stocks industry
revenue had been driven by a 10 percent rise in MBE system business, reflecting an upturn in demand from III-V chipmakers. However, Riber’s income had also benefited from a 38 percent hike in revenue from the services and accessories business, plus a 24 percent increase in sales of evaporation sources and cell sales. According to the company, this has vindicated its decision to diversify into the organic LED and thin-film solar markets. The French toolmaker had an order book worth € 21.8 million at the end of February 2011, which included three production tools, seven research systems and many effusion cell orders. This strong foundation is expected to pave the way to further revenue and profit growth throughout this year.
Footing the table
Investor’s in Cree have had a painful 12 months. The share price failed to kick on from $76, its value in late April 2009, instead dropping on two occasions. In the Fall it fell to $50, before recovering in the New Year to $65. But then it plunged again, and by the end of this April shares were valued at $40. However, if anyone had invested in Cree two year’s ago, they could console themselves with a gain of more than $10 per share (see Figure 2).
The more recent, bigger, fall in value has stemmed from failure to hit guidance figures. Cree targeted sales and profit of $270-280 million and $51-55 million, respectively, for its second fiscal quarter, ending December 26, 2010. But it posted sales of only $257 million, along with profit of $49.8 million. At that time the company predicted third fiscal quarter revenue and income of $245-265 million and $42-50 million. And again it failed. Sales and profits for this quarter were $219.1 million and $18.9 million, respectively.
Cree is primarily blaming the shortfall on a mixture of market weakness and aggressive pricing in Asian markets. In a conference call discussing second fiscal quarter earnings on 18 January 2011, chairman and CEO Chuck Swoboda said that sales to LED component distributors in Asia were lower than expected, due to an inventory correction at their customers. “The correction has been caused by a pause in the China LED streetlight demand, and lower-than-expected growth in LED bulb applications.”
Three months later, Swoboda admitted to investors that the recovery in end-customer demand was slower than Cree had expected: “Distributor sales to end customers have improved post-Chinese New Year, but it took longer to work through customers inventories than we originally targeted, and pricing was lower than we had forecast.” Revenue for the fourth fiscal quarter is expected to be £225-245 million, with profit in the range $16-23 million.
The company has set itself several goals to turn around its fortunes, and will direct the most attention to the growth of its LED lighting business. “Our LED lighting product
Figure 2. Gains in Cree’s share price from mid-2009 to mid-2010 have been largely wiped out by falls in recent months, which have largely resulted from overcapacity in the LED market.
line continued to grow in quarter three, led by increased sales in North America for commercial applications and sales of EcoSmart Downlights to Home Depot,” explained Swoboda. International market sales are through Zumtobel, which has recently signed a two-year extension to its deal with Cree.
Cree’s second priority is to enable lighting fixture companies to develop their own LED products. To address this, Cree has launched products such as the XLamp MT-G LED that can replace a halogen lamp. Third on Cree’s list is the upgrade of LED production to 150 mm SiC substrates. Product qualification should be complete by the end of quarter four, allowing a manufacturing ramp to commence in the first quarter of 2012.
If Cree executes on these fronts it seems unlikely that they will be footing the table this time next year. If they did, they would have the embarrassing accolade of being the first company to be in last place for two years in succession on the leaderboard, which has been a feature of this magazine since 2006. The average rise for the last placed player is 14 places, and the score to beat is a climb of 19, which AXT achieved in 2010 when it rocketed from the bottom to second place. Can Cree go one better? Tune in next year and see.
Disclaimer: Richard Stevenson holds a small number of shares in IQE.
© 2011 Angel Business Communications. Permission required.
June 2011
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