Cree: Big Innovation in Energy Savings
Cree, Inc. (NASDAQ:CREE) is a market leader in the design and manufacturing of LED products and semiconductors that increase the energy performance and efficiency in various products, serving from lightning and communications manufacturers to defense-related governmental agencies. As stated by Zacks, “key to Cree, Inc. (NASDAQ:CREE)’s market advantage is its world-class materials expertise in silicon carbide and gallium nitride for chips and packaged devices that can handle more power in a smaller space while producing less heat than other available technologies, materials and products.”
The thing about LEDs is that, as a much more eco-friendly and energy-saving light source,an upsurge in demand is expected over the coming years. Already used in all kinds of appliances, the expansion on the technology should drive growth even further. Cree, Inc. (NASDAQ:CREE), in particular, seems poised to benefit from this development, as its LED components offer unmatched light units – luminaires – per watt thanks to its patented chemical composition and manufacturing processes. Meanwhile, the firm is making substantial efforts to increase the market´s exposure to its products by selling to competing fixture companies and penetrating the consumer market – the Ruud Lighting acquisition has been and will be crucial for this last target. Governmental agencies and utility companies are also helping the industry progress by granting tax breaks and reimbursements for LED technology users and installers (Morningstar).
However, product commodification stands as a strong threat to the firm´s profitability. Also concerning is the fact that its competitors – which include Samsung, LG and Koninklijke Philips Electronics, amongst others – are getting closer in terms of innovation and product quality, slowly divesting Cree, Inc. (NASDAQ:CREE) from its original pricing power. Trading at 103.1 times its earnings, about 4 times the 25.1 industry mean, and with below-average margins, returns and growth rates, I’d recommend holding for now, even despite its record results reported last quarter, as several headwinds could significantly limit the firm’s upside.
Bottom line
Analog chipmakers like Infineon and Linear Technology Corporation (NASDAQ:LLTC) seem poised to deliver growth in the years to come, not only on the back of their somewhat moated businesses, but also due to an increasing demand of power saving, efficient and customizable semiconductors as we enter a new “eco-friendly” era. Given past performances, development prospects and reasonable valuations, I would advocate on adding these two firms to your portfolio, while keeping a close eye on the operations of chip and LED maker Cree.
The article 3 Tech Companies That May Help to Make Our Lives Better originally appeared on Fool.com and is written by Damian Illia.
Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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