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Moat Prospects Dim for Lighting Equipment Manufacturers

Interested in energy-efficient products? Look to controls, not bulbs.

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The emergence of cost-competitive light emitting diode (LED) lighting solutions has taken the lighting industry by storm, creating meaningful growth opportunities in an otherwise static industry. While new revenue opportunities are helping to energize the business, in this case we think the shift to LED may be the end of a cash cow that a number of conglomerates have milked for decades.

A Field of Three Shrinks to One
In 2008,  General Electric (GE) put its appliances business up for sale, a decision we thought made sense considering the low-margin unit didn't necessarily fit into chairman and CEO Jeff Immelt's vision of a pure infrastructure franchise. To the extent that housing was going to suffer a bit of a downturn, management thought it was better to move out then as opposed to selling at the bottom of the market. Curiously, though, GE opted to throw its lighting business into the deal as well. For several years prior to 2008, we were told about the growth potential of the LED markets, how cost-competitive the new products were, and how they would help energy consumers cut electricity bills by meaningful amounts. With the LED industry still in its infancy, this decision didn't seem to make sense, but our sources within the company told us that the two businesses, while solid, didn't really make sense in the longer-term strategy for the company.

Daniel Holland does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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