New LED Technology Is Good News for Chip and Equipment Makers

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 |  Includes: AIXG, CREE, QNTNY, QRVO
by: Bill Paul

Move along, day traders. There’s nothing to read here.

But serious long-term investors want to know about the new light-emitting diode (LED) breakthrough that could alter the world’s energy future.

Yes, potentially it’s that big a deal.

Very roughly 40% of the energy the world uses, and 50% of the greenhouse gas emissions (GHG) it emits, stem from buildings. Lighting reportedly accounts for maybe 25% and 20% of residential and commercial building consumption, respectively, second only to heating and cooling systems. (And cooling systems must work harder because of the heat thrown off by traditional indoor lighting.)

In short, lighting is an energy hog. Just imagine how the bottom line of every corporation might benefit if lighting costs could be slashed. Imagine the billions of additional disposable income the world might have in its pocket. Imagine also how many fewer power plants might have to be built, as well as how the need for a carbon tax and/or cap-and-trade system might change.

But while LED lighting is super energy efficient and lasts (almost literally) forever, it has been having a hard time getting into homes and offices because of high production costs. Now, thanks to a discovery at the UK’s Cambridge University, it suddenly looks like LED usage could become nearly universal within five years or less.

Cambridge and its partners (including corporations we’ll get to in a moment that investors may want to put on their radar screens) reportedly have figured out how to produce LEDs for one tenth of current prices. It all has to do with the new way the Cambridge group has come up with for making gallium nitride (GaN), the man-made semi-conductor used to make LEDs. “This could well be the holy grail in terms of providing our lighting needs for the future,” the project’s lead scientist, Colin Humphreys, was quoted as saying.

Even before factoring in the Cambridge breakthrough, the global LED market was expected to see rapid growth over the next few years. NextGen Research, a unit of ABI Research, said last week it expects annual global LED revenue to top $33 billion by 2013, the industry generating a compound annual growth rate (CAGR) of nearly 22% between now and then.

Obviously the NextGen report should be good news for a GaN LED leader like Cree Inc. (NASDAQ:CREE) But based on who is a part of the Cambridge team, new LED heavyweights could emerge. As reported by ElectronicsWeekly.com, the group includes chip-maker RF Micro Devices Inc. (RFMD) “We are investing in the consortium and if it is successful we would manufacture,” a company official who is leading the consortium told the publication, adding that decisions about mass production must await further testing.

Others in the consortium include QinetiQ Group plc (OTCPK:QNTQY), which reportedly plans to develop a commercial process for the Cambridge technology, German equipment maker Aixtron AG (NASDAQ:AIXG), and privately-held British LED product manufacturer Forge Europa.

Stock position: None.