Monday, May 19, 2008

LEDs: Venture capitalists see the light (CREE)

About ten years ago the best stockpicker I know told me he was looking at CREE. The pitch was "They have 'blue'". I didn't pay much attention, the Nasdaq was starting it's blow-off run, from around 1500 to 5048 in 18 months.
Cree went from $3 to $93.

From the Seattle Times:

Clean-tech venture capitalists have taken a shine to Silicon Valley makers of LEDs and other bright lights, seeing a growing potential for these semiconductor-based light sources in streetlights and parking lots, in concert venues and gymnasiums.

And, soon, in your home.

According to the Cleantech Group, a San Francisco researcher and conference organizer, venture-capital investments into lighting technologies reached $100 million in 2008's first quarter. That ranked behind only biofuel and solar among clean-tech categories.

"The way we light things today uses 25 percent of our energy in the United States," said Alain Harrus, a partner at Crosslink Capital, a San Francisco venture firm with investments in two lighting companies, Intematix of Fremont, Calif., and Luxim of Sunnyvale, Calif. "The opportunity there is to switch to a much more efficient way of using the electricity.">>>MORE

Since the Naz collapsed CREE dropped to the low teens and then doubled over the last five/six years. Here's Zacks Analyst blog:

CREE Strong in Hot Markets

Cree, Inc. (Nasdaq: CREE) is one of the leading producers of light emitting diode (LED) based on Silicon Carbide (SiC) and Gallium Nitride (GaN). March quarter revenue was in-line with consensus expectations although bottom-lines exceeded. Forward guidance is for a 3%-6% growth in the June quarter.

The global movement to energy-efficient lighting is prompting lighting companies and consumers to look at other options. Therefore, lighting will be the strongest end-market for Cree, likely followed by notebooks. New product ramp-up costs will be increasingly offset by yield improvements, higher capacity utilization, larger wafers and offshore production.

The LED market is hot in our opinion, and the LLF acquisition opens up a new opportunity. Consequently, we are reiterating our BUY rating on CREE shares. CREE shares are currently trading at a 53.9x multiple of our 2008 EPS estimate (P/E).

While new product start-up costs remain a drag on margins, the company has the new-age lighting technology that should bring significant revenue growth. Cree has already started seeing some of this growth, and the recent LLF acquisition is expected to enable direct entry into the commercial and residential lighting markets. The market for LED lighting looks good with Philips Electronics of the Netherlands (NYSE: PHG) investing a billion dollars in acquiring the technology, and General Electric Company (NYSE: GE) making several smaller bids.