Blog Post

Cree's Outlook a Bright Spot in Murky Economy

Cree shares rallied 14 percent to $18.76 Wednesday after a positive earnings report just as cleantech investors are sifting through numbers to separate the strong from the weak. Demand from consumer and automotive products may be down, but government spending in China and possibly the U.S. remains promising.

Cree said revenue in the quarter ended Dec. 28 was $148 million, up 5 percent from a year earlier. Most of the gains came from its core LED products. LED revenue rose 28 percent from a year earlier and 3 percent from the previous quarter. That was more than enough to offset areas that saw declines in revenue, such as high-power products and materials.

Other metrics showed the company is pushing into the recession in good health. Gross margin was 39 percent compared to 36 percent a year earlier. Operating cash flow was $41 million in the quarter, up from $35 million a year earlier but down from $44 million in the previous quarter.

In the current quarter, Cree estimated its revenue at a midpoint of $131.5 million and a net profit between 10 and 13 cents a share. Analysts had been expecting $139 million in revenue and a 9-cent profit. In a conference call, Cree CEO Charles Swoboda said  the outlook remained murky but – all things considered – encouraging enough.

As we start the third fiscal quarter we are facing reduced visibility from both our customers and distributors…. The recession has reduced near-term demand for some of our products in consumer, mobile, and automotive applications, but we continue to forecast growth in commercial LED lighting.

Currently, Cree’s strength is coming from its XLamp LED components, which saw double digit growth last quarter. Demand for retail lighting and video screens in China are expected to be “solid”. Other areas, such as flashlights and other portable LED products, didn’t do so well.

Despite a retrenchment in China, Swoboda said the company is planning to speed up its plans to increase production of XLamps and other products in the country. Demand from China for large display screens and other lighting for domestic infrastructures was steady last quarter. “We’re targeting it should be pretty stable,” Swoboda said.

Cree may also benefit from some of the expected spending on U.S. infrastructure. Swoboda said recent lighting projects at the Federal Reserve building and the Pentagon could be leveraged into other deals.

If we can get momentum from some of the applications that we have recently installed, hopefully that can spur the whole cycle…. And one of the keys is to be able to show them that it really works. I think the Pentagon raised a lot of eyebrows, not just because it was 4,200 fixtures and it was an entire wing, but that they were able to put together some payback numbers that I think have opened a lot of people’s eyes. And they’re talking about less than four-year payback.  So that’s a pretty big deal and hopefully we can build on that momentum.