What Can We Expect From Cree’s Q2’17 Earnings?

by Trefis Team
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Leading LED manufacturer, Cree (NYSE:CREE) is set to report its Q1 2017 earnings on January 24th. (Fiscal years end with June.) Going by the company’s guidance for the quarter, its Q2 revenues have likely increased sequentially and declined on a year over year basis. Furthermore, Cree’s operating expense has likely increased in Q2’17, due to an increase in promotional spending related to the GEN4 bulb launch. However, the company claims that it expects  its operating expenses to be offset by higher revenue growth in the coming quarters. It is worth noting that Cree expects its operating revenues to remain flat in FY 2017, even though it forecasts the overall market size to expand during this period. Fierce competition in the LED industry, and its impact on pricing, are the reasons behind sluggish revenue growth for the company.

In the table below, we note the key metrics as expected for the company in Q2’17.  As can be seen, revenues as guided would be down 15% year to year.  Via the same comparisons, the consensus estimates suggest a decline of 25% and 73% in revenues and EPS, respectively. Clearly, Cree is operating in a grim marketplace.

Screen Shot 2017-01-18 at 4.22.11 PM

Cree Focused On Expanding Its Product Offering

Though Cree’s performance in the past year has been significantly affected by the heightened competition in the lighting market, it is focused on expanding its product offering to drive its top-line growth higher going ahead. Cree recently came up with a new GEN4 LED bulb, which according to the company provides premium light and quality at a lower price point. The company believes that this new bulb has the potential to improve its margins going ahead. The company has also hinted at having an increased focus on smart lighting related products, which could be the key to its long term growth. Increased demand for energy efficient and intelligent lighting solutions is likely to drive this market. The company is also likely to consider M&A opportunities as they arise, to expand its business inorganically.

Power & RF Division Sale Expected To Close Soon

In Q4’16, Cree announced the sale of its Power and RF division to Infineon with the aim to become a more focused LED lighting company. This transition is expected to close by the end of this calendar year. It should help Cree improve its cash position and accelerate the growth of its lighting and LED businesses. The company’s core LED business was significantly hit in the past year due to severe decline in margins, as a result of heightened competition from Chinese players in the industry.

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