Randy: How important is Light + Building to Lumileds.
Pierre: Very important, we are here to present the company and products, our commitment to the market, and to demonstrate the latest technology. This is a forum to see the industry, show our products and our company.
Randy: Is your core competency mid-power or high-power?
Pierre: Both. In mid-power, we offer over 200 LPW, this is mainly used for indoor applications. Our high power product is directional and mostly used outdoor, tunnels, high bay, directional spotlights, flash and automotive.
Randy: What are the important metrics for you?
Pierre: LPW, LP$ are important. Other metrics are very important such as forward voltage, which we call Vf, and lowest voltage in high power. We bin all LEDs for Vf. Color, CRI are also very important metrics,
Randy: Speaking of color, what is your opinion of new TM-30 color metric?
Pierre: We are aware of it but fairly agnostic to the new standard. We provide what the customer wants. Through phosphor, we have the ability to manipulate the color as we did with the Crisp White last year and we can manipulate the spectrum to supply whatever industry wants.
Randy: What is your view of vertical integration?
Pierre: With regard to the vertical integration strategy, the answer is no, absolutely no. We see the limit of what Cree did. Upstream and downstream require different models. For example, in chip manufacturing, there is a lot of investment; a lot of Cap-X and you need scale. In the downstream market it’s about channels, about marketing, and brand image. They are two very different models and vertical integration made sense during the early Lumileds days with Philips. We will see few companies that have both, and companies will exit either one or the other. The market does not see a value in being integrated. Pure play is more important.
Pierre: There is a conglomerate discount. If someone wants to invest in a lighting player they may not want to have exposure on medical. Lighting may triple next year, and that investor may not have good knowledge one way or the other on medical, so he discounts the conglomerate. You will see more lighting companies separate. Look at what HP did, they separated into Agilent, which further separated and became part of Lumileds. Investors want pure plays. Look at Osram, they are divesting their lamp business.
Randy: What is happening with the market?
Pierre: Customers want cheaper and cheaper and the only way to get there is to use less material. And we make LEDs smaller and smaller. The smaller they get, the more difficult to mount on a board. Some customers want us to mount on the board for them and we do that. We are expanding into level 2, which means LEDs on board with other things. We will go to a certain point and stop just before modules. We don’t compete with customers, so no modules. The key is to be a pure play LED company.
Randy: How is it to recruit in the environment of not knowing who will acquire Lumileds?
Pierre: Recruiting and investing in today’s environment is extremely easy. Surprisingly easy. Look, everyone sees a path of separation between Lumileds and Philips. It’s going to happen and we are the fastest growing LED company. (He pulled out his laptop and showed a PPT slide from Strategies in Light showing Lumileds growing at 4% and his competitors either even or decreasing.)
We were the fastest growing in 2015—in fact, the only one growing in 2015. So we are doing extremely well in market performance and that attracts talent. How did we get the growth that others did not get? We don’t focus just on high power, but mid power as well. And we offer a color portfolio, board level integration, low power and innovation.
Randy: The other Silicon Valley companies can offer stock options and other perks that you cannot.
Pierre, we can’t offer options yet, but we will when the separation occurs. We do have the Philips program now, but we want to have our own program as well. But remember, we are the fastest growing LED company and according to SIL, the only company to grow last year and the market declined by 2%. We are getting traction and everyone knows we are separating, so no issue at all in attracting talent.
Randy: Let’s talk about the acquisition numbers. I have heard that the GoScale number was $2.8B and the Bain number was….
Pierre: Let’s not talk about what other companies may or may not have offered. But I will tell you that the GoScale number was actually $3.0B and Philips was going to leave some on their balance sheet.
Randy: Why did the US Government stand in the way of the sale to this Chinese company, GoScale.
Pierre: I am not going to get into the details of it, but it likely has something to do with our epitaxy process.
Randy: Can you expand on that?
Pierre: No.