Color Kinetics Expected to Shine

Will solid-state lighting leader Color Kinetics (NASDAQ:CLRK) continue its torrid growth as expected, or will it stumble? Tomorrow is the time to find out. There are relatively few left who think it will be the latter. After last month's short squeeze, the days to cover the outstanding shares short fell by half, from 17 days down to eight.

Analysts are forecasting a 31% jump in revenues, to $15 million, and a 45% jump in profits, to $0.04 a share. That would be on top of the 32% increase in revenues and the 23% hike in profits it saw in 2005, but it's still below the 50% long-term growth rate the green-eyeshade types predict.

Color Kinetics Quarterly Revenues

Solid-state lighting is the next advance in commercial and residential lighting. By creating energy-efficient illumination with light-emitting diodes (LEDs), a full spectrum of colors can be created that reduces costs, even if the initial outlay is more expensive than incandescent lighting. LEDs are lighting systems built on a computer chip which allows for extremely long life cycles. They're currently used in hotels, casinos, theaters, and even homes.

Color Kinetics doesn't make the LEDs, but instead buys them from its suppliers. It then packages them to control the colors' mix and intensity, using its patent-protected technology. The company has introduced its IntelliWhite LED system of white light, but that's an area it will find difficult to break into. There are a host of patents already protecting the major players in that arena, including Cree (NASDAQ:CREE); Japan-based Nichia (which has cross-licensing agreements with Cree); Osram, which is a subsidiary of Siemens (NYSE:SI); and Lumileds, a former joint venture of Agilent (NYSE:A) and Philips Lighting (NYSE:PHG).

As strenuously as Color Kinetics has battledSuperVisionInternational (NASDAQ:SUPVA) over its patent portfolio, the patent battles over white LEDs have been just as intense. Recognizing that, Color Kinetics doesn't expect its IntelliWhite systems to bring any meaningful revenues into the company this year. Still, legal expenses continue to grow for the company, rising to $1.2 million in the fourth quarter, and Super Vision is at it again, filing yet another patent lawsuit against Color Kinetics just last month.

While the industry has looked askance at Color Kinetic's patents, the courts have generally held in favor of the company. Another victory would just further solidify its position as an industry leader, further justifying the growth rates analysts are estimating for it.

Shine a light on Color Kinetics with these related Foolish articles:

• Shorts in a Bunch at Color Kinetics
• Color Kinetics Lights Up Victory

Fool contributor Rich Duprey owns shares of Color Kinetics, but he does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.