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Cree's LED Gains Traction, Wolfspeed Deal Shelved by CFIUS

Cree Inc.CREE recently announced that its Cree LED Lighting and Cree SmartCast Technology have been adopted by McLaren Health Care. McLaren looks to ramp up exterior and interior lighting throughout its chain of 11 hospitals. The move is expected to help McLaren Health Care to make substantial savings in terms of energy costs and operating expenses.

The latest deal reflects growing adoption of Cree's LED products. The company's lighting products have been gaining traction among the likes of American Airlines Center, Quest, Food Bank of Central & Eastern North Carolina and Reston Hospital center in the past one year.

Moreover, the introduction of C1010 LED (three-in-one RGB Surface Mount Device), XLamp XHP50.2 LED and XLamp MHB-B LED has expanded the company's product portfolio in recent times.

However, this has failed to boost revenues that declined almost 14% in the first half of fiscal 2017.This could be primarily attributed to an intensifying competitive landscape in the consumer lighting space (with the availability of similarly priced products) as well as mid-powered chips market. We note that the stock hasunderperformed the Zacks Semiconductor-Discretes industry over the last one year. While the industry gained 3.8%, shares of Cree declined 13.4%

In a separate development, the $850 million Wolfspeed deal with German chipmaker Infineon Technologies IFNNY , which was announced in Jul 2016, was shelved by the Committee on Foreign Investment U.S. (CFIUS) over concerns on the use of gallium nitride, a chemical compound that has its applications in radar systems in the defense industry.

Notably, Cree will receive $12.5 million from Infineon as a termination fee and will resume reporting the quarterly results of Wolfspeed as a discrete segment that it operated earlier.

We note that Cree wanted to sell its Wolfspeed business in the first place to become a more LED lighting focused company. Despite the setback, we still anticipate Cree to pursue the divestment strategy, albeit to a U.S. based company going forward. However, till then the division will remain an overhang on the stock.

Cree, Inc. Price and Consensus

Cree, Inc. Price and Consensus | Cree, Inc. Quote

Zacks Rank & Stocks to Consider

At present, Cree carries a Zacks Rank #2 (Buy).

Stocks worth considering in the broader technology space include MKS Instruments, Inc. MKSI , sporting a Zacks Rank #1 (Strong Buy) and Pure Storage, Inc. PSTG ,carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Notably, the Zacks Consensus Estimate for MKS Instruments' current quarter has improved to $1.06 from 94 cents over the last 30 days.

The Zacks Consensus Estimate for Pure Storage's current year has narrowed down to a loss of $1.11 from a loss of $1.12 over the last 30 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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