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Flipping the Switch on the Next Solar

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LEDs offer a more efficient, cleaner and in many ways all-around superior method of producing light than anything else on the market.

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Editors Note: This article was written by Andrew Jeffery of the Minyanville Editorial Staff, author of Time to Face the Facts, Not Turn Inward and You Can't Drive Your House to Work.


It's no secret the hot green technology on Wall Street in 2007 was solar power. With First Solar (FSLR) up close to 900%, SunPower (SPWR) almost 400%, and semiconductor maker MEMC Electronics (WFR) up more than 200%, the race is on to find the next environmentally-friendly sector to woo The Street.

Last month Congress dusted off its rarely-used law making powers and passed new energy legislation aimed at reducing the U.S.' dependency on politically undesirable sources of oil and lessening the impact of energy consumption on the environment. Although renewable energy projects and fuel efficiency standards took the headlines, buried in the 1000+ page bill were new rules that could have enormous implications for the currently obscure world of light-emitting diodes, or LEDs.

Although the incandescent light bulb is horribly inefficient and has been called "a heat source that happens to produce some light at the same time," with over 4 bln standard-sized light sockets in the U.S. alone, filling those holes is not an insignificant business. Royal Philips and General Electric (GE) dominate the lighting industry and are gearing up to adapt their business models to the new regulations. The new energy bill's rules governing light bulbs stipulate that all 100-watt bulbs must be gone by 2012 with 60, 50, and 40-watt bulbs phased out by 2014.

The current best alternative to the incandescent bulb is the compact fluorescent lamp, or CFL, that uses between one-fifth and one-quarter of the power of an incandescent bulb and has a lifespan of up to three times longer than the soon-to-be-obsolete Tom Edison special. The graft is that they cost six times more than incandescent bulbs, contain levels of mercury that may or may not safe, and emit a harsh white light compared to the soft glow of a traditional bulb.

Potential health hazard aside, the reduction in electricity used should more than make up for the additional cost of CFLs and other more efficient sources of light, but bulb makers have thus far had a hard time convincing consumers to make the switch.

Enter the light emitting diode.

LED technology uses semiconductors to emit light. A diode is as a roller coaster for electrons; you put in a small amount of energy (voltage) and drive the electrons to the top of the ride. When they fall down, the electrons release their extra energy in the form of light of a particular color (its wavelength, which depends on the material used). Then they go back up again, and repeat the whole process.

The exciting part about the technology is that although expensive and tricky to get right, LEDs offer a more efficient, cleaner, and in many ways all-around superior method of producing light than anything else on the market.

LEDs can emit colored light without a filter, are able to focus beams without an external reflector, are easily designed to resist shock (being dropped), fail by dimming rather than abrupt failure, do not contain mercury, and last up to 30 times longer and produce more light per watt than incandescent bulbs. LEDs are already being used in streetlights, exit signs, flashlights, remote controls, cell phones, and the sensor bar of a little video game system called the Wii.

Scientists and the lighting industry alike are racing for breakthroughs in LED technology to bring down the costs and overcome some of the technical hurdles to adapting LEDs for home lighting use, and the winner of that race may well become the industry leader, as none yet exists.

Since GE doesn't have much of a chance to pop 800% on a revolution in the light bulb industry, those searching for a more speculative pure LED play should look at Cree Inc (CREE), currently one of the only publicly traded LED producers. Cree manufacturers semiconductor materials and develops LED products which it markets to clients who incorporate them into lighting packages for sale to original equipment manufacturers, or OEMs. OEMs make the cell phones and computers we buy that contain, among other things, LEDs.

Although at 40-times earnings Cree certainly isn't a value play, when compared to 663-times for SunPower, Cree may look like a bargain. In addition to what could be enticing industry fundamentals if LEDs can make their way into home lighting, some analysts agree that a takeout by a firm like GE very may well be in Cree's future.

American Technology Research analyst Andrew Huang said Philips – the largest lighting company in the world – has made a string of acquisitions in the LED market and that "…the trend clearly illustrates Philips' and our view that LED lighting will eventually replace all sources of lighting."

"All sources of lighting" sure is a lot of light bulbs.
No positions in stocks mentioned.

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