Marimba – good job on getting your notes out in a timely fashion to help everyone on the board realize what a good quarter Cree really had. The following are my notes (which might overlap some of Marimba's) but I think point out some other interesting facts.CREE's Conference Call Summary for Quarter 1 Fiscal Year 2001.FinancialsIncreased earnings sequentially for 16 straight quarters.CREE equaled or exceeded their highest profit margins in their history (58% product revenue, 39% operating revenue, and 34% net revenue).Gross margins came in at 55% of revenue (matching last quarter's record level) as the company continued to counter declining average sales prices (ASPs) with declining production costs. Company states they would not change their guidance going forward of gross margins in the low to mid 50% range. These margins are some of the best compared to their competitors in the market.This quarter demonstrated a 14% sequential rise in product revenue.Only 5% of revenue came from the European region. Latest contract signed with Siemens-Osram entails a 60% increase in LED volume over the previous contract. They are anticipated to be their largest customer during Fiscal 2001. No revenue for gemstone materials is anticipated during 2nd half of fiscal 2001 from Charles & Colvard (this is no surprise as CREE has announced similar before). Decline in revenue from Charles & Colvard is anticipated to be more than offset with greater revenue from LED demand.Government contract revenue grew 5% sequentially and 27% over prior year.Spending on research and development 7% during the most recent quarter to support microwave and opto-electronic programs including the UB LED product.Days inventory on hand is at 57 days (below industry average).Days sales outstanding is at 48 days (below industry average).Return on assets increased to 16% (above industry average).Cash flow from operation was 5 million dollars due to 8 million-dollar increase in A/R, 4 million-dollar increase in pre-paid expenses, and 4 million-dollar reduction in A/P. Cash flow from operations still expected to be 80-90 million dollars for current fiscal year.282 million dollars of cash on hand. The company remains “very optimistic” about their growth potential during 2001. Good visibility in core product lines. LEDsHigh Brightness (HB) experiences the highest demand of all the other product lines of LEDs with 80% of the LED revenue (compared to standard brightness, and ultra high brightness (UHB) LEDs). Volume of the HB chips increased 22% sequentially while ASP declined approx. 5% for the quarter attributed to anticipated volume discounts. LED revenue increased 17% sequentially. Chip volume increased 22% sequentially with small chip volume accounting for over 15% of total volume (that is the smaller chip that the company announced on June 6th this year). Approx. 40% of LED chips serves the automotive market. Handset applications use less than 25% of chip volume. Cree has little exposure in the handset market (maybe a little less than single digit million handsets). As their price points come down, they can increase their penetration even in a declining market. Ultra brightness (UB) chip (just announced a few days ago) will be released for volume production during second half of 2001. An Asian customer described CREE as “the dominant supplier of nitride LED devices” after reviewing samples of the new UB product and placed an order on the spot (which was noted as being unusual). Neil Hunter compared the release of this UB product as releasing the 1 GHZ processor as they now begin lowering the prices of their standard processors. Neil further stated that this UB product as well as other products in the pipeline dispel the myth that SiC products cannot be as bright as Sapphire ones. Cree's customers who sampled the UB product stated that Cree is as bright as Sapphire suppliers. Another brightness increase in their products in anticipated for fiscal 2002. Higher brightness and lower costs are a key in growing forward (which the company has achieved in the past). Currently shipping to 7 of the top 10 LED manufactures and in talks with the other three. The recent new product offering (UB) increases chances this will expand. Competitors products are about the same of where Cree was two years ago. Neil states that just because some competitors are increasing capacity it does them no good unless they increase demand for their product. The only way they would be able to increase demand would be to make a brighter product while lowering the cost, which Cree is doing. WafersWafer sales grew 8 % sequentially, 53% year over year. Quality of wafer in 2 and 3-inch sizes continues to improve. Good progress made towards transition of 3-inch wafer