Paul McWilliams offers another rebut to Wunderlich.
Semiconductor expert Paul McWilliams of Next Inning Technology Research addressed the analyst note in a post today, writing:
"While there are similarities as noted by the analyst, there are also distinct differences.
"On the other side of the coin, CREE has in fact changed its business model through the acquisition of Ruud Lighting. This change could have led CREE/Kurtzweil to decide there was a need for a change.
"While LED lighting and solar panels share a common thread of being 'green'' technologies, and domestic suppliers in both sectors have seen heightened competition from Asian sources, there are two very distinct differences the analyst fails to consider (at least in the brief notes I've seen).
"First, solar is a 'silicon by the pound' sector. While panel efficiency is clearly important, you can always throw more panels at the job. The point here is solar is an energy production game versus LED lighting, which is an energy saving game. In the energy saving game you can't simply throw more LEDs at the application to produce more light - more LEDs cause more power consumption versus solar where more panels harvest more power.
"Also different in the LED game is the fact lower efficiency creates more heat, and more heat lowers life expectancy. Life expectancy is key to the RoI equation for LED lighting. Besides producing light with substantially higher efficiency, LED lights last many times longer than competitive alternatives, and that means you don't need to buy replacement lights as often. As a result, LED lighting already makes economic sense without the benefit of government subsidies, versus solar where in most cases RoI depends on subsidies.
"A third distinct, but often overlooked, difference is there is significant potential to leverage the benefits of LED lighting with new fixture designs. I've covered this point in several recent posts on CREE, but in short, current fixture designs are based on bulky bulbs that must be replaced often during the life cycle of the fixture. LEDs are tiny and can be neatly integrated in fixtures to provide not only better performance, but also substantially more ascetically pleasing fixtures.
"Sources in Asia suggest capacity utilization at Asian LED manufacturers has improved during the second quarter. While there is not any evidence of higher pricing yet, reports suggest pricing has stabilized, and for the full year prices are likely to fall less than originally expected. Please note - we want prices to fall within a controlled range - that is what drives LED lighting adoption and CREE is working very hard to drive its costs and, with that, resale prices down. The problem we saw during the last year or so is, cue to excess capacity, prices were falling faster than costs and put a crimp in CREE's profit margins. With capacity utilization now improving we should see price declines more closely mirror cost declines and, with that, profit margins improve.
"At the bottom line, I think the comparison of CREE to FSLR is flawed. While I think it will take CREE several more quarters to leverage its vertical model, I think CREE is on the right track, and as the adoption of LED lighting continues to grow I think CREE will do well. Based on these views, I see no reason to materially change my view on CREE."