Lowered LED bulb prices by Cree in 2013 proved effective. The low price policy not only successfully drove sales for LED bulbs but also lead to stock prices doubling for 2013. Goldman Sachs newest report lists four major reasons for its positive outlook on Cree, which include incandescent bulbs exiting the market en masse, rebound in U.S. commercial construction projects, North American green building demands, and Cree’s increasing penetration rate in the Chinese LED market.
Cree launched 40w and 60w equiv. LED bulbs in 1Q13 for US$ 9.97. The company’s stock prices also reflect the success of the low price strategy. According to projections by Goldman Sachs, 40w and 60w incandescent bulbs in the U.S. will begin to be eliminated starting January 2014 and in 1 to 2 years over 900 million replacement bulbs will be on the market. Statistics by DOE state that although there are currently only 50 million sockets that can support LED light sources, LEDs remain a formidable opponent for CFL and halogen lamps. The quickening of LED demands expectations are still within reason. Goldman Sachs looks positively on the competitiveness of CREE technology and production costs.
In regards to the U.S. construction market, according to Goldman Sachs statistics the U.S. commercial construction market will continue to warm up.The entire commercial construction project investment has gone up 5 to10 percent from 2013 to 2015 and LED lighting’s economic benefit has shown good penetration in the market. Green building, another big market for LED, in North America from 2013 to 2015 has an increased annual growth rate of 20 to 25 percent.
Aside from the U.S. market, Goldman Sachs also looks positively on the positive impact that Cree has had in Chinese market penetration. Due to the price difference rapidly shrinking between LED and CFL in the Chinese market surpassing expectations, the quantity of demand and penetration rate for the entire market has increased rapidly. With the Chinese market being the second most important market for Cree as well as the close relationship between Cree and Chinese lighting OEMs, it is anticipated that Cree will hitchhike on the increasing penetration rate of the Chinese lighting market.