production. Blue Laser Diode ProgramBlue laser project is “gaining momentum”. Intensity and focus for this product remains strong. Power outputs of reading and writing in optical storage systems have been demonstrated. Laser product anticipated to be released during fiscal 2002. Lowering defects in the material and longer lifetimes are key technological focus going forward. Radio Frequency (RF) and Microwave DevicesCree has demonstrated unheard of device performance. Customers have stated that Cree's devices “perform as advertised”. Company states they talked to customers who stated they cut design cycles from 2 years to about three months upon seeing the capabilities Cree's technologies. Challenge is to capitalize on these opportunities by completing the development necessary to produce profitable volume product. A 30-watt device is scheduled to be released during 3rd fiscal quarter (prototypes). Trial production samples of 10-watt product is finished being shipped out to approx. 25 customers during this quarter. Full production of 10-watt device is anticipated for 2nd half of calendar year 2001 or first half of fiscal 2002. Next product after 30-watt will be 60-watt. Concentrating on increasing yield in lower watt products right now. Neil believes Xemod (which is a modular manufacturer who Cree recently announced a partnership with) is the next generation power-amp manufacturer. Expansion of Production Facilities Construction is on schedule. Anticipate completion of facility expansion project at the end of this 2nd quarter with them being equipped during the following two quarters. Capital budget still anticipated at $105-$155 million during current fiscal year. Other highlights Dr. Shuji Nakamura working part time exclusively for Cree lighting. Neil stated he “will help move products forward” without revealing trade secret information from previous employer. States he is a fantastic addition to what was an already fantastic team. It sounded like he will work on other projects besides the blue laser (probably LEDs etc.). The Bank of America and Morgan Keegan analysts seem to pick up on the importance of Nakamura coming to work for Cree. Yes, Neil did seem to downplay the Nakamura issue but no more than he downplays all of the other accomplishments the company makes. Cree will vigorously defend intellectual property cases going forward. Nitres acquisition is “working out wonderfully”. No MVIS stock was sold this quarter. Next earnings release scheduled for January 11, 2001. My experience shows Cree has a history of being conservative as far as guidance going forward is concerned. This was a fantastic quarter as far as I'm concerned (New products/partnerships/personnel, more products in the pipeline, good growth going foward).Cree Inc. Reiterated `Strong Buy' at PrudentialBy Donna McdonaldPrinceton, New Jersey, Oct. 13 (Bloomberg Data) -- Cree Inc. (CREE US) was reiterated ``strong buy' by analyst Hans C Mosesmann at Prudential Securities. The 12-month target price is $225.00 per share. BANC OF AMERICA SECURITIES ** MONTGOMERY DIVISION ** BANC OF AMERICA SECURITIES 12-MONTH TARGET PRICE: $160, reiterate our Strong Buy rating.WitSoundview also reiterated their Strong Buy rating.Also stinkinbadges wrote I was looking over posts on this board from last earnings season. I don't know if we have discussed this yet but what happened this quarter is almost exactly what happened last quarter. I noticed the same thing a few months ago. http://boards.fool.com/Message.asp?mid=13013380Do you want to see something really scary? Alex Gauna wrote in his Bank of America report on 10/13/2000 . In coming years we anticipate Dr. Nakamura's contribution to Cree will be on a scale similar to the impact Michael Jordan had on the Chicago Bulls franchise, Joe Montana on the San Francisco 49ers, Joe Torre and the New York Yankees, and Albert Einstein on the United States of America. Look at what was posted on the Fool board back on July 20th:http://boards.fool.com/Message.asp?mid=12968108Anyone who sold because of the CNBC fiasco did not do their homework. - Gavone
No revenue for gemstone materials is anticipated during 2nd half of fiscal 2001 from Charles & Colvard In spite of all this great news about strong financials, strong demand for LEDs, promising developments in blue laser, RF, and power control applications, and the signing of Nakamura, I'll bet you $10 somebody posts a little stinky wet pile of FUD based on the italicized point above. Just have to ignore it while we count our money I suppose. ;-)-Pup
No slight to other heavyweights on this board, but let's give it up for Mike Gavone and all the great technical articles that he has dug up. Bravo!
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