Cree faces margin pressure as LED prices deteriorate

Feb 03, 2012 It's a good thing then, that the firm has not put all its egg in one basket, as it is also investing in silicon carbide power devices
Companies focused on the manufacturing of LEDs have struggled in the New Year as an influx of Chinese companies has boosted competition in the industry.

The fierce competition has cut prices, squeezed profit margins and inflated supplies, Reuters reports. Five Star Equities has examined the outlook for companies in the Semiconductor LED Industry and provides equity research on Cree and Universal Display Corporation.

The LED industry is expected to be a "low margin business," Wunderlich Securities analyst Theodore O'Neil explains. "Demand is going to be awesome," O'Neill said, pointing to the 50 percent drop in prices on LED light bulbs at home improvement retailers like Home Depot and Lowe's.

VantagePoint Capital Partners expects prices for LEDs to plummet within three years as competition intensifies to satisfy surging demand for energy-efficient lights. Prices for LEDs may fall 90 percent by 2015, said Alan Salzman, chief executive officer of VantagePoint Capital Partners.

Last month Cree reported fiscal second quarter net income of $28.7 million, or 25 cents per share, after excluding stock-based compensation and amortized goodwill -- down 53 percent from a year ago. Revenue rose 18 percent to $304.1 million but was below analysts' expectations of $309.85 million. For the third quarter, Cree expects revenue of $290 million to $310 million, well below analysts' estimates of $320.87 million, according to Thomson Reuters.

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