Earlier this month, Cree (NASDAQ:CREE), a leading innovator of LED lighting, further expanded its thermal, electrical, mechanical, photometric and optical (TEMPO) services by announcing new technology centers in China. TEMPO services provide LED manufacturers with a complete set of evaluation services for LED luminaires to design and market quality LED products. Keeping in mind that China is one of the fastest growing LED lighting markets in the world; we believe, that expanding its presence in the market will help Cree retain its foothold in the global LED market.
LED chips, components and lighting division contribute above 70% to our current price estimate of $27.50 for Cree. The company featured among the top 7 LED suppliers in 2011 along with competitors Nichia, Samsung LED and Osram Opto Semiconductors. . How it utilizes the current opportunities in the LED market will not only determine its future ranking, but also significantly impact the company’s stock value.
According to LEDinside, while the Chinese lighting market constituted close to 15% of the global market share around 2010, it predicts the same to reach around $20 billion, constituting 18.3% of the global market by 2015. 
Holding the world’s largest population and being one of the fastest growing economies, China is expected to have rapid infrastructure expansion with the government focusing on increasing industrial and commercial development. As lighting market in Europe, America and Japan reach saturation, China has the potential to become one of the fastest growing LED markets in the world leading to increased investment in the foreseeable future.
New Technology Centers To Expand Cree’s Services In The Chinese Market
Deriving approximately 36% of revenues in 2011 from sales to customers in China, Cree already has a significant presence in the market. To fulfill the growing demand for Cree products and services in China and meet it’s goal of increasing market adoption of LED lighting, Cree expanded its TEMPO services by opening two more technology centers in Shenzhen and Shanghai.
Cree’s TEMPO services give manufacturers the cost-competitiveness, as it helps them avoid costly design mistakes and provide them access to a broad range of costly test environment. An effective LED luminaire design is essential to ensure reliability and optimum performance. The company plans to cater to the unique requirements of Chinese lighting manufacturers by providing then with a suite of TEMPO services from the new technology center.
Our price estimate for Cree stands at $27.50, implying a 10% premium to the current market price.Notes:
- LED market grew almost 10% in 2011, with 44% growth in lighting, Industry News, February 7, 2012 [↩]
- China’s LED Lighting Market Trends, Outlook and Forecast 2011-2015, LEDinside, October 13, 2011 [↩]