CREE Purchases Infineon's RF Power Division, Shares Rise

Cree Inc. CREE recently acquired assets of Infineon Technologies AG IFNNY Radio Frequency (RF) Power Division.

Valued at approximately Euro 345 million, this all-cash transaction has sealed and is effective immediately. The buyout increases market opportunity for Cree’s Wolfspeed business wireless unit.

Shares of this premium manufacturer and marketer of lighting-class LEDs went up more than 9%, yesterday, following the buyout news. The company has gained 55.2% year over year, substantially outperforming the 29.9% rally of the industry it belongs to.

Cree’s Gains from the Buyout

Based in North Carolina, USA, Wolfspeed has been an operating arm of Cree for over thirty years. It has garnered an unparalleled reputation among clients for providing state-of-the-art SiC-based power and GaN-on-SiC-based RF power solutions.

This acquisition will help Cree expand its Wolfspeed business portfolio and bolster position as a supplier of power and RF GaN-on-SiC power solutions. Furthermore, Cree will position Wolfspeed to aid faster 4G networks and the innovative transition to 5G networks with this acquisition. The company believes these advanced technologies will eventually lead to the introduction of a host of new offerings in energy efficiency, connectivity and mobility domains, adding to future growth.

The acquisition of Infineon will help Wolfspeed to proactively commercialize its silicon carbide and gallium nitride technology by leveraging the former’s market reach and infrastructure. Further, it will allow the company to increase value for shareholders, employees and customers. This in turn will allow the company to strengthen foothold in key markets including electro-mobility, renewables and next-generation cellular infrastructure needed for IoT.

Wolfspeed revenues surged 30% year over year to $70.6 million and accounted for 19% of total revenues in the last reported quarter.

Cree-Infineon Relationship

Cree and Infineon have an established past of technology leadership, collaboration and shared business interests.

Most recently, Cree inked a strategic long-term agreement with Infineon Technologies to produce and supply latter with its Wolfspeed SiC wafers solutions.

Previously in mid-July 2016, Cree inked an agreement with Infineon to divest the Wolfspeed Power and RF division (including the related SiC wafer substrate business) for approximately $850 million (almost €740 million).

We note that Cree intended to sell its Wolfspeed business in the first place to become a more LED lighting focused company.

To Sum up

We believe that Cree’s cross licensing agreements will help drive innovation. Further, it will aid the company to gain better traction, resulting in top-line growth.

Cree remains focused on driving growth in LED business. The company’s lighting products have been gaining traction among the likes of McLaren Health Care, American Airlines Center, Quest, Food Bank of Central & Eastern North Carolina and Reston Hospital center in the past year.

The company believes the latest acquisition will strongly complement its Wolfspeed business, consequently signaling bright prospects for the company.

Zacks Rank and Key Picks

Creecarries a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader technology sector include Paycom Software, Inc. PAYC, and Intel Corporation INTC, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Paycom Software and Intel have a long-term earnings growth rate of 25.75% and 8.42%, respectively.

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