Shares of LED lighting company Cree fell 15 percent Wednesday as some Wall Street analysts were discouraged by the company’s announcement that its fiscal third-quarter revenue will fall well short of its target.
Canaccord Genuity analyst Jed Dorsheimer said it was especially dismaying that the shortfall stemmed from weak sales of lighting products.
“The lighting business was and is Cree’s growth driver, which makes the miss all that more painful,” Dorsheimer wrote in a research note.
Cree disclosed late Tuesday that sales in the quarter that ended March 27 were hindered by customer service disruptions arising from conversion to a new software system, delayed product introductions and weaker-than-anticipated demand. The announcement drove shares of the Durham-based company down in after-hours trading.
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“We believe Cree will have a very difficult time rebuilding customer momentum and winning back lost business as a result of the software conversion difficulties,” Dorsheimer wrote.
Cowen & Co. analyst Jeffrey Osborne noted that “given the challenges in the LED chip market and erratic execution on the bulb/commercial lighting over the past two years, the stock has been a perennial underperformer. We see the stock in an identity crisis with uncertainty around the long-term technology value the company holds relative to the growth opportunity in its narrow indoor and outdoor lighting business.”
Osborne said he wasn’t pulling back from his “market perform” rating on the stock – the equivalent of a hold – given factors such as an aggressive share buyback program and a healthy balance sheet. But he said he’d rather see the Durham-based company make some strategic acquisitions rather than buying back shares.
Cree repurchased $17.8 million in shares during the quarter and has been authorized by the board of directors to buy back up to $350 million in additional shares.
Cree estimated that revenue for the quarter would be about $367 million; the Durham-based company’s guidance had anticipated revenue would range between $400 and $430 million.
CEO Chuck Swoboda told analysts during a conference call that orders for lighting products picked up in March and that the issues created by the new software systems were mostly over. The pace of new product launches also has improved, he said.
“Sometimes the development takes longer than expected, but this is one of the risks of being in the innovation business,” he said.
Cree sells LED light bulbs and indoor and outdoor LED light fixtures as well as making components other companies use in LED lights. Its LEDs also are used to illuminate mobile phones, TVs, electric signs and car dashboards.
Stephens & Co. analyst Harsh Kumar offered a more upbeat assessment.
“While the results are disappointing, we believe the majority of the shortfall is short-term in nature,” Kumar wrote.
“We would be buyers following the disappointing update in the March quarter,” he added. “We believe the issues arising from the (software) implementation and new product delays are behind them.”
Kumar rates the stock the equivalent of a “buy” and has a 12-month price target of $40.
Cree shares closed at $24.81, down $4.24. With Wednesday’s decline, shares have fallen 8 percent this year.