CREE's (Nasdaq:CREE) Results Soft on Inventory Correction

After reporting a disappointing quarter, CREE (Nasdaq:CREE) said the results were largely because of inventory corrections from distributors.

Canaccord noted, "The maker of LEDs tumbled after reporting a second-quarter profit that rose but was still short of both the company’s and analysts’ expectations. Revenues in the quarter were $257.0 million with pro-forma EPS of $0.53. Canaccord Genuity Sustainability Analyst Jonathan Dorsheimer was expecting $276.2 million and $0.55, respectively, and the Street was expecting $276.6 million and $0.58. Guidance of $245-265 million revenue and $0.38-0.45 EPS was also below Street expectations of $288 million and $0.58. The company attributes the softness to an inventory correction among distributors in Asia. Cree’s expectations of an increase in OPEX with flattish sales for next quarter is disappointing, Dorsheimer thinks, but then this quarter’s balance sheet had some potential cracks. Accounts receivable was up, and inventory rose as well. Dorsheimer will monitor inventory specifically, as obsolescence, given the pace of the technological developments in this industry, could result in a deleveraging and another leg down. Dorsheimer remains long-term positive on the SSL trend and CREE’s strong position in the industry; however, heightened expectations bid up CREE’s valuation in 2010 and did not leave any margin of error for natural lumpiness in the trend, which we are currently seeing. Dorsheimer continues to recommend exposure to CREE heading into the upcoming outline of China’s twelfth five-year plan and subsequent rebound of the Chinese SSL market, but would want to see a valuation reset before becoming more constructive on the name."

Cree closed Thursday at $52.36, losing $1.27, or 2.37 percent.