Cree’s has won over investor’s support as its recently published 2Q14 financial report reflected good financial performance. Cree’s stock prices were up 7.7 percent to US$ 67.33, and accumulated growth from the last 12 months was 65 percent. Due to the company’s soaring growth in the LED lighting field, the company’s income and profits have been maintained at higher levels, which in turn alleviated investors concerns of profit pressure.

At the same time, U.S. LED ingot manufacturer Rubicon stock prices increased five percent. NASDAQ listed German LED equipment manufacturer Aixtron and U.S. manufacturer Veeco also saw stock prices climb up five percent and 6.77 percent respectively.

Financial organizations upbeat about LED lighting sector

The financial report showed Cree’s lighting product sales increased 42 percent YoY, while QoQ growth was 17 percent. LED bulb sales revenue also doubled during the same period. However, the gross profit margin slid to 37.5 percent from 38.5 percent in the same period. “Fiscal 2Q was another strong quarter as revenue increased to a record US$ 415 million driven by strong growth in LED fixtures and LED bulbs,” said Chuck Swoboda, Cree Chairman and CEO. “For the first half of fiscal 2014, revenue is up 22% from the first half of fiscal 2013 and Non-GAAP operating profit is up 38%. Our strategy is working, the business is growing and we've made great initial progress building the Cree brand." The company 3Q14 revenue target is set at US$ 390 million to US$ 420 million.

After Cree announced its 2Q14 sales performance and optimistic outlook for 3Q13, Goldman Sachs kept the US$ 72 price rating for Cree. “Since launching in March, we believe Cree's consumer LED bulbs have experienced better-than-expected sales based on our channel checks at Home Depot,” said Goldman Sachs Analyst Brian Lee.

In comparison to Goldman Sachs optimistic outlook, U.S. investment bank Needham and Company had a much more conservative outlook. The financial institute was concerned that Cree’s bulb sales would be under profit pressure, and believed highly profitable LED component volume will be gradually limited due to market trends. The concerns are not without basis. From a consumer behavior perspective, U.S. consumers mostly purchase high-end LED bulbs, unlike the European market where the market is segmented into high, middle and low end LED bulb brands

According to statistics, in the European and U.S. civilian LED lighting market, LED bulbs were in highest demands in 2013. Philips alone sold in U.S. and Europe 5.8 million and 9.0 million LED bulbs respectively. The company LED bulb sales accounted for eight percent in U.S., and 15 percent in Europe. The U.S. and Europe market has consumed 72.50 million and 60 million LED bulbs respectively in 2013. From these figures it can be observed it will still take awhile before LED lighting products can penetrate the U.S. market.

LED popularization picks up pace

The U.S. incandescent bulb ban which becomes effective in 2014 is a huge catalyst for LED manufacturers trying to enter the U.S. market. Cree will be facing intense pressure in the future, for example Taiwanese LED manufacturer Unity Opto began setting up its distribution market channel long before the policy was executed. The company will benefit from U.S. LED lighting replacement business opportunities. In addition, Unity Opto’s LED bulbs have entered major U.S. supermarket chains including SuperTarget, The Home Depot, and Walmart.

In addition, many investors are worried about Cree’s gross profit decline. To remove consumers concerns, Cree has signed an exclusive agreement with The Home Depot to promote bulb retail services. The company will begin to reduce LED bulb prices and suggested retail prices, while spending more time on innovation and sales development to attract investors, said Swoboda.

To fulfill, highway lights application to replace low efficiency (400W high voltage) sodium lamps, Cree began promoting LEDway High Output street lights last month. The company has continued to develop this product line, and has also released a new 75W replaceable bulb. For high ceiling lamps with high energy consumption, the company has also released the CXB high ceiling luminaire that consumes only half the amount of energy, and nearly completely reduces maintenance costs. The company also released a new XLamp CXA3590 LED component. The component which is a 250W metal halide luminaire is an ideal light source replacement. The new LED model can provide 16,225 lm lumen output under 85 degrees Celsius, and has a 68 percent improved brightness.

 From the above it can be seen that Cree is actively developing new business to prepare in advance competition pressure. The company is preparing its strategy for the U.S. lighting market.

Analysts pointed out, the LED industry popularization has sped up. All Walmart stores in U.S. already use LED luminaires, Cree’s latest LED luminaire and Return on Investments (ROI) has been shortened to about one year. According to industry insiders, Cree’s will have good growth in 4Q14 in LED luminaires, bulbs and component business.