Here is a pretty good analysis. 15 million shares and counting.
Dow Jones Business News
Cree Shares Rise After Ruling on Partner's Patent Suit
Thursday September 25, 2:39 pm ET
By Michelle Rama
NEW YORK -- Shares of Cree Inc. (NasdaqNM:CREE - News) gained ground Thursday after one of the company's cross-licensing partners won a preliminary court victory that could dam a flood of potential LED, or light-emitting diode, pricing competition in Taiwan, analysts said.
ADVERTISEMENT
Around 2:30 p.m. EDT on the Nasdaq Stock Market (News - Websites), shares of Cree, a Durham, N.C., semiconductor company, were up $2.18, or 11%, to $21.54 on volume of 14.4 million shares. Average daily volume is 2.69 million shares.
The legal battle took place in Taiwan, where Cree cross-licensing partner Nichia Corp. reportedly won a preliminary attachment from a court against Epistar Corp., a large manufacturer of blue LEDs, over patent issues.
Cree and Nichia are leading makers of nitride LED and laser technology. Wall Street has been concerned that lower-priced LED products from Taiwanese manufacturers pose a threat to Cree's top line.
Analysts who follow Cree said the Taiwan court ordered that some of Epistar's bank accounts be frozen to pay potential damages in Nichia's patent-infringement suit against the company.
"Because of the aggressive comments we have gotten from Nichia in the past, we had been expecting this kind of activity to blunt competition from the upstart Taiwanese manufacturers," CIBC World Markets analyst Dale Pfau said in a research note.
The analyst said he sees this as only the first of several lawsuits Nichia will file in Taiwan.
Mr. Pfau owns shares of Cree. His firm has an investment-banking relationship with the company.
Mr. Pfau said many of Cree's Taiwanese competitors have driven prices lower in the low-end of the market as they infringe on Nichia's, Toyoda Gosei's and Cree's patents, enabling them to undercut the patent-holders' prices.
Future lawsuits, according to Mr. Pfau, could be "extremely positive," boosting demand for Cree's products and lifting recent pricing pressure.
Epistar, the company Nichia has sued, is one of the largest manufacturers of blue LEDs in Taiwan.
ThinkEquity Partners analyst Thomas Sepenzis, who raised his opinion on Cree's stock to "overweight" from "equal weight" Thursday, boosted his price target to $25 from $18 a share.
In a research note Thursday, Mr. Sepenzis echoed Mr. Pfau's view that the preliminary-attachment order Nichia won "represents the first shot across the bow of LED manufacturers that have not licensed [intellectual property] from Nichia, which could result in reduced LED pricing pressure for Cree going forward."
The lawsuit should stabilize the competitive picture as Taiwanese LED vendors are forced to license intellectual property from Nichia, the analyst predicts.
Mr. Sepenzis also said he expects former Chief Executive Eric Hunter's lawsuit against Cree to be resolved in Cree's favor, though it will "continue to cast a shadow" over the company.
Eric Hunter is suing Cree and his brother, current Chairman Neal Hunter, for more than $3 billion, or twice the entire market capitalization of the company, Mr. Sepenzis noted. Eric Hunter's claim against Cree is for defamation of character.
"I don't know what the merits of the case are. It seems a bit odd," said Mr. Sepenzis, who owns no shares of Cree. "I don't expect he's going to win it in the end," he added.
As for the current color handset-business landscape, the analyst said sales have been strong, lifted by world-wide strength in camera phones.
Cree is poised to benefit from that strength, and if Nichia prevails in getting licensing fees from Epistar, the analyst sees upside to his current estimates for the September quarter and beyond. His current estimates assume application-service provider declines of 5% sequentially and 14% year-over-year.
A Cree spokeswoman said she wasn't sure whether other patent-infringement lawsuits have been filed against Taiwanese competitors. The spokeswoman didn't know what effects Nichia's lawsuit against Epistar might have on Cree's business.
Cree, an advanced semiconductor company, uses its expertise in silicon- carbide, gallium-nitride, and silicon-materials technology to produce new semiconductors. Products include blue, green and ultraviolet light-emitting diodes; radio frequency and microwave devices; and power switching devices. Potential uses for these products include solid-state illumination, optical storage and wireless infrastructure.
-By Michelle Rama; Dow Jones Newswires; 201-938-4046; michelle |
