Cree Keeps Leading Way With LED Lighting

by Brad Moon | March 5, 2013 2:38 pm

Smartphones, tablets, HDTVs and now watches[1] tend to dominate consumer technology news, but there’s another segment that’s experiencing explosive growth: LED lighting.

It’s still relatively early in the game, so the companies whose products make it onto shelves first and establish a reputation are likely to be the beneficiaries going forward. In fact, one of the those early-to-market success stories has already made waves … and is now showing further signs of rapid growth.

Cree (NASDAQ:CREE[2]) — a manufacturer of semiconductors and LED lighting — has been on a roll this year as LED demand picks up. After a slow 2012 — where a market surplus drove its stock price under $23 despite a 150% growth in LED revenues since 2007[3] — it’s been on fire so far this year.

In Q2, which ended in December of last year, revenue was up 14%[4] year-over-year, while profit was up 69% despite decreasing retail prices for LED lights. The company also released Q3 guidance that was above analyst expectations[5], then topped that with yet another revision this morning.

Thanks to an exclusive deal[6] with Home Depot (NYSE:HD[7]) featuring a new line of lower-priced LED bulbs, Cree is now predicting Q3 revenue in the $335 million to $350 million range, along with non-GAAP earnings of 31 cents to 36 cents per share. Cree stock is up 13% on the news to over $50 — a level it hasn’t seen in two years.

See, the economics of LED lighting makes the technology a compelling one for governments that are struggling to cut expenditures while trying to meet “green” goals. Despite the higher initial investment, switching to LEDs from incandescent lighting can quickly pay off on both fronts, while avoiding the complaints and limitations associated with the compact fluorescent (CFC) bulbs that haven’t quite lived up to their expected potential.

For example, a 2013 New York State Department of Energy Conservation report says that if all state municipalities replaced existing incandescent streetlights with LED bulbs — which are brighter, more energy-efficient and longer-lasting — it would reduce energy consumption[8] by 22.3 million kilowatt-hours annually, while cutting greenhouse gas emissions by 9,200 tons. The switch would also save on maintenance costs since bulbs would require less frequent replacement.

On top of that, the report suggests that switching from traditional mercury vapor streetlights to LED doesn’t just significantly reduce  energy and maintenance costs (a big deal, since street lighting makes up roughly 40% of the state’s municipality electrical bills), but also the number of lamp posts needed is more effective as well.

SmartPlanet profiled an example of LED savings in action, telling the story of a NYC property owner who is retrofitting 21 properties with LED lighting (replacing fluorescent, incandescent and halogen fixtures) for an energy savings of $750,000[9]. Even at the current, high-cost of LED bulbs, the estimated payback on the project is only three years, with the remaining lifespan of the LED bulbs (which should be at least another five years) representing pure savings. The story points to LED lighting as “low-hanging fruit” for commercial property owners looking to slash the 25% to 30% of their energy bill that lighting typically consumes.

Plus, the fact that LED lighting is solid-state means it can be controlled by software, leading to a whole new avenue of growth: programmable lighting. This has been on full public display through large scale installations like San Francisco’s Bay Bridge[10] and New York’s Empire State Building[11], and has begun to catch on at the home level thanks to app-controlled LED lighting systems like Philips’ (NYSE:PHG[12]) Hue wireless system[13].

Consumers are excited about LED lighting too, despite the current premium price for LED bulbs. According to a New York Times article, LEDs represented 3% of residential lighting sales in 2012 but are projected to outsell traditional incandescent A-type bulbs (the most commonly used) in North America by 2014. Plus, shipments in this category are expected to increase to 370 million units[14] by 2016 — a better than tenfold increase compared to 2012.

In fact, in that New York Times piece, $10 per bulb is suggested as the tipping point at which consumer LED lighting will take off. It’s no wonder, then, that news that Cree will be selling LED bulbs starting at $9.97 at Home Depot resulted in the company once again hiking its third-quarter revenue guidance and seeing a 13% surge in share price.

All in all, 2013 was already looking good for Cree … and now the future looks even brighter.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.  

  1. and now watches:
  2. CREE:
  3. 150% growth in LED revenues since 2007:
  4. revenue was up 14%:
  5. above analyst expectations:
  6. Thanks to an exclusive deal:
  7. HD:
  8. reduce energy consumption:
  9. energy savings of $750,000:
  10. Bay Bridge:
  11. Empire State Building:
  12. PHG:
  13. Hue wireless system:
  14. increase to 370 million units:

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