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Why Cree, Inc. Fell 13.3% in October

By Anders Bylund – Nov 7, 2016 at 5:06AM

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The LED lighting expert is shrugging off its power and RF unit to focus more on the core lighting business. The resulting short-term pain resulted in a drastic haircut.

Image source: Cree.

What happened

Shares of Cree (WOLF -0.61%) fell 13.3% in October, according to data from S&P Global Market Intelligence. A tepid first-quarter report brought the LED lighting specialist's share prices as much as 14.7% lower on Oct. 19 alone.

So what

In the first quarter, Cree's revenue from continuing operations plunged 16% lower year over year to land at $321 million. Adjusted bottom-line earnings were roughly $0.09 per share, down from $0.14 per share in the year-ago period. Wall Street had expected earnings of approximately $0.11 per share.

CREE Chart

CREE data by YCharts

Now what

Cree CEO Chuck Swoboda characterized the first quarter as a slate of "solid results," as the company continues to focus even more tightly on LED lighting products. The power controller and radio-frequency amplifier products under the Wolfspeed banner are on their way to Infineon in an $850 million cash transaction, leaving Cree with fewer non-core distractions.

Swoboda waxed downright poetic about this overarching goal in a conference call with analysts:

We remain focused on building a larger and more valuable company by bringing better light to our customers -- light that makes their environment better and is intelligent by design; light that enables you to see better, feel better, and do more; light that is smart enough to not only improve the lighting environment but become an integral part of enabling smart buildings, thereby expanding the market and channel opportunity for Cree.

The transition to Cree 3.0 and the sale of our Wolfspeed business has created some challenges over the last year, but overall we are making fundamental progress toward our goal to build a larger and more valuable LED lighting company.

Mr. Market doesn't seem to agree with this vision at the moment, paying more attention to the short-term revenue damage than the long-term market and profit promises. Opportunistic investors who agree with Swoboda's projections might want to take advantage of the current share-price discounts.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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