CREE : NASDAQ : US$74.32
Cree is the leading manufacturer and supplier of silicon carbide-based devices for a variety of applications, including the rapidly growing green, blue, and ultraviolet LED markets.
While we are disappointed the guide was not stronger from what we believe is a solid bulb ramp at Home Depot, we see no change to our thesis, just a push-out in timing of the leverage which is reflected in the aftermarket reset. Further, as Bulbs represent a greater proportion of lighting systems sales, we suspect the OM benefit will become more apparent and absorb marketing costs (4c this Q).
CREE reported in line, but issued soft guidance on the margin. The company guided for pf GMs of “38.5% +/-” in December, down from 39.2% in September. Furthermore, the company outlined higher OPEX spending on a marketing campaign to promote awareness of its bulb and the existence of lucrative utility rebates.
We continue to believe that there is some room for margin expansion in the components business; however, it appears that it is less able to offset the growth of the lower-margin lighting systems business, despite cost and volume improvements in bulbs.
Post our trip to Asia and the following weeks marketing with investors, we still firmly believe that Cree is a few steps ahead
“Asian Competition” which is the general fear. We also believe that the industry is on the verge of an inflection point in demand and that Cree is making the right longer-term investments to capture