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Technology Stocks : Cree Inc.
CREE 62.46+4.1%Sep 28 4:00 PM EDT

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To: slacker711 who wrote (10002)10/31/2019 8:02:42 AM
From: slacker7111 Recommendation

Recommended By
Lou Weed

   of 10228
 
Random thoughts on earnings.

- First real issues with execution. It sounds like they had issues with transitioning some MOSFETS to 150mm and that led to increased scrap as well as yield issues.

- The trade war continues to hit Cree harder than I expected. It turns out that Huawei was the first mover towards GaN power amps in base stations so their ban is hitting Cree particularly hard. They expected Huawei to see some share loss to other customers but that isnt happening.

- Continued to be hit by decline in EV sales in China. I believe (but am not sure) that Tesla is the only company using a SiC inverter so presumably Chinese EV's are using on board chargers?

I also suspect that auto manufacturers are holding back EV supplies in Europe until 2020. They will want to get credit for every EV sales in 2020 to hit the necessary CO2 targets.

- Two intriguing comments were around the potential TAM in autos. Tesla is using a single motor/inverter but some manufacturers might go to dual drive which would require two inverters or even an inverter for each wheel.

Also, a move from 400V to 800V or higher means faster charging and would increase the SiC opportunity.

- Lots of questions about the pace and timing of capacity expansion. The new capacity will start to ramp in 2022 and continue through 2024. They have various levers to change the incremental pace of the ramp.

- They have excess capacity in materials but are capacity constrained with epi.

- Good execution on the LED side with revenues and margins coming in above guidance.

Ultimately, it sounds like Cree is going to have a rough next six months. Beyond that, it will depend on the pace of adoption of EV's. The manufacturing capacity is clearly being put in place but customer acceptance will still need to be proven out.

Slacker
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