How Cree’s Acquisition Of APEI Will Help Its Power & RF Division To Unlock Its Full Value ?
Cree’s (NASDAQ:CREE) acquisition of Arkansas Power Electronics International, Inc., or APEI, a global leader in power modules and power electronics applications, is one of many moves Cree has made for an eventful quarter. Combining two highly complementary innovators, the acquisition will enable Cree’s Power and RF business to extend its leadership position and help to accelerate the market for high-performance, best-in-class SiC power modules. In May, the company announced its plans to spin off its Power and RF business, which has $118 million in product and service sales presently. The move is expected to allow the company to focus individually on its LED and lighting business sectors as well as its power and RF businesses. Also, the company announced its LED restructuring plan in June to reduce excess capacity and to improve the company’s cost structure moving forward. Extending Cree’s research and development capabilities with APEI, a leader in wide bandgap power R&D, will help the company meet customer requirements for performance and cost. [1] Terms of the deal were not disclosed as it will be immaterial to fiscal year earnings.
John Palmour, company co-founder and chief technology officer for Cree’s relatively obscure power and radio-frequency, or RF, business unit, estimated that the market addressed by Cree’s power diodes and transistors exceeds $5 billion today, while the RF products are attacking a market that currently accounts for $1.5 billion to $2 billion in sales. Expanding into new markets is part of the game plan. Cree forecasts that the power and RF business will grow at a 12% to 15% annual pace over the next several years, which actually is below last year’s pace as growth rate slows a bit with the base getting bigger.
Cree could very well cash in on the APEI acquisition. This acquisition strengthens Cree’s market-leading position for SiC power electronics, infusing the Power and RF business with additional intellectual property and applications expertise at the systems level from APEI. The companies’ shared mission to deliver the industry’s most innovative SiC power products has already led to successful collaboration on multiple government contracts.
Power & RF is Cree’s smallest business segment, but it is growing. In telecom applications, Cree says its gallium nitride technologies improve the efficiency, bandwidth, and frequency of products using gallium arsenide. In power applications, CEO Chuck Swoboda said efficiencies of its silicon carbide technologies offer advantages in clean energy applications. With the acquisition, CREE would be able to leverage on its technology and give more space to its power and RF segment, thereby, unveiling the overshadowed potential of the subsidiary.
Our price estimate of $35 for Cree is at a an approximate 10% premium to the current market price.
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Notes:- Cree Acquires APEI, July 9th, 2015 [↩]