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Cree Raises Guidance

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Cree, Inc. (CREE) increased its guidance for the third quarter of 2012 in the wake of the company's launch of a new series of cheaper LED bulbs.

The company now expects sales of $335.0 million to $350.0 million, higher than its previous guidance range of $325.0 million to $345.0 million. Non-GAAP earnings are expected to be 31–36 cents per share, up from the previous guidance of 30–35 cents. Management said that operating expenses will be approximately $2 million, above the prior expectations due to higher research and development (R&D) and marketing costs to support the new product launch.

The company announced that it will be offering a new 40-watt light-emitting diode bulb for $9.97, to be sold exclusively at The Home Depot, Inc. (HD) outlets throughout the country. Management stated that the price will range from $9.97 to $13.97 and the bulb will be 84% more energy efficient than a traditional light bulb.

It will also be backed by a 10-year warranty. The new Cree LED bulb will last approximately 25,000 hours or 25 times longer than incandescent light bulbs.

The company believes that the attractive prices will convince a greater number of consumers to shift to the LED model from traditional incandescent bulbs.

Even though LED technology isn't new (originally created in 1962), its use in various commercial and consumer applications has gained momentum in recent years because of its superiority over traditional incandescent light sources. The benefits of LED include a longer life, less energy consumption and increased reliability.

According to technology research firm, IMS Research, despite higher retail prices,LED technology accounted for 20% of lighting revenues at Philips in 2012, and that LEDs are expected to outsell incandescent lights in Canada and the United States in 2014. By 2016, IMS predicts that shipment of LED bulbs for use in standard residential sockets will hit 370 million units, which is more than 10 times the shipments reported in 2012.

Hence, we believe that its increasing penetration into the domestic market and global push towards energy conservation will increase the sales of the LED bulbs, helping revenue growth in the upcoming quarter.

Light emitting diode (:LED) manufacturer Cree reported revenues of $346 million in the second quarter of fiscal 2013, up 14.0% from the year-ago quarter. GAAP net income increased 69% year over year to $20.4 million.

Currently, Cree has a Zacks Rank #2 (Buy). Other semiconductor stocks that have been performing well and are worth considering include Intersil Corporation (ISIL) and Qualcomm Inc. (QCOM), all carrying a Zacks Rank #2 (Buy).

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