May 15, 2013 / 10:24 PM / in 4 years

Cree says innovation answer to rising competition

TORONTO (Reuters) - LED lighting manufacturer Cree Inc (CREE.O), which aims to make traditional lighting obsolete, promises further innovation and a better product as it tempts customers with a low-power light bulb priced around $10.

Durham, North Carolina-based Cree makes energy-efficient light-emitting diode chips and lighting products, and it provided more than half the LED street lights the city of Los Angeles recently installed in a massive overhaul.

Six weeks ago it jumped into the consumer space, boasting a 25,000 hour lifetime for a light bulb that it says will save users 84 percent on energy costs compared to typical incandescent bulbs.

“It is a good thing to do from an environmental standpoint but I want to get to the most basic value that drives behavior, I want it to pay for itself,” Cree Chief Executive Charles Swoboda told Reuters on Wednesday.

The launch of a direct-to-consumer business has done nothing to slow the company’s stock price rise, despite the obvious challenges of going up against established giants.

Cree competes with Samsung Electronics (005930.KS) and others in the LED component business, and against Siemens (SIEGn.DE) subsidiary Osram and Dutch electronics company Philips (PHG.AS) in lighting.

The company is spending roughly $5 million this quarter to promote the bulbs, and Swoboda said the only way for the small company to survive against electronics giants is to keep evolving faster.

“We have to keep innovating,” he said. “We might have a great product but we have to invent a better one. We’ve got to give the customer better value.”

Home improvement chain Home Depot (HD.N) signed an initial one-year exclusive distribution deal to sell Cree’s light bulbs in the United States, Canada and Mexico, said Ron Cleary, who is in charge of electrical purchasing for the Canadian unit.

He said LED-based lighting has surged in popularity in the last 18 months, and since November has been the single most popular type of lighting by value in Home Depot’s Canadian stores.

The vast majority of those sales have been of light bulbs made by Philips, which has cut prices on existing products to defend its position versus the newly launched Cree bulbs.

Earlier this week, analysts at Sterne Agee downgraded their rating on Cree, citing the “aggressive behavior” of Philips, whose North American lighting unit has told sales agents to choose between its and Cree’s products.

“Why would anyone do that if they thought their products were as good as ours?” Swoboda asked rhetorically. “They wouldn‘t. So what they have just validated is that we have the most innovative products in the market and they are changing the competitive landscape.”

Cree, whose stock has risen more than 75 percent since the start of the year, raised its earnings outlook after it began selling the cheaper light bulbs. ID:nL4N0BX6W7]

In April, the company beat those improved forecasts, reporting quarterly adjusted profit of C$40.7 million on sales of $349 million.

Reporting by Alastair Sharp; Editing by Richard Chang

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