I think there’s a huge market for an LED bulb that can replace a linear fluorescent tube, even with the price differential.
First, at $30 vs. $2, we’re comparing retail to bulk pricing. Not all businesses buy in those quantities, and maybe Cree will be able to offer volume discounts too.
Second, the cost of electricity is not fixed, and it sure isn’t going down. According to U.S. Energy Information Administration statistics, the average price for electricity across the country rose nearly 6% in the past year alone — and close to 8% for commercial customers. Don’t discount the time and effort spent changing bulbs (often involving ladders, fixture cover removal and sometimes power lifts), which is cut at least in half by the longer lifespan. Burnt-out bulbs don’t have the mercury pollution factor and disposal cost associated with fluorescent tubes.
Finally, virtually every state offers incentives and rebates for investing in energy-efficient lighting, helping to offset the cost of an LED bulb.
Companies are taking notice of LED bulbs as they strive to cut operational costs. In LEDs Magazine, Maury Wright profiles a move by Walmart (WMT) to roll out LED bulbs in its supercenters to reduce its energy costs (lighting the sales floor accounts for 90% of the electricity use in a typical Walmart store).
In fact, the biggest spoiler for the Cree party isn’t cheap fluorescents — it’s LED competition.
Philips (PHG) is one of the world’s biggest lighting manufacturers, and it too has a T8 LED bulb on the market. And it’s cheaper than the Cree version — at least in bulk. I saw a 10-pack on Amazon (AMZN) for $249.99, and that pressure to lower prices will cut into margins unless Cree can bring production costs down. Expect other lighting giants like General Electric (GE) to move quickly to protect their commercial lighting business as well.
Cree isn’t exactly in dire straits. In its last quarterly results, Cree posted revenue of $405.3 million, showing growth of 16% year-over-year, while profits jumped 27%. CREE stock dropped 12% in response, sure, but merely because expectations were for even better results for that.
With lighting accounting for a growing chunk of Cree revenue, there is real potential for the T8 LED bulb to make a big difference to Cree’s bottom line. According to figures released by Philips, there are some 12 billion fixtures globally wired for T8 fluorescent bulbs.
That is a massive install base just waiting for a plug-and-play solution that’s more energy efficient and less costly to maintain. Combine the bulb prices with the potential market opportunity, and you’ll see that capturing even a small fraction of those customers with its new T8 LED bulb could help propel Cree stock once again.
Me? I can’t wait to pick up a few of these Cree LED bulbs to replace the buzzing, flickering, prone-to-shattering fluorescent tubes currently in my basement.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.