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Merrill Lynch Research Calls Cleantech the Sixth Technology Revolution


NEW YORK. — Energy concerns will not disappear despite the falling price of oil, so investors can expect significant long-term opportunities in the cleantech space, according to a new thematic report published by Steven Milunovich, Merrill Lynch cleantech strategist.

Mr. Milunovich believes the sixth technology revolution will be driven by clean technology — the application of technology to optimize the use of natural resources — and biotech. He sees a return to renewable resources given the problems of global warming, energy dependence, and scarcity of fossil fuels. The current pressure on cleantech stocks may continue for now, but the combination of friendlier government policies and economic improvement should lead to investment opportunities in 2010-11. Thus Mr. Milunovich is bullish on cleantech in the long term.

“History shows that technology revolutions occur about every 50 years. We believe cleantech is at the beginning of a high-growth period much like computing was in the early 1970s. The application of technology to resource problems should cause profound changes in the energy, utility, and automotive industries.” said Mr. Milunovich.

Energy Efficiency a Large Opportunity
Boosting efficiency is the low-hanging fruit of cleantech. Although efficiency measures will not reduce demand as some think, investors need to be aware of the demand-side opportunities in areas such as lighting, demand response and building materials. Electric vehicles would be important in linking for the first time the oil and non-oil parts of the energy world.

Cleantech Could Help Decentralize the Energy Economy
Energy markets today are mostly centralized. While solar and wind farms may continue this trend, Mr. Milunovich believes decentralized energy generation and monitoring through solar panels, distributed intelligence and microgrids may prove the wave of the future. Cleantech therefore may evolve toward a horizontal, distributed industry.

The Disruptive Role of Venture Capital
Critical to the success of alternative energy is the support of venture capitalists and the attraction of entrepreneurial managements. The venture capital model encourages innovative thinking and the adoption of new technologies. “Venture capitalists understand that digital technology is moving from the microscopic to macroscopic world,” said Mr. Milunovich. “Subsidies are needed to support cleantech in the short run, but the industry must succeed on stand-alone economics over time.”

Portfolio Approach the Likely Cleantech Investment Strategy
Although investors should take a diversified approach at this early stage, Merrill Lynch Research has identified the solar industry as the long-term technology frontrunner, since the sun is by far the Earth’s largest energy source and solar enjoys the fastest price-performance improvements. Wind also is promising, with biofuels and geothermal dark horses.

Steven Milunovich is cleantech strategist and analyst at Merrill Lynch. Mr. Milunovich brings to this role extensive analytical experience, an in-depth knowledge of disruptive technologies, and a strong understanding of the needs of investors and venture capitalists. He has spent 23 years on Wall Street, most recently as a managing director at Merrill Lynch. During that time, Steve was widely recognized as a top computer hardware industry analyst and technology strategist. He appeared 20 times on the Institutional Investor All-America Research Team, including ranking as the top IT Hardware analyst from 1989-2000.

Merrill Lynch Global Research has consistently achieved high rankings for its equity and fixed income research in numerous regional and global investor surveys, such as Institutional Investor, The Wall Street Journal, LatinFinance, Asiamoney, Euromoney, Extel and Reuters.


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