EBOOM CAPITAL: Energy-saving LED Lighting Market is Booming -- And Investors Are Plugging In

By Terry McDonald on July 29, 2010

The global market in super-efficient LED lighting products is booming and share prices of LED companies are following step. Shares of two companies, Rubicon Technology, Inc. (NASDAQ: RBCN) and Veeco Instruments Inc. (NASDAQ: VECO), have outperformed the perennial sector leader Cree, Inc. (NASDAQ: CREE).

LED, or light-emitting diodes, and compact fluorescent light bulbs are competing to take over the $100 billion market accumulated by the incandescent light bulb over more than 130 years. LED lights have no mercury, a long life and are very energy efficient, but the costs will have to come down if they are to compete with compact fluorescent.

The energy-saving potential of LED lighting is dramatic, according to the U.S. Department of Energy. In the next 20 years, rapid adoption of LED lighting in the U.S. would yield the following environmental and financial benefits:

Electricity consumption for lighting would be reduced by 25 per cent (enough electricity to illuminate more than 95 million homes in the U.S. today);
The energy saving would be equivalent to 24 large power plants;
The accumulated energy cost saving would be $120 billion; and
Greenhouse gas emissions would be reduced by 246 metric tons of carbon.

Other sources are equally bullish on LED.

According to “Global and China LED Industry Report 2009-2010” published this week by Chinese business intelligence portal ResearchInChina, the global LED market has expanded from $7 billion in 2009 to $10.7 billion in 2010 and is expected to reach US$20.4 billion in 2012.

Cree, Inc. proclaims it is leading the LED lighting revolution and setting the stage to obsolete the incandescent light bulb. Cree’s product families include LED fixtures and bulbs, blue and green LED chips, high-brightness LEDs, lighting-class power LEDs, power-switching devices and radio-frequency/wireless devices. Cree solutions are driving improvements in applications such as general illumination, backlighting, electronic signs and signals, variable-speed motors, and wireless communications.

Results for Cree’s fiscal Q3 ended March 28, 2010 included record revenue of $234 million, a 78 percent increase over revenue of $131 million reported for the third fiscal quarter last year and a 17 percent increase compared to the second quarter of fiscal 2010. GAAP net income for the third quarter increased more than tenfold year-over-year to $44.6 million, compared with $4.0 million for the third quarter of fiscal 2009.

Cree is the 3rd largest holding in the 55-company First Trust NASDAQ® Clean Edge® Green Energy Index Fund (NASDAQ: QCLN) at 7.94% (behind solar company First Solar (NASDAQ: FSLR) and semi-conductor company Linear Technology (NASDAQ: LLTC).

Rubicon Technology, Inc. , based in Franklin Park, Illinois, develops sapphire substrates and optical windows that are used in a variety of high-volume end-market applications including LEDs. LEDs grown on Rubicon sapphire products are used in applications such as small displays for mobile devices; flashes for digital cameras; backlighting units for displays used in notebook computers, desktop monitors, and LCD televisions; public display signs; automotive lights; traffic signals; and general and specialty lighting.

Rubicon’s Q1 revenue was $11.5 million, compared with $2.34 million in Q1 2009, and up 35 percent from Q4 2009. Q1 net income was $1.57 million compared with Q1 2009’s loss of $3.9 million. The company has guided Q2 2010 revenue to be $14 million. The company had cash of $12.5 million at March 31, 2010 and announced June 21, 2010 that it had completed a common share offering yielding $61.5 million.

Rubicon makes up 1.21% of the 55-company First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN).

Veeco Instruments Inc., based in Plainview, New York, designs, manufactures, markets and services enabling solutions for customers in the high brightness LED, solar, data storage, scientific research, semiconductor and industrial markets.

On July 26, Veeco reported strong revenue and net income growth for Q2 2010. Q2 2010 revenue was $253 million, compared with $163.2 million in Q1 2010 and $72 million Q2 2009. Q2 2010 net income was $52.4 million, compared with $26 million in Q1 2010 and -6.4 million in Q2 2009. The company reported bookings of $347 million for Q2 2010, up more than 250 percent from the prior year and 23 percent from Q1 2010.

Veeco is the 11th largest holding and makes up 2.87% of the 55-company First Trust NASDAQ® Clean Edge® Green Energy Index Fund (QCLN).

Here are two other lesser lights in the LED sector. They both have had strong share price performances, irregardless of operating losses in their most recent quarters and little explanation of their financial performance on their websites:

Photo credit: Cree, Inc.

DISCLOSURE: The writer has no positions in, or professional connections with, these companies.

The economy’s transition to cleaner and more secure sources of energy is inevitable, but its speed will depend on technology, policy and capital. EBOOM CAPITAL focuses on companies whose practical and commercial alteratives to fossil fuels and energy waste are generating - or have good prospects to generate - revenues and profits.