We expected a good topline and junky everything else. And that’s what we got.
Here’s what we liked on this results call:
- Demand for Wolfspeed product is so strong that after the company doubles its capacity they will still need to add more capacity. The TAM is going from ~$300m today to over $4bn in the next decade. CREE has a decade of growth ahead in Wolfspeed.
- CEO has no plan to become DRAM. He knows what happens with raw substrate and wafer businesses. He is building the #1 high voltage power electronics business (SiC) and an important piece of RF components for communications infrastructure (GaAN). Instead of allowing the large power electronic device companies to manipulate and commoditize him, he will supply them and also compete with them using a lower cost structure.
- The LED business is less bad near term and has some long term demand potential.
- The Lighting business stinks but he fired the co-heads and is finally getting CREE’s arms wrapped around this warranty cost issue. He is ramping a channel sales presence, launching new accretive product, with the aim of fixing the business as much as possible before he sells it or cuts it off. The best way to capture value in that segment is to create options!
- Topline beat and guidance for topline beat.
- FCF was neutral and OCF slightly ahead.
The rest was garbage. Do you think our investment thesis hinges on CREE printing $-0.01 versus $0.03? The best I can hope for – the best – is that G.LOWE has a stable topline in place while he tries to fix the fundamental elements of the business. With a decent topline, a good manager can fix the parts.