RealMoney Silver - Quick Pick: CREE Feels Pricing Pressure

Quick Pick: CREE Feels Pricing Pressure
By Chris Versace
RealMoney Contributor
1/14/2008 3:39 PM EST

I have to admit that after I wrote about Cree (CREE) in late December, I received an email or two from people who were not very happy with what I had to say.

Well, the shares are down 12% since then, compared with a 7.7% fall in the Nasdaq. And I'm not here to reverse my opinion -- at least not in the near term -- as the negative press continues for LED pricing in the near term, and that does not bode well for CREE shares.

According to LEDinside.com, average price quotes from international LED makers for LEDs used in backlight applications for handsets may drop about 15% this quarter -- from 10 cents to 8.5 cents. Other chatter indicates that Taiwan-based players are quoting prices of 6.8 cents (NT$2.2) for LEDs used in handset backlighting. Keep in mind that handset backlighting has been one of CREE's key niches in the mobile-device arena.

This pricing pressure comes after Veeco Instruments (VECO) , a leading company that manufactures machines used to make LEDs, made bullish comments at an investor conference last week for its LED-related business, even though that segment is being offset by issues in other of its businesses. With capacity running tight among Taiwan LED chipmakers, equipment orders at both VECO and Aixtron (AIXG) should remain steady, given long-term LED trends and the possibility that additional players enter the fold.

In my view, pricing pressure as we head into the seasonally slow time of the year for mobile phones could pressure CREE's margins. Stay tuned for the March quarter outlook when CREE reports on Jan. 22.

At the time of publication, Versace had no positions in the stocks mentioned, although positions may change at any time.

Chris Versace joined Agile Equity in 2006 and leads the Washington D.C. office where he oversees Agile Capital Management and serves as a sub adviser for other asset managers. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Versace appreciates your feedback; click here to send him an email.

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