On 17 OCT, Gregg Lowe held his first conference call with investors since being named President & CEO of Cree. Although Cree reported a loss of $20 million in the latest quarter, Lowe offered brighter guidance that sent the stock higher by more than 16%.
During the call, Lowe made no mention of exiting the Consumer Lighting Business. Yet, analysts from two companies are publicly commenting about that subject. In an article in Investor’s Business Daily, John Quealy, a Canaccord Genuity analyst, says “Lowe may opt to exit the retail lighting business.”
In an article in Barron’s on 18 OCT, Cowen analysts Jeffrey Osborne, Thomas Boyes and Christopher Souther, who have a hold rating and a $26 price target, offered the following takeaway from CEO Lowe’s outlook: ” … Given customer indifference to premium consumer bulbs, we believe Cree exiting the consumer business to be a positive outcome.”
When Cree launched their bulb exclusively at Home Depot, there wasn’t much competition from quality companies in the LED Bulb space. Now the standard LED bulb has unfortunately become a commodity. Both GE and TCP have had bad press lately, but GE seems to be hanging on to their Wal-Mart market share and TCP seems to still have solid share at various DIY accounts. New entrants like the Kaj den Daas-led QLS will only make the consumer bulb market more competitive.
When asked if there was any announcement on exiting the consumer business, a Cree spokesperson emailed EdisonReport, “Cree made no statements regarding the consumer lighting business during its quarterly results call.”
In the investor call, CEO Lowe said there are four questions to ask when evaluating where to invest resources:
1. What is our unique differentiation?
2. Which customers care about this differentiation?
3. What are the dynamics of the markets for these customers?
4. Can we be a top player?
Based on his criteria, I do not see how the consumer bulb business fits this strategy.
On Friday, we spoke to Jeffrey Osborne of Cowan and asked him about his comments regarding Cree exiting the consumer business. He said he believes that Cree has not made a decision yet, but agreed that the bulb business does not fit with Gregg Lowe’s four requirements. He had other interesting observations:
- Lowe started the call speaking about Wolfspeed. Former CEO Chuck Swoboda used to first speak about LED and end with Wolfspeed. Osborne believes this shows the rising importance of Wolfspeed and the declining emphasis on Lighting.
- The Home Depot shelf space gets smaller. It was 13% three years ago, 8% last year and 5% this year. Over the weekend, your humble editor heard several Home Depot ads while listening to college football on Amazon’s Alexa. All ads were for a 10-pack of Feit LED bulbs at $12.88.
- One of the stated goals for the consumer market was to increase awareness for the Commercial and Industrial market. Cree advertised on TNT and ESPN in an effort to get to facility managers and help establish a brand. They achieved that goal.
I asked Osborne if he could ever see a day when Cree exits all lighting altogether. He said that he does not think anything that drastic is imminent, but given Lowe’s background from Freescale, he could not rule that out.
Developing…