Cree (NASDAQ:CREE) is not only a dominant manufacturer of LED products but also a leading supplier of silicon carbide (SiC) and gallium nitride (GaN) wafers and devices. In its last quarter results, Cree voiced its intention to grow its power and RF product line and expand beyond niche applications. The company also claimed that a new range of higher power devices and RF modules would be needed to realize the full value of the technology and drive adoption. With the introduction of new GaN transistors for radar and satellite communication applications, Cree appears to be doing just that.
Cree Enables High Power, High Frequency Commercial Radar and Satellite Communications
Earlier this month, Cree announced the release of four new high-efficiency, high-frequency gallium nitride (GaN) high-electron-mobility transistors (HEMT) for commercial radar and satellite communication applications. Rated at 50W and 100W, these new devices deliver higher efficiency and performance improvements compared to existing transistors.
The new product family represents a disruptive technology that the company believes will set new standards of efficiency and performance for high frequency, high power applications such as satellite communications and X-Band commercial radar.
Cree’s new offering provides comprehensive system benefits, including superior thermal management and significantly reduced power supply load. In addition, it is estimated to provide a lower cost alternative to TWT amplifiers and associated high-voltage power supplies and linearization systems while improving overall system reliability.
Can Enhanced RF Product Portfolio Push the Stock Up?
Historically, the power and RF products division has contributed as high as 12% to Cree’s overall revenue, but the share has been continuously dropping and stood at around 7% in 2011. We forecast the revenue contribution to further go down to 6% by the end of our forecast period, primarily due to higher contribution from LED products.
However, since Cree continues to be a leading supplier of silicon carbide (SiC) and gallium nitride (GaN) wafers and devices for RF communications, we do believe revenue from this division will register a y-o-y growth till the end of our forecast period. The global high power RF semiconductors market is expected to grow driven by the demand for base stations, especially among emerging countries. Thus, we estimate the revenues to witness average growth of 10% annually till the end of our forecast period.
However, since Power & RF revenue growth is lower compared to overall LED market growth, the division contributes only around 4% to our current price estimate. Hence, even a significant variation from our estimate for this division will only have a minor impact on the company’s overall valuation.
Our price estimate for Cree stands at $27.50, implying a 10% premium to the current market price.