There’s A Treasure Hidden In Your TV…

| September 17, 2010 | 0 Comments

Thinking about buying a new liquid crystal display (LCD) television set but worried about the price?  Don’t be.  I’m going to let you in on a little secret.  If you crack open certain LCD TVs, you’ll find a veritable treasure trove inside.

I’m talking rare stones like sapphires and rubies…

Well, maybe not precious gems exactly.  But, it’s true you’ll find sapphires and rubies in there.  Just not the kind you’d buy your wife or girlfriend for her birthday.  (So don’t open up your TV!)

Let me explain.

A major transition is happening in the TV business.  Manufacturers are moving away from using cold cathode fluorescent lamps (CCFL) to backlight LCD TVs.  Instead, they’re using light emitting diodes or LED.

LED offers several advantages over CCFL…

Improved brightness and contrast with deeper blacks.  Lower power consumption (up to 40% less).  Better color saturation and accuracy. Longer lasting TV sets (100,000 hours).  And thinner TV designs.

Here’s the key…

LED TVs are powered by a special kind of semiconductor.  While most semiconductors are fabricated on silicon substrates, LED TVs use chips made on sapphire substrates.  (Substrate is just a fancy way of describing the physical material on which an integrated circuit is applied.)

Yes, the chips powering LED TVs use actual sapphires… just like the ones you’d find in your local jewelry store.  The difference is these sapphires aren’t dug up from the ground.  They’re actually grown in a controlled environment.

What’s so great about sapphire?

Sapphire is better than bulk silicon for many reasons.  I’m not going to bore you with all the scientific details.  All you need to know is sapphire is responsible for the many advantages LED has over CFFL.

What’s more, consumers are seeing the LED advantage and opening up their wallets.

In the second quarter, sales of LED TVs surged.  Of the 9.5 million LCD TVs shipped worldwide, 18.5% of them were LEDs.  That’s up from just 8% in the first quarter.

And that’s just the beginning…

LED panel makers are targeting 40% LED penetration in the fourth quarter.  And they expect LED penetration to jump to 50% by the second quarter of 2011.

Rapidly falling LED prices are helping growth accelerate.

After a shortage of LEDs in the second quarter, panel makers have boosted production.  Greater supply is helping drive prices down.  In fact, LED prices are falling even faster than CCFL prices.

Lower prices bode well for the fast approaching holiday season.  With consumer demand for LED surging and prices dropping, LED TV sales should skyrocket in the fourth quarter.

This is great news for one particular company… Rubicon Technology (RBCN).

Rubicon is a leading provider of sapphire substrates for LEDs.  Using proprietary technology, Rubicon produces best-in-class sapphire crystal wafers.

The high purity of Rubicon’s sapphire crystals enables customers to realize high yields in their processing.  And, Rubicon’s high volume and flexible manufacturing capability enables them to be cost competitive.

The company’s sapphire substrates are used in a variety of LED applications.  You already know about LED TVs.  However, you may not know sapphire substrates are also used in color displays for mobile phones, vehicle lights, large commercial signs, and jumbo screens.

But, the fastest growing LED market is general illumination.  LEDs are quickly becoming the light source of choice for replacement lamps, architectural lighting, retail displays, commercial lights, residential lighting, and street lights.

And Rubicon is riding this technological transition for all its worth.

Just look at their second quarter numbers…

Revenue surged a whopping 393% year over year to a record $15.8 million.  Net income increased from a loss of $2.9 million to a profit of $3.9 million.  And earnings rose from a loss of $0.15 to a gain of $0.18 per share… beating analysts’ estimates by 29% in the process.

A fantastic quarter any way you slice it.

Strong demand from the LED market and a 16% increase in sapphire substrate prices is driving robust growth.

What’s more, Rubicon’s growth is accelerating.

Second quarter revenue eclipsed the first quarter’s by 37%.  Gross profit margins increased from 36% to 46%.  And earnings expanded by an amazing 157%.

Best of all, management’s outlook for the third quarter is even better.

The company’s CFO recently said, “We see an even stronger pricing environment in the third quarter and expect our substrate prices to increase at least 20 percent on average sequentially.”

As a result, management’s expecting revenue to jump 23% from the second quarter to $19.5 million.  And they’re forecasting a 56% rise in earnings to $0.28 per share.

No doubt about it… Rubicon shares are heading higher.

At a recent price of $23.94, the shares are trading at 26x the 2010 earnings estimate of $0.92 per share.  Applying that same P/E to the 2011 estimate of $1.77, you get a share price of $46.02.

That’s eye-popping upside potential of 92%.

Grab your shares of Rubicon now.  Rapid expansion of the LED market is certain to drive strong growth at the company over the next year.

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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