shares of let-emitting diode (LED) manufacturer Cree (CREE) are down $2.15, or 8.4%, at $23.40 after Morgan Stanley’s Joshua Paradise today cut his rating on the stock to Equal Weight from Overweight, writing that the company is entering into a period of lower utilization and lower gross margin.
The crux of the argument is the decline in Cree’s LED chip sales. LED products revenue for Cree fell by 14%, year over year, in the September fiscal Q1, the company said, but the more worrisome part is the longer-term trend: Paradise notes a 50% fall in chip sales over the last six quarters.
Chips, as opposed to components and wafer products, represent just 10% of Cree’s revenue, but they take up 25% of its manufacturing capacity, or “fab utilization.”
As sales decline, lowering factory use, margins go lower, he notes.
“Falling chip sales could be a drag on margins,” he writes.
“A 4% decline in chip volumes would equate to nearly a 10% decline in LED component sales from a utilization perspective.”
Paradise estimates the company is running at 73% utilization of its factories now, lower than the company’s goal.
Paradise believes the “long term story” about Cree is still intact, and that over the course of the next year or so, utilization will bounce back.
He thinks gross margin will stabilize “in the mid-to-high 30s,” on a percentage basis, lower than the 40% the Street is modeling, he writes.
Paradise models $1.10 in EPS this fiscal year ending in June, and for next year, he lowered his EPS estimate to $1.51 from a prior $1.62.
Those estimates are lower than the Street consensus of $1.18 and $1.78.
Related Articles: Intel Reportedly Delaying Processors For Ultra-Thin Notebooks
Trillion Dollar Asset Manager Says Get the Jelly, the World is Toast
Tags: 2012 Cheap Stocks ,Best Cheap Stocks To Hold ,Best Stocks For 2012 ,Best Stocks To Invest In ,Cheap Stocks ,INTC ,Top Dividend Stocks 2012
No comments:
Post a Comment