Cree’s Stock Price Won’t Get Much Help From Enhanced RF Product Portfolio

by Trefis Team
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During its Q3 2012 results, Cree (NASDAQ:CREE), a leading supplier of silicon carbide (SiC) and gallium nitride (GaN) wafers and devices, expressed its willingness to expand its power and RF product line beyond niche applications. It intends to realize the full value of  the technology to drive higher adoption.

Earlier this month, Cree announced the release of a range of high-efficiency, high-frequency GaN transistors for commercial radar and satellite communication applications. (Read: Cree Enhances RF Product Portfolio With New GaN Transistors) With five new additions to its RF product portfolio post this announcement, Cree seems to have dedicated this month to enhancing its RF product line.

Here, we briefly discuss the new offerings and the possible impact of a growing Power & RF Products division on Cree’s overall valuation.

See Our Complete Analysis for Cree Here

1. New RF Device Models To Accelerate GaN Adoption in 4G/LTE Telecom Infrastructure

Cree introduced a new set of Verilog-A propriety non-linear models to be used with the leading RF design platforms for its GaN RF devices. Verilog-A is an industry-standard language to describe transistor behavior for the purpose of simulation. These new device models support complex circuit simulation that is used in the latest innovative broadband and multi-mode RF power amplifiers for 4G cellular telecommunications. By taking advantage of multi-core processors, the devices significantly reduce simulation time.

2. New GaN Processors For Telecom & Radar Systems

Cree announced the release of two new gallium nitride (GaN) processors with increased operating voltage and RF power density. The new technology is compatible with Cree’s proven GaN monolithic microwave integrated circuit (MMIC) technology, and enables a smaller die size and more compact, higher efficiency amplifiers. 

The two new processors reduce power consumption for multi-band LTE/4G telecom remote radio head installation, benefiting the telecom industry by lowering operating costs and reducing energy consumption. They also benefit the military radar systems by reducing maintenance and thus improving the overall system life cycle. 

3. Advanced Process Design Kits Based On Agilent’s Advanced Design Systems

The new process design kit, which is available for free, provides microwave and RF design engineers with a comprehensive suite of design and simulation for developing GaN-on-SiC high-electron-mobility transistor (HEMT) devices. Cree’s proven process technology, along with Agilent Technologies’ integrated design systems, is suitable for producing leading edge, reliable, high-power HEMT devices for some of the most challenging applications.

4. New GaN Based Solid State Amplifier Platforms

The new GaN-on-SiC process die family launched by Cree enables the replacement of travel-wave tubes with solid-state amplifiers, providing improved reliability and increased efficiency at lower costs.  Market applications for the same include marine radar, medical imaging, industrial and satellite communication.

5. S-Band GaN Device To Maximize Efficiency In Radar Applications

Cree announced the sample release of GaN HEMT transistor for military and commercial S-Band radar applications. By offering higher efficiency and power density, the transistors help minimize thermal management requirements, thus enabling RF design engineers to reduce the size and weight of commercial radar systems while lowering installation costs.

Impact Of The Enhanced Portfolio On Cree’s Valuation

Based on the company’s continued efforts to expand its product offerings, we estimate the revenues from power & RF products to go up to $126 million by the end of our forecast period.

 

The Power & RF products division contributed around 7% to Cree’s overall revenue in 2011. However, since this division’s revenue growth is lower compared to the overall LED market growth, we forecast the revenue contribution to drop to 6% by the end of our forecast period, primarily due to higher contribution from LED products.

Power & RF products contribute above 4% to our current price estimate and, thus, even a significant variation in the same will not have any meaningful impact on the company’s valuation. In the likely scenario of revenues reaching $180 million by the end of our review period, there will only be a 2% upside to our price estimate.

Our price estimate for Cree stands at $27.50, implying a 10% premium to the current market price.

Understand What Drives a Stock at Trefis

The acquisition of Ruud Lighting gives Cree a broader presence in the lighting systems market, which combined with recent developments such as – new R&D record of white-light LED with luminous efficacy of 254 lumens per watt and introduction of the new XSP Series LED Street Light, the most affordable and efficient Cree LED street light designed to last over three times longer than traditional street lighting, is likely to increase Cree’s share in the LED market.
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