Can Cree Hold Off Universal Display?

Cree (NASDAQ: CREE  ) will release its quarterly report on Tuesday, and with the stock near all-time highs, investors are enthusiastic that it will continue to show strong signs of growth. But even if Cree earnings turn out well this quarter, the longer-term question facing the LED-maker is whether competition from Universal Display (NASDAQ: OLED  ) and its organic-LED products will eventually hurt Cree's future prospects.

Cree has benefited greatly from the ever-increasing emphasis on energy efficiency in lighting, as consumers around the world move away from traditional incandescent light bulbs toward more efficient types of lighting. As LED products become less expensive, Cree has the potential to cash in on even faster growth from energy-conscious customers. But Universal Display and other competitors have seen the potential in the lighting market and are moving aggressively with their own initiatives. Can Cree hold them off? Let's take an early look at what's been happening with Cree over the past quarter and what we're likely to see in its report.

Stats on Cree

Analyst EPS Estimate

$0.39

Change From Year-Ago EPS

44%

Revenue Estimate

$392.31 million

Change From Year-Ago Revenue

24%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

How will Cree earnings fare this quarter?
Analysts in recent months have pulled back on their views for Cree earnings, reducing their September-quarter estimates by almost 10% and shaving almost a dime per share from full-year fiscal 2014 projections. The stock has been volatile but has risen 9% since mid-July.

Most of the pessimism surrounding Cree came from its most recent quarterly report in August. Even though Cree almost doubled its net income for the fiscal year and saw a 22% jump in year-over-year sales for the quarter, it gave poor guidance for the September quarter. The stock took a dive of more than 20% in a single day after the report.

But Cree managed to recover all those losses and more earlier this month, as an analyst's report pointed to the company's lower-cost LED bulb as a potential driver of higher-margin profits for the future. Strong earnings from LED rival Acuity Brands (NYSE: AYI  ) also helped drive Cree and the entire sector higher.

Still, Cree faces some major concerns. The first is that light bulbs are essentially a commodity, and so as Acuity, Philips Electronics, and other competitors see the potential from LED lighting, they'll inevitably pressure margins with products of their own. The second, though, is that Universal Display's organic LED specialty could become a bigger player in the lighting industry, offering a different technology that would potentially require a different response from Cree in order to keep a competitive edge. So far, Universal Display has stayed focused on applications like smartphones and non-commodity offerings, giving Cree some breathing room at least for now.

In the Cree earnings report, watch to see whether the company is able to dispel growth concerns from its previous quarter's results once and for all. As long as it keeps getting more consumers to use its products, Cree should be able to hold off Universal Display and keep growing.

Get your growth stocks here
Cree has plenty of growth potential. But Motley Fool co-founder David Gardner, founder of the world's No. 1 growth-stock newsletter, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, with you! It's a special 100% free report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains, and click here for instant access to a whole new game plan of stock picks to help power your portfolio.

Click here to add Cree to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


Read/Post Comments (6) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 19, 2013, at 6:42 PM, Denverdude123 wrote:

    OLED's are a good choice for display lighting. But they are unlikely to provide the brightness, energy efficiency or lifetime needed for most area lighting applications. Cree has recently introduced an LED measuring 1.6 x 1.6 mm capable of producing up to 300 Lumens. Now that's a bright light!

  • Report this Comment On October 19, 2013, at 9:16 PM, sidneyleejohnson wrote:

    Considering the looming product ramp in 2014 for oled tv (230 million tv/year, 1 % of tv market = about 200 million cellphones worth of oled material)... if Cree did see oled lighting as competition it would do well to just buy out UDC RIGHT NOW. Waiting until after the 165% cagr from oled tv through 2020 to kick in would be folly. The lighting is a new market for UDC but the display market will push UDC's market cap so high that it will be near impossible to offer an attractive buy out once the tv oled capacity ramps kick in starting in 2014.

  • Report this Comment On October 19, 2013, at 9:17 PM, sidneyleejohnson wrote:

    perhaps some kind of joint venture instead of a buy out would also be possible to help them own a new lighting market and prevent cree from having to pay for a product line it doesn't want - display.

  • Report this Comment On October 20, 2013, at 11:04 AM, ScottAtlanta wrote:

    This reminds me of the S curves that characterize All technology paradigms.....an intial tech grows slowly, improves, then takes off, then as it meets the upper limits of it's capabilities (or is replaced by a better tech) it flattens out. This is likely the case with LEDs -- tho they'll always remain for some specific apps.

    Here we see the progression for Computers:

    The progression in hardware representation of a bit of data:

    Vacuum Tubes (1950s) - one bit on the size of a thumb;

    Transistors (1950s and 1960s) - one bit on the size of a fingernail;

    Integrated Circuits (1960s and 70s) - thousands of bits on the size of a hand

    Silicon computer chips (1970s and on) - millions of bits on the size of a finger nail.

    Such progressions fall along S curves and across all domains of technological progress and tools.

    OLEDs represent the next technological advance to replace them (paper thin, flexible, very luminous with v. low energy consumption, etc...). We'll see the ascencion of OLEDs next -- in all display tech and lighting that will radically change how we think about lighting and illumination. Eventually something will replace OLEDS....perhaps lazer cats? lol

  • Report this Comment On October 20, 2013, at 3:02 PM, chuckwalg1 wrote:

    SIDNEY LEE,

    What is a UDC ? Is that a PUBLICLY traded competitor of CREE's ... or possibly a PRIVATELY HELD company ?

    Thanks.

  • Report this Comment On October 20, 2013, at 3:04 PM, chuckwalg1 wrote:

    SIDNEY LEE,

    I just realized you were speaking of OLED, when mentioning UDC.

    Thanks.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2690659, ~/Articles/ArticleHandler.aspx, 8/30/2014 6:34:59 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement