Though Cree (CREE -8.9%) has already taken steps to restructure its LED product (chip/component) ops, Canaccord thinks further moves may be needed. "We believe CREE's restructuring of its components business may have led the Street to conclude this business has bottomed, particularly when you look at the pro forma results. However, our recent checks (over 30 meetings throughout the supply chain) suggests further downside."
The firm has cut its target by $2 to $24, while reiterating a Hold. It considers Street expectations too high in light of "perpetual" chip/component oversupply and lighting competition.
The remarks come two weeks after Piper upgraded to Overweight, while citing positive lighting distributor checks and optimism about the chip/component restructuring. Northland also upgraded in February, while JPMorgan downgraded.
Cree's LED product revenue rose 1% Y/Y in FQ2 (calendar Q4) to $153.4M, but gross margin dropped 440 bps to 34.7%. Lighting products revenue rose 11%, with gross margin rising 40 bps to 28.5%.
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