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No. of Recommendations: 6

You can call me short all you want--I do not care. I do not hold a position in CREE but I was involved in the CTXS carnage and know the warning signals and am trying to help. It is your decision. Some analysis:

CREE made .89 last year.

Q1: .15
Q2: .18
Q3: .26
Q4: .30

Note the Q2 to Q3 44% sequential growth. A substantial amount of this increase was due to one time interest income from the proceeds from the SPO. This led many uninformed investors to believe this would be indicative of explosive forward operating earnings. But the interest income wasn't there this Q and Q over Q growth was 15% (still not bad).

CEO Neal Hunter said to expect Y over Y growth of 65%. Earnings this past year grew 150% as compared to the previous year. 65% growth is not bad--but it is not 150%. This is slowing growth.

As for Q over Q growth, last year the growth was as follows:

Q1-Q2: 20%
Q2-Q3: 44%
Q3-Q4: 15%

Taking into account CEO Neal Hunter's 60% projected Y over Y growth and last year's .89 EPS, this results in projected EPS of $1.42 for FY2001. CREE made .30 in the Q just ended. Let's assume there will be a linear growth pattern to earnings throughout the upcoming year. To yield $1.42 total, this would result in projected EPS of:

Q1: .32
Q2: .34
Q3: .36
Q4: .40

Q over Q growth is projected to average 7-8% for the upcoming year compared to last year Q over Q sequential growth of 20%, 44%, and 15%. This is slowing growth.

In addition, the conference call confirmed for the first time to analysts that potential contributors to earnings upside for this upcoming year have been pushed out 12+ months. 3" wafer fab, rf power devices, and blue laser are now at this time scheduled to significantly contribute to revenues not until FY2002.

Combine slowing growth with falling prices and margins going forward for the product (LEDs) that is responsible for 75% of revenues at this time and there is cause for concern. Management "hopes" this can be made up for with increased volume of shipments.

Volume is a confirming indicator in the market and CREE was down 17 on an all time high 4M+ in volume today on a tepid tech market day. The signals are there. It is your decision whether to heed them.

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No. of Recommendations: 10
To clarify your obviously one sided post. On the CC the CEP said to expect low double digit sequential growth for the coming year not 7-8% like you stated. His 60% growth figure is more than likely meant to be a YoY figure from this quarter. Hence the next 4 quarters would look more like .34 .38 .43 .48 . With the .48 being 60% higher than this quarters .30, giving us $1.63 for forward earnings. CEO said growth this year will be similar to last year give or take 10-15%. He is being intentionally conservative with his estimates. You also said potential contributors for earnings upside have been pushed out 12+ months. Not true. RF power devices are already backlogged now with six customers waiting in the wings. They're looking for 3" wafer production in the second half of this fiscal year, in 6 months. Blue laser in production by June 2002 at the latest. Prices for LEDS are indeed predicted to fall by 25% but management also said costs to manufacture will dcrease by 50%, you forgot that part. Have you ever thought about becoming a political spinmeister?
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No. of Recommendations: 0

Your projection of $1.63 for next year's earnings may be a bit overzealous. You may want to review the first call estimate of $1.33, .09 less than CREE management guidance and .30 less than you. Are analysts not buying what management is selling? What am I missing?

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No. of Recommendations: 0
Keep an eye on the NET institutional share accumulation.The institutions will drive the price down (FUD) while accumulating.Why-Cree is a great company with great potential-give it time they will
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No. of Recommendations: 2
I wouldn't put too much weight on the analyst's estimates one year out, they were 3 cents low on this last quarter. Analysts estimates are historically way low for any growth company. June 2001 estimates have already been raised 6 cents just over the last 60 days, and the high estimate is already at $1.40. My $1.63 number will be low.
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No. of Recommendations: 0
The few numbers that I checked from Ace12s post were correct, but consider this:

Q-to-Q growth of EPS last 2 quarters: 15%, 44%

But, we had 4M shares issued. If we calc EPS with previous Q shares out, 
the 15% changes to 32%. Ok, so that's an if. 

These are facts (Q-to-Q):

              This   Last
                Q     Q
Revenue growth 18%   19%
Income growh   24%   12%

Income growth doubled. Not bad.

