Cree's Lowered Expectations

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By Imshaken
April 17, 2002

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Several of the longs I communicate with on a regular basis have become very rational and coldhearted when we talk about Cree. I recall fasteh's cold stare at facts when looking at companies. Now, many of the longs are taking the same hard stare, albeit it took a large price drop to get where they (we) are. I'm as much to blame as anyone else or more when it comes to creating a situation where expectation level s of Cree's performance were in high orbit. It's unfortunate a recession and global LED production overcapacity hit Cree simultaneously. However, I consider current bearishness a bullish sign. Most of the long term bulls I know have sold all or the majority of their Cree. The market has done a thorough job of lowering expectations at Cree. Thus I think we have more upside than downside ahead of us right now.

I understand (haven't read it yet) that CFRA put out a negative report on Cree. As far as I'm concerned most of the analysts can put their reports where the sun doesn't shine. Although I do admit to liking Ram Kassargod's questions at the CC's. I also have to give credit to Bank of America's analyst for calling the LED market debacle over a year ago. But the fact remains that Cree is at a multi year low and prospects are bright if measured. I think this is a buying opportunity.

I'm back in Cree, all the way. Why? I think the bad news is out, and good news and growth lie ahead.

Cree's main earnings driver.. LED die sales, addressed a rapidly growing market. The fact that that market was flat due to the recession, and hit with production overcapacity simultaneously hit Cree in the pocketbook. Cree truly has the best devices both price and performance wise. When the market segment begins growing again so will Cree's earnings. Caveat: Cree's LED Margins may not get back to the 50% we've seen in the past due to probably production capacity from competition.

Cree's potential device markets: SiC schottkys, RF devices, Laser. Cree actually has schottky's and the laser. These devices exist now, and Cree is developing better devices. Make no mistake, huge markets will emerge for these devices and Cree will be one of a select few companies able to provide product to these markets. Each of these markets will become billion dollar plus markets. However, nobody with any intelligence expects any significant revenue or earnings from these devices for a year or longer. So be prepared to wait.

After Cree's debacle of the last year, with stratospheric expectations being mauled, it's going to take a while for investor confidence to return to Cree. This will just plain old take a while. In the meantime I hope to gain some ground trading. I believe Cree will in the next few years become the company I envisioned. Just not as quickly.

BTW: I also like the fact that Cree is trying to address marketing issues. Making sales calls with Sumitomo stretches Cree about as far into marketing LEDs as it can go without actually getting into the packaging business itself. This is a sign Cree takes marketing seriously and is doing what it can to develop marketing. Perhaps Cree should drag Osram along on some HB sales calls. :o))

BTW: If my calculations are correct UltraRF lost between 1/3 and 1/2 of its workforce.

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