Cree shares fall 12% after company warns of disappointing quarter

Shares of LED lighting company Cree fell 12 percent Thursday after the company braced Wall Street for another disappointing quarter.

Before the markets opened, Durham-based Cree announced that it anticipates posting $428 million in revenue for the fiscal first quarter that ended Sunday. That’s well short of the company’s earlier projection that revenue would come in between $440 million and $465 million, compared with $391 million a year ago.

Cree also said it is anticipating earnings per share will fall below its previously announced target.

Cree blamed the shortfall on “weaker global demand” than expected for its LED products.

“I don’t think this is a blip,” said Piper Jaffray analyst Mike Ritzenthaler. “I think this will be something that will take awhile to play out completely.”

Ritzenthaler, who has a neutral rating on Cree’s stock, lowered his 12-month price target from $53 to $41 after the company’s announcement.

Cree shares closed Thursday at $34.86, down $4.77.

Cree, which has more than 2,400 workers in the Triangle and more than 6,500 worldwide, makes LED light bulbs and indoor and outdoor light fixtures as well as components other companies use in LED lights. Its LEDs also illuminate mobile phones, televisions, electric signs and car dashboards.

The overall LED market is quite robust, but right now the sweet spot is mid-powered LEDs that are used in commercial and industrial applications, “which is not Cree’s strong point,” Ritzenthaler said.

Cree said its LED product revenue, which includes LEDs used in lights, is expected to decline 20 percent from a year ago to $174 million for the quarter. Last quarter, LED products accounted for 46 percent of total revenue.

By contrast, lighting products are expected to rise 51 percent thanks to growth in both LED light fixtures and LED bulbs. Lighting products made up 48 percent of total revenue last quarter — the first time ever that revenue from lighting products exceeded LED sales.

Further complicating Cree’s situation is that its slumping LED business has significantly larger profit margins than the fast-growing lighting products business.

“We continue to be concerned about Cree’s market position and the adverse impact on margins,” Cowen and Co. analyst Jeffrey Osborne wrote in a research note.

Cree’s shares have fallen 44 percent this year. The company’s revenue has fallen short of analysts’ expectations over the past two quarters. Revenue last quarter rose 16 percent, but Wall Street expected more.

Cree plans on releasing its fiscal first quarter earnings on Oct. 21.

Revenue from Cree’s often-overlooked power and RF, or radio frequency, business is expected to rise 24 percent to $31 million in the first quarter. That division accounted for 6 percent of last quarter’s revenue.

Cree’s power components are used in computer servers, uninterruptible power supplies and for solar energy. Its RF transistors and integrated circuits are used in radar and telecommunications systems.