LED Bulb Wars: Cree Vs. Wal-Mart

| About: Cree, Inc. (CREE)

There is no doubt, price wars for LED bulbs is heating up in 2013.

Wal-Mart (NYSE:WMT) recently announced that they are selling a new line of LED bulbs at the most competitive price on the market, $8.88 for a 60 watt equivalent (uses 11 watts) and $8.48 for a 40 watt equivalent (uses 6 watts). I went to my local Wal-Mart and bought one of each to see how these bulbs compared to the Cree (NASDAQ:CREE) LED bulbs I've been buying at Home Depot (NYSE:HD) where the Cree bulbs are exclusively sold.

The box the Wal-Mart bulbs came in didn't say who the maker of the bulb is, just that it was made in China. It did say it has a 3 year warranty Vs. Cree's bulbs that are assembled in the U.S.A. and come with a 10 year warranty.

Both bulbs claim to last 25,000 hours or 22.8 years based on 3 hours of use per day. Other key differences noted below:


40 Watt Equivalent Price Watts Used Lumens
Cree $9.97 6 450
Wal-Mart $8.48 6 470


60 Watt Equivalent Price Watts Used Lumens
Cree $12.97 9.5 800
Wal-Mart $8.88 11 800

After buying the bulbs from Wal-Mart, I could see and feel the product to get a sense of the quality. The bulbs had a plastic head Vs. Cree's bulb heads which are made of glass and coated with a clear polymer of some sort for safety. There was a clear difference in the feel of the bulbs giving Cree's bulbs a feel of greater durability and quality.

The quality of the light however was nearly the same in my judgment on both the 40 watt and 60 watt equivalent.

What is most stunning to me was that the 40 watt equivalent bulbs sold at Wal-Mart used the same amount of energy as Cree's 40 watt equivalent, 6 watts. The bulb even gave off a little more lumens of light than Cree's which tells me that this technology has become commoditized and that Cree's technology is nothing special relative to what else is out there on the market.

It was back in March when Cree introduced their 40 watt and 60 watt equivalent bulbs and the CEO, Chuck Swoboda put it like this:

"The Cree LED light bulb was designed to offer consumers a no-compromise lighting experience at a compelling price. Over the last couple of years we recognized that the consumer is instrumental in the adoption of LED lighting, but we needed to give them a reason to switch. We believe this breakthrough LED bulb will, for the first time, give consumers a reason to upgrade the billions of energy-wasting light bulbs. We could not think of a better way to get this bulb into consumers' hands than through The Home Depot, a visionary partner who embraces innovation."

Cree's introduction gave me personally a reason to start to switch to Cree's LED bulbs and keep a close eye on the stock. Since March, the share price traded up from the mid 40's to the low to mid 70's in August, up from the mid 20's 1 year ago.

(Click to enlarge)

What Cree should be concerned about now is to see if Wal-Mart will be the one who'll give consumers the reason to switch thus taking away a big chunk of the LED bulb sales pie in the months and years ahead.

My judgment says they will since they can beat them on price, meet Cree on energy efficiency like their 40 watt equivalent that uses 6 watts and simply get distribution through their massive customer base.

To put this competition in perspective, Cree doesn't just sell LED light bulbs for homes and businesses. In the 4th quarter ended June 30th, aggregate sales at Cree were $375 million of which $133.64 million fell under the category "lighting products." Lighting products is where the LED bulb sales fall under. Sales of the bulbs themselves are not broken out. So roughly 35% of Cree's aggregate sales fall under the category where these LED bulb sales fall under.

The bottom line is that robust sales growth from Cree's LED bulbs may not be as robust as analysts and investors once might have thought with Wal-Mart's bulbs now on the market.

Regardless, there is a huge market I believe for LED bulbs once society sees the light in the economics of the bulbs themselves. The winner in these bulb wars ultimately is the consumer and society itself with the money we'll all be saving on electricity and light bulbs for the rest of our lives.

I remain on the sidelines with Cree and await a better entry point to be a buyer of Cree shares. My bias is that Cree's LED bulb sales growth may need to be taken down a notch to reflect the greater competition that's hitting the market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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