Seeking Alpha: Cree Impacted by Top Players Price War Strategies

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Cree shares lost nearly 40% of their value over the past year, as GE and Philips launched more aggressive business strategies on the market.

The contending manufacturers have launched a number of new products on the market at very low prices, triggering a price war which has impacted Cree’s earnings and slowed down growth for the top U.S. LED manufacturer. Cree’s financial results in 1Q14 were disappointedly lower than expected, with LED earnings dropping 38% Year-on-Year (YoY).

The company outlook is also pessimistic, with estimated earnings of $0.20 to $0.24 per diluted share for the current quarter, nearly half of last year’s $0.46 per share. In comparison, analysts anticipated second-quarter earnings of $0.39 per diluted share.

Cree has also strengthened position in the mid-power LEDs with its partnership with Lextar. The company is expected to finish purchasing 83 million Lextar shares at NT $30 per share by the end of the second quarter in 2015. The strategic move will strengthen ree’s position in the LED market, and provide operational and financial flexibility.

However, the sales of the company’s new products in 3Q14 are not expected to assist the company’s finances much until it starts delivering results. Meanwhile, GE has formed a partnership with Wal-Mart to sell LED bulb. GE manufacturing operations enjoys huge economics of scale, while Wal-Mart has a comprehensive network of 11,000 stores across 27 countries.

LEDs sold by the two companies range from $9 to $16 depending on configuration. On the other hand, Cree’s retail partner Home Depot has a network of around 2,300 retail stores. Therefore, GE stronger retail partner gives it a higher chance of succeeding in the LED market, due to the larger number of options to choose from.

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