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LED Revolution and the Semiconductors Leading It

Thursday, 11 Mar 2010 | 1:58 PM ET

Energy saving LEDs (Light-Emitting Diodes) technology is revolutionizing the world and some companies have seen their shares quadruple in price in 2009. The growing LED market has also led the shares of LED manufacturers and others that implement LED into designs to trade well above their 200-day price moving averages. Examples include Cree Inc, Veeco Instruments, and Vishay Intertechnology as 69% of our sampled list is currently outperforming the NASDAQ Composite in 2010. Also many of these semis have reported strong earnings as they continue to benefit from strong demand for LED products which are translating into strong revenue growth in the past two years

The cutting edge in LED technology is broken up into five segments which include: Mobile Devices, Display Backlighting (TV’s, PC’s, monitors) General Illumination, Signals & Signage, and Automotive. According to an industry study published by BCC Research in January of this year, the global LED shipments of LED Backlighting is expected to grow immensely in 2014 with an estimated value of about $1.5 billion versus $0.9 billion in 2009. Also the General Illumination Industry, a market that has not yet completely taking off due to cost constraints, is expected to more than double from $0.5 billion global shipments in 2009 to an estimated $1.2 billion in 2014. See table below for BCC Research global shipment figures.

Shares of Cree Inc , a LED market leader have been trading 62% above its 200-day price moving average since the company broke through this level in March 2009. Cree’s profit more than tripled in its second quarter fiscal year 2010, while revenue jumped 35% from the same period last year, while benefiting by surging demand in LEDs from clients such as Wal-Mart and the Alaskan municipality of Valdez. Wal-Mart introduced LED lighting in 650 stores back in November, and Valdez, Alaska is converting all its street lights, all 343 lights into LED technology. Thus, per Thomson Reuters data total revenue % growth in 2009 was at 15%, and yet for 2010 this figure is expected to increase to 46%. Cree manufactures LED chips that can be found in various applications such as digital camera flash, automotive dashboard lighting, cell phones backlight, and video signs. Their general LED lightning unit provides energy solutions for both commercial and residential markets. Cree’s stock price surged 255% in 2009, and it continues to uptrend up about 23.5% YTD, surpassing Nasdaq’s almost 4% gain so far for this year.

Veeco Instruments is another strong LED player that has seen skyrocketing gains in its stock price of 421% in 2009 and a modest run for this year, up 15%. Veeco is a leading supplier of deposition equipment to the compound semiconductor industry. The company makes equipment used to produce LEDs, solar cells, and data storage. The company has typically held 30% of the market share for metal organic chemical vapor deposition (MOCVD) systems used to build the LEDs, which is about 1/2 the share of bigger rival Germany's Aixtron .

In February, Veeco Instruments reported a 33% jump in Q4 09 revenue from 4Q 08 as the company continues to see strong MOCVD demand from LED manufacturers involved in the segments of Laptops & TV backlighting and General Illumination. Per Thomson Reuters’ data, estimated total revenue growth is expected to rise 88% in 2010 from 2009. The chip maker which also forecasted a strong Q1 continues to benefit from the growing LED market and robust orders for its TurboDisc MOCVD systems. Shares in American Depository Receipts of its competitor AIXG have also surged 392% in 2009 and are up 4.3% year to date.

Another successful and growing company supporting the LED industry is AVAGO Technologies ; a semiconductor that IPOed in August 2009. AVAGO is the largest producer of visible LEDs, displays and modules that address markets in the electronic Signals and Signage. AVAGO’s IPO rose 13% in its first year of trading, and it's currently up ~32% from its initial offer price of $15/share, and up 7.9% year to date.

Lightning Science Group is a small Florida-based LED company that has yet to take off. Lightning Science is a manufacturer of LED light fixtures & lamps, both for the retail and commercial markets, and although trading at mere cents, its stock rallied 116% in 2009, and currently up 6.3% year to date. Furthermore, there are dozens and dozens of smaller LED manufacturers that are not publicly traded, and need to be watched for, such as European LED maker OSRAM, Philips Lumineds, and Everlight to name a few.

Finally, the mounting interest in LED technology can be attributed to its added benefits to traditional lighting. LED lights consume two thirds less energy than normal lighting, have longer operating lifetimes, and do not contain harmful chemicals that are associated with other saving-energy products such as fluorescent bulbs which contain mercury. However, there are some downsides to this new technology. LED general lightning is rather costly, where a 60 Watt LED light bulb can ring up to $40 versus the conventional light bulb price of $1.95 of the same wattage.

Despite the cost associated with buying a commercial LED light fixture, the rather evolving LED backlighting market has a strong foothold in the industry. At this point everyone uses LEDs in Display Backlighting. Revolutionary names like Apple have already implemented this technology in their products like the iPad which has a LED-backlight display, and Sony , Samsung , & Panasonic have new lines of LCD TV’s using LEDs to illuminate the screen, providing clear and crispier images. There is a bright future ahead for these semiconductors if they continue to meet demand and gain market share.

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Bythenumbers.cnbc.com

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AIXA
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AVGO
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NASDAQ
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CREE
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LSCG
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6752.T
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6758.T
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VECO
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VSH
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WMT
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PKI
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ONNN
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DIOD
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AAPL
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