Someone asked about short shares: as of June 10th, 1.14M shares short (4.5% of float). 
Prior month 1.29M shares short.

Do any of you all calc the Fool Ratio? I tried it and it tells me to sell when 
I have just added (I got ~1.06). Maybe I am doing it wrong - that's 
why I didn't post it. Someone was mentioning a metric in an earlier post 
that was around 1.0???

long CREE

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No. of Recommendations: 3

Thanks for the objective review. I think the metric that may have been referred to is the PEG ratio. It is a comparison of P/E ratio relative to to the 5 year annualized forward growth projection. Currently, first call projects CREE to earn $1.33 in FY2001 (whether this is conservative or not is up for debate, it is the published estimate at this time). Today's closing price was $90.375. Thus the FY2001 forward P/E is:

$90.375/$1.33 = 68

Many estimates put CREE FIVE year annualized growth rate at 40%. Thus, the PEG is:

P/E Ratio/5 yr forward growth

68/40 = 1.7

Fair value is typically indicated by a PEG of 1. Thus, in order for CREE to have a PEG of 1, they would need a P/E of 40. To get a P/E of 40 given the $1.33 EPS estimate, the stock price would need to be:

X/$1.33 = 40

X = $1.33 * 40

Price = $53.20

Typically, tech stocks may trade at a premium to their fair value due to the potential forward growth. But with the Nasdaq appearing heading for some possible short term volatility, who knows?
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No. of Recommendations: 0
Do any of you all calc the Fool Ratio? I tried it and it tells me to sell when
I have just added (I got ~1.06).

I just used this site to calculate CREE's Fool Ratio (PEG):

Based on the most forward-looking yearly estimate (June 2002, 1.78) and:

*The number of quarters of earnings till the estimate: 8

*The trailing 12 months earnings: $0.89

*Stock price: 90 3/8

The resulting PEG is 2.45.

However, the PEG is not a great tool to use for a company this large, and it has sort of fallen out of favor as a good tool even for small caps.


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No. of Recommendations: 4

I automatically question anyone who believes what the analysts say about an hypergrowth stock. The conflict of interest is immense, and the estimates are sometimes done with little or no research on the part of the analysts. Quite frankly, when we come to stocks like CREE, AMCC, SNDK, BRCM, SSTI, NTAP, JDSU etc. the analysts can't predict the next quarter with any degree of accuracy, let alone a year out, not to even mention 5 years out.

The PEG is one of the most worthless ways of valuing a stock that I have even seen. It will keep you out of some 'overvalued' stocks like CSCO, BRCM, ITWO, INTC, MSFT if you insist on looking at the PEG.

Please, if you want to avoid more flames, offer a arguement based on competition (examples of products that can seriously challenge CREE's), possible commoditazation of CREE's market - ie. real analysis, that shows you have done some DD on your investment whether it be long or short.

Pointing out the PEG and saying the stock is overvalued means jack and s(oo)t. Spinning the CC call as negatively as possible is not analysis.

The only thing I see you doing here Ace, is scaring and confusing a lot of investors with half-truths and outright lies.

I don't know what your position is in this stock, but please, shape up or LEAVE.

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No. of Recommendations: 1
Steve, if you choose to look at all of your investments thru rose colored glasses, then so be it. I understand your frustration and concern, but it does not give you the right to lash out at me for holding a discerning viewpoint.

I see a company whose backlog went from 12 to 6 months and whose DSOs tanked. This could be interpreted as a softening of sales given the increased competition in a commodity business where ASPs and margins are falling. I was burned in CTXS and many of the same denials were posted as it fell on huge volume.

In addition, Investor's Business Daily's Institutional Accumulation/Distribution rating for CREE went from A (best) to E (worst). I track this metric and this simply does not happen--at worst it goes from A to C.

If you choose to ignore what I perceive to be warning signals, then that is your perogative. The big money is telling me something is up--I might be paranoid but after the CTXS fiasco, I don't want to go down that road again. Good luck.
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No. of Recommendations: 6
I see a company whose backlog went from 12 to 6 months and whose DSOs tanked. This could be interpreted as a softening of sales given the increased competition in a commodity business where ASPs and margins are falling. I was burned in CTXS and many of the same denials were posted as it fell on huge volume.

