Get Premium to unlock powerful stock data

Time to Bet on This LED Player for the Long Run

Author's Avatar
Vinay Singh
Mar 29, 2014
Article's Main Image

LED specialist Cree (

CREE, Financial) crashed after the company's guidance for the current quarter turned out to be weaker than expected. Cree's management is looking to capture more market for its LED products, a space where bigger players such as General Electric (GE, Financial) and Philips also operate.

This is the reason why Cree is stepping up its marketing efforts, but unfortunately, the Street doesn't seem to be recognizing this as the stock has dipped considerably in the last few days.

Bulb Ban

The standard incandescent light bulb as we know it is now a thing of the past. As per the 2007 Energy Independence and Security Act, it is no longer legal to produce or import 40-watt and 60-watt incandescent bulbs in the U.S. The 100-watt and 75-watt variants were phased out in 2012 and 2013, and the latest ban has completely knocked out the incandescent bulbs. Incandescent bulbs have not changed much since Thomas Edison first invented them. These bulbs have a very low efficiency and convert only about 10% of their energy into light.

The ban bodes well for the LED industry, which has been growing at a fast pace in the previous years. The ban clearly indicates that the LED market is not going to run out of fuel anytime soon and will grow considerably in the coming years. Presently, LED accounts for merely 1% of the U.S. lighting market, signifying that it has a lot of room to grow. By 2020, the LED lighting market is expected to be worth $94 billion, according to McKinsey, and Cree looks well-positioned to tap this opportunity through its products.

Growth Plan

Cree operates in a market that's expected to see annual growth rates of 34% till 2016 and then 13% till 2020. Cree's 40-watt replacement LED light bulb, which costs $9.97, is priced below rival products such as those from General Electric. In addition, Cree's bulb is more efficient, delivering the same 450 lumens as GE's light but consuming 50% less electricity. In addition, Cree's recently launched XSPR Series Street Light that costs $99 is expected to make replacing sodium street lights cost-effective and 65% more energy-efficient.

In August of 2013, Cree launched the first $99 street light, called the XSPR, as a direct replacement for residential street lights. The XSPR delivers better lighting while consuming 65% less power, and the company claims that it is an ideal replacement for the outdated HID luminaries currently installed in North America.

The company further extended its outdoor lighting portfolio by adding the advanced XSP Series Area and the XSPW Wall Pack LED luminaries to its XSP series. These LEDs are not only 65% more efficient, but also nearly eliminate maintenance costs. The company says: "These new luminaires provide high performance, nearly maintenance-free lighting for up to 100,000 hours, ending the need for compromised metal halide alternatives."

The market for the outdoor lighting is expected to grow at a CAGR of 26% from 2010 to 2015 and Cree's initiatives will help it to make the most of this opportunity. The company's partnership with Home Depot has been fruitful until now and the company has continued to reinvest the profits from the operations into further enhancing its product portfolio.

The company recently added the 75-watt replacement bulb to its product line. This new bulb is expected to last 25 times longer and consume 82% less energy. In addition, Cree also introduced the SmartCast technology this month. This is the first self-programming wireless lighting control system that decreases energy consumption by more than 70% at less than 50% of the cost of traditional lighting controls.

Norbert Hiller, Cree's executive VP of lighting, said:

"Commercial lighting customers have resisted installing traditional lighting controls because of excess cost and complexity, and the majority of those who have installed controls stop using them as intended after the first year because they're difficult to maintain. Cree SmartCast™ Technology eliminates these barriers to adoption and delivers the enormous benefit of significantly greater energy cost savings, allowing customers to finally realize the promise of lighting controls."

This is the company's first foray into the lighting controls market, which is estimated to grow 200% to $5.3 billion by 2020.

Going forward, Cree will continue focusing on developing new products, which is why it is a good bet for investors who are looking to benefit from the growth of LED market.

Cree has been seeing good order momentum for the past few quarters and the trend continued in the previous one as well. The company is expecting growth across all its business segments in the present quarter. Management believes that the company is in a great position to take advantage of the growing popularity of LED lighting and it certainly has the right products to tap this market.


Cree has successfully grown its business in a market despite the presence of more illustrious players such as General Electric, Koninklijke Philips, OSRAM, etc. Cree's continuous focus on innovation has helped it gain lighting orders, and the company is also undertaking a series of cost-reduction programs to bolster its margins.

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
0 / 5 (0 votes)
Load More

Please Login to leave a comment