Cree: Disappointing Preliminary Results for Q1 2015
Revenue of $428 million is below expectations
Cree, the maker of LEDs, LED lighting products, power and RF chips, has announced preliminary estimates of financial results for its first fiscal quarter ended September 28, 2014. Revenue for the quarter is expected to be approximately $428 million, which is below prior guidance of $440 to $465 million.
LED Products revenue is expected to decline 20 percent year over year and 13 percent sequentially to $174 million in the first quarter of fiscal 2015 due to weaker global demand than originally targeted. Revenue is expected to be lower sequentially for both direct and distribution customers.
Lighting products revenue is expected to grow 51 percent year over year and 7 percent sequentially to $223 million in the first quarter of fiscal 2015, which is at the higher end for this segment of the company's previously announced targets due to growth in both LED fixtures and LED bulbs.
Power and RF Products revenue is expected to grow 24 percent year over year and 8 percent sequentially to $31 million in the first quarter of fiscal 2015, which is also at the higher end for this segment of the company's previously announced targets.
Overall gross margin is expected to be below the company's previously announced targets primarily due to the lower LED Products revenue and higher than targeted LED bulb revenue.
LED Products and Lighting Products segment gross margins are expected to be lower sequentially primarily due to the product mix within each segment.
Operating expenses are expected to be slightly lower than previously targeted.
The company plans to release final financial results for the first quarter of fiscal 2015 and provide a second quarter of fiscal 2015 outlook as previously scheduled on October 21, 2014.
Why did Cree's LED revenue Fall?
According to Jamie Fox, principal analyst for IHS Inc, which provides information on the LED market, the steep 20 percent year-over-year fall (and a striking 13 percent sequential decline from the previous quarter, on top of a 1 percent drop already posted last quarter) are notable reversals.
"While the earlier setback was small at 1 percent, its occurrence in the calendar second quarter took place at a time that is normally a growth period for both the LED industry as a whole, and also for North Carolina-based Cree, following a seasonally weak first quarter typical for the trade. The latest contraction, however, is more serious-simply because of the magnitude of the decline," says Fox who released a Research note on the Cree results.
He adds: "The disappointing results from both quarters represent some market share loss for Cree. Cree has been No. 1 for packaged LED revenue in general lighting from at least 2010 to 2013, according to the LED Intelligence Service of IHS Technology. But now Cree's position in 2014 is under threat."
IHS posits that there are a number of possible reasons for the decline. Although Cree was first to the lighting market, others are now catching up. Growth in the third quarter in the LED industry does tend to be very slightly lower than that of the second as well as the fourth quarters in every year. Cree is the first to release data, but various industry sources at other LED companies have reported to IHS that LED demand as a whole may be softer in the third quarter after a bright first half. This will need to be confirmed over the coming weeks.
Another point is that some companies will sell at a rock-bottom price to make sure they win the business. This has never been Cree's strategy or the expectation of its investors in terms of profit margins. Moreover, Cree's US factory continues to focus on high-power LED production, even though many other players are now focused on midpower products that are winning on price.
Moreover there is growing competition from Asia: South Korean players have been winning share in the lighting market in recent years. To this IHS now expects increasing competition as well from Chinese vendors such as MLS.
Finally, IHS says that Cree's growing lighting business means it no longer has to rely on component packaged LEDs for growth