I have no tolerance for fearmongers. I do come on harsh to what I perceive as dishonest or twisted information presented in such a way to confuse and scare investors out of a stock.

The 12 to 6 months backlog can possibly be explained by the transistion from 2" to 3" wafer. Customers perhaps held off on orders or canceled order to wait for the new improved wafers to become available. I see this as a slight negative short term, but long term no change.

The ASP is expected to fall by 25%. CREE estimates their costs to drop by 50%. The ASP dropping is expected, and indeed will lead to much greater profits for CREE as volume ramps up with demand. It's part of CREE's business model.

Show me where margins are falling? I cannot see any evidence of that. Maybe I missed something, but margins increased last quarter to record levels.

Hunter said in the CC that demand will just turn on like a lightbulb. Why wouldn't it?

I am sorry that you got burned on CTXS. It happens to the best of us. I can see why you might be cautious before buying another stock, but I believe CTXS had serious management problems, something CREE does not have.

Comparing CREE to CTXS is a poor one in my mind. CTXS had steadily worsening finacials over a period of a few quarters, and management did not communicate to the Street and retail investors what was going on. It was a very tough situation, and in hindsight there are many 'warning signs'. There always are.

It's human nature to blame something or someone else for a mistake. We try to rationlize the situation to ourselves, no matter how absurd it is.

Maybe this is one of those situations, but I highly doubt it.

Paranoia is a good thing Ace at times, but don't let it cloud your judgement and make you jump to conclusions.

Trying hard,

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No. of Recommendations: 2
I see a company whose backlog went from 12 to 6 months and whose DSOs tanked.

Ace12 - I admire the fact that you stick to your story, but you are shooting a gun without any bullets.

First, the only way that you can make the backlog argument work is to compare FY1999 revenues to FY 2000 revenues and ignore absolute backlog dollars (FY1999 revenue of $62.4 million and a current backlog of $76.6 million backlog does indeed give you the impression of a backlog greater than 12 months, whereas FY 2000 revenues of $108.5 million and a $76.6 million backlog gives you a 9 month backlog). I don't yet have FYE1999 backlog, but should shortly since I have a call into Fran Barsky at CREE, but I do know that during the conference call there was no mention of backlog or book:bill at all. Further, CREE expects their manufacturing capacity for FY2001 to be filled by the end of the next quarter. Thus, if CREE can sell out yearly capacity in the next three months, B:B has got to be greater than 1!

Second, to say that DSO stinks is dead wrong! DSO for CREE is 33 days on a 74% increase in revenues versus the industry standard of 55 days. A falling DSO is great because it means one of two things (and probably both in the case of CREE), either customers are paying faster so that they do not find product cutt-off due to slow payment and/or that revenues are growing, such that DSO falls (since a stagnant A/R divided by an ever increasing Sales number will result in a lower DSO).

Yes, the price drop has me concerned and I will continue to look for reasons for it, but it is not for the reasons that you have mentioned.

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No. of Recommendations: 0
Re: Backlog
One factor, which I haven't seen discussed on the board, is the contract with OSRAM. Year-to-year contract expires in September. In the CC, Hunter made clear that OSRAM bookings were not factored in to calculations, but he had NO concern. He was confident of renewing the contract and of relationship with OSRAM(Siemens) into the future. When new contract is wrapped, backlog extends accordingly. For my part: this is no reason for concern. If anything, it confirms the typical pattern of conservative spin that Neal puts on forward looking statements in the CC's. In fact, this CC was relatively ebullient.

Re: Stockholder participation in CC
The opening of the Q&A included a statement that questions would be limited to analysts. I ascribe this to one stockholder at the previous CC. She indicated that she was new to the stock and asked a pretty elementary question. Neal answered it. She followed up. It was a waste of everyone's time. No concern here, either. I WOULD like to get some non-anal-yst perspective. Maybe we can get a Gardner to participate, or offer another forum.

Looking forward to attending the annual meeting.

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