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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Mike Buckley who wrote (7413)10/3/1999 11:05:00 PM
From: JohnG  Read Replies (1) of 54805
 
M Buckley. Quick review of blue laser importance fro Forbes.
JohnG

After four decades of struggle, laser
research is on the brink of a major
breakthrough.

Into the blue

By Rita Koselka

SCIENTISTS IN THE ethereal world of laser
research have spent decades in pursuit of a
seemingly simple innovation: the color blue.
It has been a lot harder than it looks?and
now they are closer to achieving it than
ever before.

Within two years the blue laser could go
commercial, and it holds huge
promise?digital disks that store four times
as much data as current ones; lightbulbs
that cut energy use and last a decade;
cheap desktop printers that rival magazine
quality; new medical instruments with
unheard-of precision; billboard-sized video
screens with incredible clarity.

The pivotal breakthrough in this blue quest
came in December, when Nichia Chemical
Industries of Japan announced that it had
built the first continuous blue laser, capable
of zapping an unblinking beam of amplified
blue light. Previous advances had been able
to muster only intermittent pulses of the
elusive laser.

"It's a big deal to jump from having a laser
that worked for less than a minute to one
for over an hour. From here, we won't need
another set of heroic efforts," says Noble
Johnson, a laser jock at Xerox Corp.'s Palo
Alto Research Center.

Xerox and such titans as Sony, Fujitsu and
Hewlett-Packard are working on blue lasers.
Out in front of them, however, are Nichia
and a small U.S. firm, Cree Research of
Durham, N.C.Both hope to parlay their
blue-laser breakthroughs into a shot at the
big time.

Why blue lasers stir so much excitement
owes to physics and geometry. The
wavelength of blue light is only half as long
as that of the red laser and infrared laser,
which are commonly used in compact-disc
players, DVD players and other gadgets.
Half the size means that twice as many
microscopic waves?which represent the
"on" and "off" signals of digital computer
code?can be crammed into the same
space. And on a flat, two-dimensional
plane, a twofold increase in waves yields a
fourfold rise in storage or instructions. That
means more power.

Much of the progress owes to Nichia's Shuji
Nakamura, who has spent over 20 years
pursuing the elusive band of blue. Nichia,
based in remote Tokushima, Japan, had
$400 million in sales last year. It has spent
more than $100 million on related research
over the years?even as far bigger
entrants, such as IBM and 3M, dropped out
of the race.

"From here, we won't need
another set of heroic efforts."

Cree Research was founded in 1987 by two
brothers, engineers Neal and Eric Hunter,
and four scientists from North Carolina
State University. Cree went public in 1993
and also turned to partners and military
contracts to raise money for its research. It
just licensed its work for $2.6 million to
Seattle-based Microvision, which hopes to
produce blue-laser screens.

Lasers have many uses, from storing and
reading data on discs to monitors, printers
and lighting. DVD discs now hold 4.7 billion
bytes of data; blue-laser DVDs will hold
more than 20 billion. The market for
blue-related products could develop much
more rapidly than it did for earlier efforts,
says Robert Steele of research firm
Strategies Unlimited in Mountain View, Calif.

Compact discs, which use infrared lasers,
are now 15 years into their life cycle. Their
successor, DVDs, which use red lasers,
"won't last that long" before being
supplanted by blue-laser disks, he says.
"DVDs will start tapering in the next few
years." He says blue-laser products could
hit the $2 billion mark by 2006, plus $1
billion for blue and green LEDs.

Cree Research has become a world leader in
blue LEDs, which are light-emitting diodes,
less concentrated than lasers and used as
the light source in backlit car dashboards
and cell phones. All Volkswagen dashboards
are backlit by Cree LEDs.

Cree and Nichia use different materials to
form their blue lasers. Nichia uses sapphire,
and Cree deploys silicon carbide. Silicon
carbide, a crystal grown in a lab at
temperatures of 2,000 degrees Celsius, is
the better platform but is expensive.

Cree is the world's largest producer of the
material. Nearly half of the $60 million in
sales it will bring in this year will come from
selling silicon-carbide wafers, the other half
from LEDs.

"It would make our lives much easier if we
could get silicon carbide cheaper," says
Waguih Ishak, an optics research director
at Hewlett-Packard's lab. Ishak and
scientists at Xerox and most other
companies use sapphire to create their blue
lasers, but sapphire isn't nearly as good a
material.

"Gee-whiz advances don't
matter if they don't come at
the right price."

A quick science lesson shows why. Laser is
an acronym for Light Amplification by
Stimulated Emission of Radiation. Lasers are
beams of light in which all of the photons
pulse at the same wavelength, at the same
exact time. They were first developed in
gas tubes and other large apparatus, but to
be commercially useful they had to be small
and less fragile?solid state. Solid-state
lasers are made by running a current
through a material?gallium nitride?whose
electrons' energy level matches the
wavelength of light desired. When a charge
is zapped through the material, its electrons
jump, creating a photon that is then
amplified by natural, microscopic mirrors in
the material layered on top of it, silicon
carbide or sapphire. Silicon carbide's natural
cleave points are ideal mirrors.

Sapphire, the material Nichia and most
other laser developers use, is cheaper and
easier to come by but more difficult to
process correctly to provide the necessary
mirrors.

Nichia is now making test quantities of
commercial blue lasers that sell for about
$2,000. Rivals agree that the laser won't
thrive until it can be had for around $10.
That's a steep cost reduction curve.

Nichia and others are currently having
difficulty getting the yields high enough in
the production of sapphire crystals to get
the costs down. Xerox PARC has recently
demonstrated a laser of Nichia's quality.
"We've got people excitedly working on the
other subsystems to make a printing
system," says PARC's Noble Johnson.

Cree, on the other hand, is already the
low-cost producer of LEDs from its
silicon-carbide process. "It took us three
years to get our costs down and yields up,"
says Cree Chief Executive Neal Hunter. Its
blue LEDs sell for five to ten cents apiece
compared with one to three cents for red
LEDs.

But Cree has been slower at getting blue
lasers to run as long as Nichia's and at room
temperature. The company is unlikely to
lower the cost of its silicon-carbide wafers
until its own lasers can match the
performance of the sapphire-based laser of
Nichia. "Gee-whiz technical announcements
don't count for anything until you have a
product at the right price point," Cree's
Hunter says.

Wall Street has bid Cree's stock up to $58
from $12 in September. Earnings in the past
year were $10.6 million, giving the stock a
price-to-earnings multiple of 76.

Both Nichia and Cree say they have no
doubt they can conquer the obstacles by
steady scientific slogging in the next two
years. "This is the holy grail of
opto-electronics," says HP's Ishak. "It's
been a marathon and we're not finished, but
we'll make it."
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