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To: Cary Salsberg who wrote (6567)	1/2/2003 2:12:34 PM
From: pompsander	Respond to of 10713

I've enjoyed the analysis. One comment made about CREE, Applied Materials and Intel lately is that these companies increased (or held steady) R and D during the current downturn rather than cut it back to make the short term results look a little better. In a well-run company in a competitive marketplace, such a decision should pay off in higher margins later. So, current ratios during the downturn can look worse than might be otherwise the case. Without debt, Cree has paid for its R and D out of current cash flow. This choice of use of captial hopefully will pay off down the road with increased margins due to improved product profitability and better market share. Time will tell.

To: Cary Salsberg who wrote (6567)	1/2/2003 2:58:31 PM
From: jameswallen	Respond to of 10713

The Jun02 quarter is the new baseline. Cree was not immune to the recession. They had declining revenues and profits in late 2001 and early 2002. If you look at any financial ratios based on the the last 12 months, they will show poor performance (because they had poor performance.) As the market for blue HD-LED blossomed in 2002, Cree's product shipment, revenue and profit picture brightened considerably. Cree took some fairly optional accounting loses in Jun02 to create a big paper loss and to establish a baseline going forward. Beginning in 2002, Cree products moved into mainstream applications (cell phone back-lighting, traffic signals, etc.) Prior to 2002, most of Cree's LED shipments were for niche applications. Focus on the future. For the Oct02 quarter, I calculate EDIT to be only 10%. If Cree continues to experience a high growth rate, EBIT will grow rapidly also, because SGA and R&D will growth less rapidly than revenue. For the Oct02 quarter, Cree only had $22k in long-term debt with $65,550k in investments. Sure, they have no financial leverage. Why should they if they can fund growth internally? (Don't forget, financial leverage was Enron's approach to gaining profitability.) Cree does show a large, negative cash flow for Fy02: ($101,723k) compared to gains of $27,843k and $30,520k in the two previous years. Cree says in the annual report "Cash used by investing activities in Fy02 was $116.9 million." They're trying to earn a higher rate of return on their financial reserves. They were cash flow positive in Fy02. Cree's gross margins are in the 42-45% ranges the last couple of quarters. Cree can expand manufacturing and still make a healthy profit. Cree is not a development-stage company. They have been quite profitable the last several years. Their revenue comes primary from LEDs. SiC wafers is a minor product. Cree has been profitable in the past and will be profitable in the future, though on a much large scale. Cree's competitive position has never been stronger.