S&P has Downgraded CREE rating from Hold to Avoid.
S&P Analysis:
We expect demand for CREE's light emitting diodes (LEDs) to increase for the foreseeable future. In particular, we see strong demand for its higher brightness LEDs leading to a shift in product mix toward higher priced products. This mix shift is being partially offset by a more aggressive pricing strategy designed to increase market share in new markets such as LCD display backlighting. Sales gains for power switching and high power chips used in wireless communications applications, albeit from a small base, are also likely to contribute to growth.
We estimate FY 06 (Jun.) revenue growth of 13%, lower than our previous 20% estimate due partly to the reclassification as discontinued and thus the exclusion of the microwave products operations.We expect a gross margin of 50% plus or minus two percentage points to be the normal long-term range. Margins in the second half of FY 06 should benefit from the closure of CREE's silicon microwave chip business, which has gener ally been unprofitable. FY 06 expenses are not comparable to prior years, due to the inclusion of stock compensation expense.We see EPS about flat in FY 06, at $1.20, compared to FY 05's $1.18. Results in FY 06 exclude losses from the microwave business, but include an estimated $0.15 of expected stock option expense. We expect new end markets, such as large flat screen backlighting, to contribute to faster growth in FY 07, with EPS estimated at $1.55
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