November 7, 2011 – China’s National Development and Reform Commission (NDRC) has laid out its plans to phase out incandescent lamps within five years, seen as providing important visibility into the nation’s burgeoning market for LEDs. The shift is laid out in three steps (sandwiching two "evaluation" periods), phasing out incandescent lamps starting with =100W by Oct. 2012, then =60W by Oct. 2014, and then =15W by Oct. 2016.

The aim is to establish policies that emphasize both energy savings and reduced emissions — reportedly cutting energy consumption per unit of GDP by 16% and carbon emissions by 17%. And the shift is hoped to save as much as 48 billion kWh a year, in a nation where power consumption for lighting accounts for 12% of the country’s total electricity use. China produces more bulbs than anyone (both incandescent and LED), churning out 3.85B units in 2010, of which about 27% was for domestic use. "Phasing-out incandescent lamps in China will not only promote lighting technology progress and lighting industry upgrading and optimization, it will also make a positive contribution for realizing China’s energy conservation and emission reduction goal," said Christophe Bahuet, deputy country director of United Nations Development Programme (UNDP), quoted by Xinhua.

Citi’s Tim Arcuri, on his way to a tour of Chinese and Taiwanese companies and leaders, expects the new policy to include three incentive programs "to jump-start China’s LED industry," including a RMB 8B/US$1.3B direct demand subsidy/rebate program for consumers, R&D grant/subsidy for domestic LED makers (focusing on domestic MOCVD suppliers), and support for businesses showcasing "innovation and IP generation/protection."

Arcuri calculates that RMB 8B will drive about ~135M 6W-equivalent bulbs, which would translate to "anywhere from 25-60 new MOCVD reactors" — but that will essentially just soak up ~10% of the MOCVD capacity that’s already shipped into China over the past few years. Problems still plaguing the LED space include declining prices, low utilization rates (~50% in Korea and Taiwan he says), and an "intensifying credit crunch in China" where "several high-profile LED companies have gone bankrupt in just the last several weeks." He thinks MOCVD orders will keep declining for another two or three quarters, and with increasing risk of cancellations as LED chipmakers slow down their own expansions and start looking at consolidation as a way to gain capacity instead.

While China’s government paves the road for LED adoption, Taiwan industry leaders are pushing their government to step up before their own industry "sinks into the abyss" following its once-"iconic" DRAM and LCD segments. A recent conference urged subsidies for energy-saving lighting and promote investments, patent development, and standards — suggesting Taiwan could save 22.4B kWh/year of electricity (half of what the island’s three nuclear plants can generate), on top of reducing CO>sub>2 emissions and energy waste.

Unlike China, Taiwan doesn’t have a large and strong end-market for LED devices — but government funding for Taiwanese LED makers would generate "branding" and ensure steady demand from domestic contract manufacturers, suggested M.S. Kung from the Taiwan Institute of Economic Research. "But branding requires a strong patent portfolio to compete globally, so the government has to financially support manufacturers