Notable Calls

Piper Jaffray's Ahmar Zamar is making a positive call on Cree (NASDAQ:CREE) after their checks uncovered a surprising December uptick in China's LED street lighting demand.

- Piper's proprietary checks with downstream LED lighting companies in China suggest Cree's customers likely saw rush orders in December ahead of an earlier Chinese New Year holiday. They met with international and domestic lighting players including TC Interconnect, Neo Neon, Phillips, and Osram over the last few weeks. Firm's checks also revealed that Chinese LED street lighting demand has recovered, and is growing at 30% y/y. Furthermore, competition is limited to leading chip suppliers Cree, Lumileds, and Osram. They view these checks as positive for Cree given 40% revenue exposure to China.

Firm reiterates Overweight and $50 price target on CREE:

China’s LED street lighting market growth resumes. Our checks with downstream LED street lighting players TC Interconnect (9% of street lighting market in China in FY11E) and Neo Neon indicate that Chinese street lighting market demand continues to accelerate, driven mostly by government projects. Based on our checks, we estimate there were a total of 200-300 LED street lighting projects available in 2011. In May 2011, the Chinese government announced the 2nd batch of “10 cities, 10,000 lights” LED street lighting demo projects. This time, it has been extended to 16 additional cities including Beijing, which totals to 37 cities promoting LED street lighting projects in China.

Cree remains the default supplier for Chinese street lighting projects with ~70% market share. Competition for LED street lighting projects in China is limited to 19 downstream companies who have been qualified under NDRC standards in late 2010. Our checks with domestic Chinese street lighting companies (e.g. Unilumin, Kingsun) indicate these companies use Cree chips by default unless the project has other specific requests. Our recent checks with LED street lighting players still rank Cree as the highest quality chip supplier.

Rush orders likely drive upside in December quarter. A December uptick in demand due to rush orders in China could drive upside to our $310m revenue est (cons $310m), but we believe March qtr growth could be more modest at +8% q/q vs our prior estimate of +11% q/q given a likely demand pull-in ahead of Chinese New Year (2 weeks earlier this year).


Notablecalls: This one could work:

- China LED street lighting demand coming back is definitely a surprise.

- What's even more important is the fact Chinese manufacturers are using mainly CREE chips. No local competition, huh?

- PJCO is also making a +ve call on the qtr. Note CREE is set to report on Jan 17, that's a week from now.

- The stock has been beaten to pulp & could be playing ketchup with the rest of the tech sector.


This could translate into 5-7% upside here, putting the stock closer to $24 level in the n-t.


PS: Note how Piper highlights Lumileds (NASDAQ:LEDS) as a leading chip supplier in addition to CREE. Should the China LED story find legs, LEDS could work well. Just take a look at the 40%+ move on Nov 4, 2011 following the news China had started incandescent bulb phase out. CREE was up 10% on that day.

Anyway something to keep on the radar.

I'm posting this on open.