolidation among existing players is likely, especially in
light of this deal, which could make the IP landscape more complex.
Recent political developments, such as mandates by Canada and
Australia to phase out incandescent lights, as well as concerns about
energy conservation, power grid capacity, and global warming, are
certain to drive even greater interest in LEDs.
Venture investment and private equity are currently seeking out
opportunities, and when the money comes looking, astute technologists
and companies must be sure to make themselves known.
It seems safe to say that LED product and market development will
only accelerate over the next few years, and that intelligent navigation
of the IP landscape will be
an essential function for any company that wants to play a part.
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“Will Philips
aggressively pursue
licensees? Or will it take a
more laid back approach?”
-Jed Dorsheimer
About the author
Jed Dorsheimer is Vice President and Senior Equity Analyst at
Canaccord Adams in Boston.
PDF Article (PDF file 116KB)
LEDs Magazine
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