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China Gives Cree Unexpected Rise in Sales

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Cree, the maker of LED lights and chips, is having its best day on the stock market in nearly six months, rising 16 percent to close at $22.20 after posting fourth-quarter results and issuing a first-quarter forecast late Tuesday that were ahead of Wall Street’s expectations. Since hitting a 52-week high of $35.50 at the end of February, shares of Cree its stock had lost more than half of their value.

Cree saw net profit rise 31 percent in the quarter ended June 29, to $8.4 million, or 9 cents a share. Excluding one-time items, the profit was 16 cents a share, or three cents above the figure estimated by analysts. Revenue grew 22 percent to $136 million, again above the Street’s average forecast of $131 million.

And for the quarter ending Sept. 28, Cree said it sees revenue coming in between $138 million and $142 million. The midpoint range of $140 million is higher than the $136 million Wall Street had forecast.

The market had been split over whether Cree would beat or disappoint this quarter. Last week, Morgan Keegan’s Harsh Kumar raised his rating on the stock to outperform from market perform, arguing that the stock had fallen to attractive levels. A day earlier, American Tech Research and Merriman Curhan Ford expressed more cautious views. It seems bullish is the way to go for now.

Cree’s lights have won some attention in the Chinese Olympics. But as CEO Charles Swoboda noted in a conference call with analysts, while the Olympics may have started in its most recent quarter, Cree recorded that revenue in the previous one. So the Olympics had no direct benefit on its most recent earnings. As Swoboda said on the call:

The Olympic effect we got really pretty much ended in Q3 [ended March 30]. We had very little, if any, impact on our Q4 numbers from the Olympics. I will tell you though, it was strength in China and it’s really the video display business that is driving it. I would attribute it more to overall infrastructure investments in China that are driving the whole video screen market… So what you’re really seeing now is just infrastructure build out in China and it was just a nice upside for us last quarter.

Swoboda also mentioned that the company is working through some inventory issues that will stabilize margins going forward. Between that, an unexpected rise in sales to China and an undervalued stock, investors seem to be taking a new look at the LED maker.