What Can We Expect From Cree’s Q4’17 Earnings?

by Trefis Team
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Leading LED manufacturer Cree (NASDAQ:CREE) is set to announce its fiscal Q4 results on August 22. The company has seen its top line and profitability decline drastically in the last few years, owing to fierce competition in the LED industry, which has suppressed LED prices as well as Cree’s market share. While the company’s Q3 earnings were impacted by the termination of the Wolfspeed sale, even removing that impact resulted in the company’s revenue and EPS figures coming in at the lower end of its guided range and below analyst expectation. The company expects revenues between $340-360 million in Q4, with the midpoint indicating a 10% year-over-year decline.

Margins To Remain Under Pressure As LED Competition Prevails

Though Cree claims that the fundamentals of its businesses have improved, we believe that competitive pressure is likely to continue impacting the company’s business. According to a report by LEDInside, the global LED market was estimated to grow by a mere 3.4% annually to US$14.8 billion in 2016. The report also states that the LED industry is likely to be under tremendous competitive pressure in 2017. Another report by LEDInside states that Chinese LED packaging manufacturers have rapidly scaled up their operations since the second half of 2016. Clearly, these factors are indicative of increased pricing pressure on Cree’s LED products business, which can have negative implications on its overall margins.

Cree expects its operating revenues to remain flat for fiscal 2017 (ended June). However, the company is focusing on the following goals to drive its long-term growth.

  • Driving top-line growth of the LED lighting business. To achieve this target, Cree is focused on high-growth smart lighting products. Also, the company is evaluating growth opportunities in the lighting segment through potential M&A.
  • Improving overall operating margins. Cree believes that improvement in lighting gross margins will primarily drive overall operating margins. The company expanded its lighting product portfolio recently by launching new high-value products, which it believes will help in improving margins going forward.
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