Cree (NASDAQ:CREE), a market leading manufacturer of LED products, suffered a temporary setback last year from agent transition, widening LED surplus and a consequent impact on gross margins. However, with growing stability on the supply side and a push in demand by an accelerating lighting market, we hope to see a revival in the current year.
Cree remains determined to mark a shift from traditional (incandescent and fluorescent) options to LEDs, making it an affordable alternative. By being an essential part of one of the fastest growing economies municipal lighting project, the company proves its dominance in LED manufacturing.
LED chips, components and lighting contribute above 70% to our current price estimate of $27.50 for Cree. We believe, that the company has the potential to increase its share in the LED market; and being part of China’s largest municipal street lighting project is a case-in-point.
Cree A Part Of China’s Largest Municipal Lighting Control Project
China started its largest municipal lighting control project in July last year, to meet its stringent roadway lighting requirement for efficacy, brightness, luminance, heat dissipation and lifespan. The project includes nearly 16 miles of highway; and Cree helps light up over 20,000 street lights in China’s Beibei district with more than 1.9 million XLamp LED lights.
Cree’s XLamp LEDs provide high quality light with low heat dissipation, resulting in annual maintenance and electricity savings of over $3 million. Designed to last more than 50,000 hours, the LED’s not only score high on the efficiency and lifespan parameter but also provide easy integration with lighting systems that reduces the overall cost.
Cree To Leverage Growth In Chinese LED Market
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.
Cree derives above 35% of its revenues from sales in the Chinese market and we believe that the company is well equipped to leverage growth in this market.
Our price estimate of $27.50, is at a premium of around 10% to the current market price.Notes:
- China’s LED Lighting Market Trends, Outlook and Forecast 2011-2015, LEDinside, October 13, 2011 [↩]