A Look At Cree’s Projected Growth

by Trefis Team
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Leading LED manufacturer Cree (NASDAQ: CREE) has seen a significant decline in its performance in the last few years, owing to fierce competition in the LED industry, which negatively impacted LED prices, and Cree’s market share. However, Cree’s performance, in terms of both revenues and margins, saw a turn-around in the recent quarters on a sequential basis. This comes as a source of respite for management, which is expecting a turnaround in its business in the upcoming quarters and assuaged investors’ concerns, with a significant rise in the stock price. Our price estimate for Cree’s stock stands at $44, which is slightly below the market price following the recent rally. The company generated $1.5 billion revenue in 2017 and we expect 4% annual growth for the next two years.

We have created an interactive dashboard which shows our forecasts for the company’s revenues. You can modify the different revenue drivers to see how changes impact the company’s expected revenues.

Cree generates revenue from three segments: Lighting revenue, LED revenue, and Wolfspeed revenue. The Lighting segment generated $425 million through Q3 and we expect it to grow 1% annually in 2018 and 2019. Commercial lighting was affected by the continued weakness in the North American market. Cree is looking to boost revenues and margins by investing in channel relationships, improving execution, and continuing to deliver innovative lighting solutions. Cree believes that, even though the previous quarters were soft, the non-residential construction market will pick up in subsequent months. With an expanded product range, the company hopes to get into new applications, which can drive growth going forward. Despite that, it will take several quarters to rebuild significant growth momentum in the Lighting business.

The LED segment generated $440 million in the first three quarters and we expect it to stay around the same level for the next two years. Cree is expanding its LED product offering with new high-power and mid-power products that leverage its market leadership. The company has entered into a joint venture with San’an, which can help Cree increase its presence in the mid-power LED component market. However, increased competition will keep a check on prices.

The Wolfspeed business (wide bandgap semiconductors) generated $219 million through Q3 and we expect 20% annual growth in 2018 and 2019. This is attributable to higher factory utilization and improved production. The company is seeing significant demand in silicon carbide and is currently working on improving capacity.

 

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