Gallium arsenide compound scores again; Applied Solar buyout signals rising interest in technology.

Los Angeles-area manufacturers pioneering the use of a space-age compound called gallium arsenide have received another boost, as an Orange County corporate-investment firm announced it expects by January to buy out the top producer of solar cells made from gallium arsenide, citing its promising "growth potential."

Applied Solar Energy Corp., based east of downtown L.A. in the City of Industry, manufactures gallium arsenide solar cells exclusively for spacecraft, but this narrow niche was attractive enough to Costa Mesa-based Westar Capital.

"We're buying it for its growth potential, and we don't have any plans in the foreseeable future for looking beyond space applications," said George M. Crandell, a Westar general partner.

The news follows major contracts announced this summer by two L.A. aerospace companies for developing gallium arsenide technology for a different use -- high-performance semiconductors.

The solar technology, largely developed in the 1980s, converts sunlight to electricity about 40 percent more efficiently than do traditional cells made of silicon. It is also more resistant to the sun's heat and radiation.

Crandell commented on his proposed deal last week, a few days after the companies announced a definitive acquisition agreement. The sale, still subject to approval by Applied Solar's shareholders, is expected to close near the end of January, he said.

In August, the Department of Defense awarded a $65.7 million contract to TRW Inc.'s Redondo Beach-based electronic and technology division to develop gallium arsenide semiconductors. A similar DOD contract for $79 million was awarded that month to L.A.-based Hughes Aircraft Co., said a Pentagon spokeswoman. The aerospace companies will team with Patriot-missile maker Raytheon Co. of Lexington, Mass.

Altogether, the U.S. government is spending $570 million on the MIMIC (Microwave and Millimeter Wave Monolithic Integrated Circuits) Program to develop gallium arsenide technology. It would be used in the next generation of Patriot missiles -- made world-famous by their Persian Gulf War successes -- and other so-called smart weapons.

Semiconductors, when made of gallium arsenide, can move electric current many times faster than with a structure of silicon.

Applied Solar's gallium arsenide solar cells power satellites with sunlight. In fact its gallium-arsenide production line is the largest in the world, capable of making 15,000 2-by-4-centimeter cells per month. Applied Solar President and Chief Executive Gerard McLarnon estimated his publicly traded company controls 99 percent of this niche market worldwide.

The $30-million-in-revenues company, nevertheless, has lost money four of the last five years. It has also lost worth since 1986, when Wayne, N.J.-based American Cynamid Co. bought a 75 percent stake for a reported $37 million.

That interest is now valued at about $20 million, under the $6 a share offered by Westar to public shareholders who own the remaining 25 percent. (The exact price offered to American Cynamid was not publicly disclosed. Crandell said it was less than $6 a share.)

Applied Solar's McLarnon said losses were partly due to the company's investment in research apart from gallium-arsenide solar cells. "We have a lot of novel technologies," he said.

One is "thermal photovoltaic" technology, which has been used in motor homes and remote locations. It converts the intense light of a burning gas, like butane, into electricity while withstanding extreme heat at close proximity.

Most of Applied Solar's more exotic solar-cell technologies have not blossomed into commercial products. The seed money for their R&D, provided by entities like the U.S. Department of Energy and Southern California Edison Co., were not succeeded by development contracts, said McLarnon.

"We needed the Department of Energy and the utilities to commit to using solar cells," he explained.

Applied Solar's second business group produces advanced optoelectronics. While its products include photosensor devices and laser devices for consumer, defense, medical and industrial uses, they amount to only about 25 percent of company revenues. Some 75 percent comes from the gallium-arsenide cell market, which is dominated by aerospace companies that put them into satellites for the U.S. government.

Despite a cooling-off in military satellite spending, the market is considered far more promising that Applied Solar's other markets, said Crandell. "We really expect that its dominant thrust will continue to be gallium-arsenide solar cells for satellites. We're not trying to bet on a new technology or unproven products and markets," unlike some venture-capital firms, he said.

Crandell formed Westar Capital in 1986 after leaving Los Angeles' second-largest venture-capital firm, Brentwood Associates. As a Brentwood general partner he bought stakes in several high-tech companies, including El Segundo-based Teradata Corp., a maker of relational database computers.

Crandell is co-owner of Westar Capital, along with George Argyros and investor Chuck Martin. Argyros is a major owner and developer of real estate in Orange County through his Brighton Homes company and other interests.

For the fiscal first nine months ended July 30, Applied Solar reported a profit of $130,000 on revenues of $20 million. McLarnon said a loss is expected for the fiscal year ended Oct. 31.