Cree: From Hope To Hit?
As investors applaud Cree's latest financial results, LED lighting market conditions look set to promote more of the same, reports Compound Semiconductor.
Cree reckons its LED bulb 'looks like a light bulb, lights like a light bulb and works better than a light bulb'.
With second quarter targets beating analysts' expectations and shares spiking more than 6% in after-hours trading, the future looked bright for Cree within hours of its latest financial results.
Then, only days later, the US LED and power electronics developer released a concept 200 Lumen per Watt LED luminaire, shattering efficiency targets that the US Department of Energy predicted wouldn't be reached until 2020. The company is on a winning streak, can we expect more of the same?
"Cree has positioned itself well to capture a lamping secular trend here, and for the first time ever the industry is going through, in effect, an analogue to digital transition," says Jed Dorsheimer, managing director of display and lighting equity research at Canaccord Genuity. "Market share is shifting and we have pricing and policy converging at the same time, thrusting forward solid state bulb adoption."
"Cree is well positioned in components, lighting systems and replacement bulbs; this is driving their results," he adds.
Indeed, US government has been pushing stringent measures to phase out the incandescent and ease in the LED. January 1st brought a ban to the manufacture of 40W and 60W incandescent bulbs, while 75W and 100W bulbs were snuffed out last year.
This strict regulation will fuel Cree's ambition to achieve mass LED adoption, and predicted LED market growth will only help. While surplus LEDs dragged down prices in 2012, the market picked up in 2013 thanks to product innovation and falling LED prices.
Cree's past disappointing financial results reflect the dip, but its latest success surely mirrors the eagerly anticipated growth. LED market share in the global lighting market is now expected to mushroom in the next decade and Cree intends to capture this.
As chief executive Chuck Swoboda said in his recent earnings call: "LED lighting remains a largely untapped opportunity and we plan to continue to make significant investments in new products, new channels and building the Cree brand to grow the company."
Road to success
Product innovation, from bulbs to luminaires, has been fundamental to Cree's dominant market presence. In March, last year, the company launched a $10 incandescent look-alike, one of a series of bulbs intended to kick-start the sluggish US domestic market. Meanwhile, the last fiscal year has seen, for example, a new 75W replacement LED bulb, the industry's first $99 LED street light and its True White LED luminaire for outdoor lighting.
This relentless delivery of products would not be possible if the company hadn't set out, from word go, to be vertically integrated. "It's always difficult to vertically integrate and if Cree was to vertically integrate now, instead of years ago, it would be a recipe for disaster," says Dorsheimer. "But the fact the company saw these trends several years ago and had the focus and wherewithal to make some very difficult decisions, is now starting to yield these good results."
Dorsheimer names Cree, Philips, TCP and Feit Electric as some of the leading lights amongst the LED lighting pack, highlighting how other industry heavyweights are playing catch up.
"We see larger companies such as GE missing out on as they are not already well positioned for this [LED lighting] opportunity," he says. "So there is market share that is going to be lost to the more nimble companies well positioned in [sales] channels to take advantage of this."
Indeed, an important piece of Cree's success has been its partnership with US-based The Home Depot. The home improvement retailer has more than 2000 stores across the nation, and without a doubt has helped to thrust Cree's LED products into the marketplace .
Cree plans to sell a wider range of LED bulbs at different prices at The Home Depot.
What is clear from Swoboda's recent earnings call is that Cree will now push more products through this sales channel and others. "[We will now] build the Cree brand and selling the Cree bulb is the foundation to our brand strategy," he says. "[This] and our marketing investment is unlike anything that has been done in lighting over the last several decades... Bulb sales to consumers doubled in Q2 and the product has been more successful that either Cree or The Home Depot would have predicted ten months ago."
And a strong branding could help the company win even more market share from its competitors. Dorsheimer reckons the name 'Cree' hasn't yet helped the company win sales, but this could change.
"I'm not so sure people are going into Home Depot and looking for a Cree-branded bulb, but they are going in and the sales rep is telling them about it," he says. "Consumers are beginning to hear more and more about Cree and this will pay dividends as the market goes forward."