Skip to main content
No. of Recommendations: 35
CREE KARB Analysis

See this post for NEW KARB criteria:

A. Top dog, first mover, in an important, emerging industry that is currently in the Tornado (hypergrowth), or is in the early stages of Tornado/hypergrowth growth. (Most of the signs of Tornado formation/growth as laid out in the Gorilla Game FAQ must be met; refer to item #12 in this post:

CREE is involved in a number of technology markets that are entering tornadoes.
They are leaders in SiC wafer production and LED diode lighting products (such as those used to backlight cell phone screens and PDA screens), they produce equipment for wireless (radio frequency) and power industries. CREE is early in the tornado phase with amny of its products, for the most part they can't meet demand and that indicates that the only thing stopping CREE now is constrained manufacturing capacity.
See this post on the Future of CREE Part III:

Top Dog:
From Yahoo! Profile:
CREE is the world leader in developing and manufacturing compound semiconductor materials and electronic devices made from SiC. SiC-based devices offer significant advantages over competing products made from silicon, gallium arsenide, sapphire and other materials for certain electronic applications. The Company uses its compound semiconductor technology to make enabling products such as blue and green light emitting diodes, or LEDs. The Company sells its LEDs to customers who package them for use in applications such as backlighting for automotive dashboards and automotive interior lighting, wireless handsets and other consumer products. Other applications for its LEDs include indoor and outdoor full color displays, such as video boards in indoor arenas and outdoor stadiums or billboards and message signs.

First Mover:
CREE is very hard to categorize because it is involved in so many early industries, but it is clearly the first mover in SiC materials/semiconductors and also in LED diode lighting.

From the Daily Double Feature on 2/24/00
Cree was started in 1987 by a group of scientists from North Carolina State University who were interested in the use of silicon carbide (SiC) as a semiconductor material. The research into SiC has paid off, and now the company makes a wide variety of chips and diodes that work at higher temperatures and voltages than typical semiconductors. Cree is today's world leader in SiC semiconductor production.

The company also makes blue LEDs, which round out the LED color spectrum and are more intense than the red or green LEDs that have been around for years. Cree's LEDs are beginning to be used as a light source in everything from car dashboards to wireless phones to large, full color displays, like those found in sports arenas.

Cree is also putting significant research efforts into the commercial development of blue lasers. Blue lasers have a shorter wavelength than red lasers, which means they can potentially increase to a large degree the amount of data that can be stored in optical disk systems.

CREE as a Gorilla:
See this CREE Gorilla summary by TinkerShaw
Also see this CREE report by Eric Johnsa in

B. Sustainable advantage gained through business momentum, patents, visionary leadership, high barriers to entry, and high switching costs.

CREE has more than 70 patents on its technology, it is way ahead of any other competitor in SiC materials and in developing blue LED diodes.
Recent press release on new Blue-green diodes:
Business momentum: CREE has increased their earnings sequentially for the last 16 quarters.
From 10-K highlights:
At June 25, 2000 Cree owned or held exclusive rights licensed under a total of 70 issued U.S. patents, subject in some cases to nonexclusive license rights held by third parties. Included in the patent licenses we hold is an exclusive license granted by North Carolina State University, or N.C. State, to 10 U.S. patents, and to corresponding foreign patents and applications, that relate to SiC materials and device technology, including a process to grow single crystal SiC. Cree has been notified from time to time of assertions that their products or processes may be infringing patents or other intellectual property rights of others. They state that they have investigated such claims and determined the assertions were without merit or have taken steps to obtain a license or avoid the infringement.

"C. Excellent Growth Metrics"

CREE's Relative Strength in the past 12 months, according to, is 94. Makes it past this hurdle.

2 points.

Madmarv has an awesome spreadsheet with all kinds of CREE financials in it:
also with FY200 numbers:

June 1999 - June 2000: $108,562
June 1998 - June 1999: $62,401

That's a growth of 76.6%.

QoQ (TTM):
Sep 2000: $125,343
Sep 1999: $ 70,983

This is a growth of 76.6%.

QoQ (3 mo):
Sep 2000: $37,642
Sep 1999: $20,861

This is growth of 80.4%

1 point.

Sequential (TTM):
June 2000: $108,562
Sep 2000: $125,343

That's a sequential quarterly growth of 12.8%.

2 points.

"D. Clear signs of solid execution by a strong management team; Value chain in place or shows clear signs of developing (eg. alliances, joint ventures, partnerships, signing up distributors, third party developers, and VAR's)"

See the latest CC notes,
By Marimba
and mikegavone
Also see TMFOrangeblood's article on CREE's latest earnings report/CC:

The biggest news of the conference call was mentioned almost in passing. Hunter announced Cree had landed the services of Shuji Nakamura, who has attained legendary status in the optoelectronics field. Nakamura's brilliant research eventually generated hundreds of millions in sales for a small Japanese company, Nichia Corp. Nakamura will join Cree in a research capacity.

Of his many accomplishments, one of Nakamura's biggest was the development of the blue-violet semiconductor laser. Red lasers are currently used to read the information stored on CDs and DVDs, but because a blue laser has a shorter wavelength, much more information can be packed on these discs once the product becomes commercially viable. Nakamura gave his company a head start on the blue laser, and then surprised the industry by leaving Nichia to accept a faculty position at the University of California at Santa Barbara.

Once news of his departure spread, Nakamura was offered high-paying jobs by several U.S. companies. Because Nichia held patents on all his work, however, he feared his former company could sue him if he continued to build on his ideas while working for a competitor. So, he landed in the world of academics.

Exactly what Cree offered Nakamura to pull him back into the commercial world isn't clear. In the conference call, Hunter went out of his way to explain to one questioner that Nakamura's work with Cree would be done without violating any Nichia patents or non-disclosure agreements. Even with those restrictions, Nakamura's work could help Cree lead the way in an industry where great research can pay huge dividends.

"E. Company products and brand name are well recognized and respected by its customers, peers, competitors and partners in the relevant industry."

CREE's products will never brand well since it supplies infrastructure, but you'll see CREE components in wireless/PDA handsets, outdoor lighting and many other uses.

Form TinkerShaw's GG report:
VALUE CHAIN: CREEs proprietary technology is the production of SiC. Something no one has been able to do on a mass scale other than CREE. CREE's production techniques are covered by over 70 patents and according to CREE management is at least 6 years ahead of their closest competitors and growing. SiC production is therefore the proprietary and open architecture that CREE provides. Entire industries will be revolutionized by use of SiC and come to depend on SiC. CREE may also develop patents around products like power switches, blue laser, etc.

Second, CREE is the only producer in the world which can commercially mass product SiC to commercial quality. All future competitors in the field will either (1) have to license CREE production techniques or (2) produce at a much higher cost given CREEs tremendous head start.

In fact competitors will actually aid CREE because more SiC production is needed to meet demand and to increase demand going forward. I don't know if CREE will ever be able to catch up to the demand on its own.

"F. Valuation metrics: "

MktCap: $3.2 B
P/E: 87.36
P/S: 26.41

Also see this post by GorillaGorilla for valuing CREE:


CREE is a very young company, leading in some very exciting infrastructure markets. SiC has a number of advantages for microprocessors that resist high heat, and also in the production of blue LED diodes and lasers, these in turn will be used in a number of high tech devices/displays. I believe CREE will emerge as a Gorilla or at least a very strong King in a number of markets. As far as I'm concerned, it is a Rule Breaking stock and deserves to be included in KARB.


Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.