Upside/Downside:
Upside reward: 100% on 2021 FCF: SIC pricing high, inventory tight, applications for silicon carbide extending, and Cree is more than doubling supply.
Downside risk: -50% on Book value: a Cree employee allegedly stole secrets and sold them to a “buyer” (see below). If that was successful then Cree’s golden goose will turn into a violent market in 3 years.
CHECKS ACROSS THE QUARTER:
- Pricing in SIC is solid
- Inventory is impossible to find
- High quality wafers are dominated by a top 3 cadre of players even while all three are more than doubling capacity
MORE DETAIL:
- New applications in SIC continue to extend the horizon of demand drivers while supply remains the gating factor
- ZTE reversal should lead to a positive guidance re-statement
- Lighting warranties should begin to reverse bit by bit which means lighting gross margins begin to reverse and rise
- Biggest negative talking point: Chinese LED capacity...but, this remains in the category of “Wall of Worry” rather than factual oversupply
- Biggest risk: a recent article (HERE) about a Cree employee caught stealing secrets and no doubt selling to some high bidder. If he was successful and if the buyer has the right employees to scale the tech then the market will be broken open and Greg Lowe has 36 months to pivot or figure it out
More to come.
Please call or e-mail with any questions.
Ami Joseph
Managing Director
