LEDs will lead, and soon.

A new report by iSuppli says 90% of notebook PC screens will be made of light emitting diodes within four years, up from a mere 3% last year.

The research firm says sales of notebook PCs with LED screens will jump to more than 17 million units this year from about 3 million last year.

This is good news to makers of LED chips. Such companies include Monolithic Power Systems, (MPWR) Cree, (CREE) Philips Lumileds, (PHG) Agilent (A) and privately held Luminous Devices.

"Now, LEDs mostly serve the high end," said iSuppli analyst Sweta Dash. "As we go forward, they will become mainstream."

An LED is a chip that emits light when electricity is applied to it. LEDs are key to the screen technology called liquid crystal display, or LCD.

LEDs provide a light source behind the pixels arranged on a plastic sheet on the LCD screen. As electric impulses rearrange these pixels, they form the pictures on computer screens, LCD TVs, cell phones and other products. (Plasma TV screens use a different type of technology most applicable to large screens.)

Compared with competing light sources, LEDs are brighter and use less power. They're also thin and light weight, enabling thinner notebook PCs and LCD TVs. All of the major high-definition TV makers, including Sony (SNE) and Samsung, sell LCD TVs.

Today, most notebook screens use an older but less expensive technology called cold cathode fluorescent lamp, or CCFL. LEDs have many advantages over CCFLs, and one big disadvantage.

"The main obstacle to LED is cost," Dash said. "Cost is a very big item."

There are several screen technologies besides LED and CCFL. "But none of them is going to be as effective, especially for notebooks," Dash said. "The main battle is between CCFL and LED."

A typical 13.3-inch white LED-based notebook panel — there are colored LEDs but white is most prevalent — can use 20% less power than a CCFL panel, says the iSuppli report. It also can be 40% thinner and 20% lighter.

Dash expects the price of LEDs to fall fast, to the point where they'll be competitive with CCFLs.

Others aren't so sure.

Rick Neely, chief financial officer for Monolithic Power Systems, says the price difference today is huge. MPS makes both CCFLs and LEDs.

"I can tell you that a 15-inch notebook screen takes 100 lamps (LEDs)," Neely said. "LED lamps cost about 20 cents to 25 cents each. So you have roughly $25 worth of lamps. The equivalent cost for CCFLs is $3."

The price differential doesn't mean much with high-end notebooks in the $1,500 to $2,000 price range, Neely says. But he says it "absolutely" is a big factor in low-end PCs, when people are looking for sub-$500 notebooks.

"LEDs will get bigger," Neely said. "But 90% of the market by 2012? I would not agree with that."

Analyst Andy Abrams at Avian Research says the battle of LED vs. CCFL was one of the top themes at the Society for Information Display show he attended in Los Angeles last month. LED TVs also were featured at the Lightfair International show May 28-30 in Las Vegas.

In an interview, Abrams said the LED notebooks and TVs he saw looked great. He, too, expects LED displays to gain market share fast, starting with notebook PCs. But he says that it will take a few years for LEDs to ramp up.

"I think CCFL has nothing to worry about for the next year or two," he said. But as LED prices fall, he sees a shift to LEDs.

"I saw a large prototype TV, either a 47-inch or 52-inch screen, at the show that had 600 LEDs in it," Abrams said. "It looked spectacular."

The more LEDs, the brighter the picture — and the higher the cost. TV sets with 600 or so LEDs would cost $4,000 or $5,000, he says, far more than the $1,000 to $2,000 for today's mainstream high-def TVs.

But Abrams says after taking over notebooks, LEDs will move onto TVs.

"The Holy Grail is TVs," he said.