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A new backlight dimming algorithm is proposed to reduce power consumption of backlight and improve image quality in LCD applications. The proposed algorithm is consisted of two new techniques: the brightness modulation of the backlight and pixel compensation. The power saving ratio of four typical benchmarking images is 14-43% by using proposed brightness modulation algorithm. The proposed pixel compensation removes the clipping artifact and unnecessary luminance reduction. The proposed backlight dimming algorithm is demonstrated on 7-inch TFTLCD with LED backlight.