UPDATE 3-Cree earnings, outlook disappoint again

Tue Apr 19, 2011 7:06pm EDT

* High LED inventories and falling prices

* Cree Q3 EPS after items $0.27 vs $0.29 Wall St view

* Revenue $219.2 mln vs $217.43 mln Wall St estimate

* Q4 EPS view $0.25-$0.31 vs $0.36 Street view

* Cree shares fall 5.7 percent in extended trading (Adds CEO comments from conference call, edits)

By Nichola Groom

LOS ANGELES, April 19 (Reuters) - LED maker Cree Inc (CREE.O) reported a profit on Tuesday that missed Wall Street estimates and forecast lower-than-expected earnings in the current quarter due to high inventories and falling prices, sending its shares lower in after-hours trade.

Demand for light emitting diodes, which are used in products like televisions and mobile phones, has exploded in recent years as screens appear in more devices.

That booming demand turned Cree into a Wall Street darling that defied the market's downward spiral of two years ago. In recent quarters, however, Cree has struggled with stiff competition that has hurt pricing and kept inventories high. The company's shares are down 50 percent in the last 12 months.

Cree, based in Durham, North Carolina, is expected to be among the big beneficiaries of a global shift to energy efficient LED lighting. But Canaccord Genuity analyst Jed Dorsheimer said he expected to see further declines in both Cree's gross margins and share price before prices on LEDs come down enough for LED lighting to go mainstream.

"The question is how long will you have to wait before you start to see margin and revenue upside," Dorsheimer said.

On a conference call with analysts, Chief Executive Chuck Swoboda said the company's current difficulties would not lead to major changes in its business strategy.

"I don't see us changing the long-term model at this point," he said.

"If you look at what drives our business it's going to be if you drive LED lighting adoption then the market gets a lot bigger, and if we drive it with innovative products we can get paid for that...," said Swoboda. "We believe that the basic fundamentals of the business will really come back in line."

At the same time, Swoboda said the near-term demand outlook was still uncertain as customers keep their inventories lean.

Net income for the fiscal third quarter ended March 27 fell 58 percent to $18.9 million, or 17 cents per share, compared with $44.6 million, or 41 cents per share, in the same period a year ago.

Excluding items, Cree earned 27 cents a share below analysts' average estimate of 29 cents per share, according to Thomson Reuters I/B/E/S.

Revenue fell 6 percent to $219.2 million. Analysts had been expecting revenue of $217.43 million.

Last month, Cree lowered its revenue forecast for the quarter to a range of $215 million to $220 million due to high customer inventories and lower selling prices. It also dropped its gross margin forecast to 43 percent.

Gross margins for the third quarter came in at 42.4 percent and are projected to slip to about 40 percent in the current quarter.

"At some point in time they are going to have to pay the piper for the inventory they have built," said Canaccord's Dorsheimer.

For the fourth quarter, Cree forecast revenue of $225 million to $245 million. Analysts, on average, are expecting revenue of $243.78 million, according to Thomson Reuters I/B/E/S.

Earnings per share, excluding items, are expected to be between 25 cents and 31 cents. On that basis, analysts were expecting earnings of 36 cents a share.

Cree shares fell 5.7 percent to $38.50 in extended trade on Tuesday after closing at $40.81 in regular trading on Nasdaq. (Reporting by Nichola Groom; Editing by Tim Dobbyn)

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