Cree Expects LED Sales to Take 6% Hit on ‘Order Delays’ Attributable to Tariffs
Cree estimates that the first tranche of 25 percent Trade Act Section 301 tariffs on Chinese imports that took effect July 6 will reduce its earnings by about 2 cents a share in Q1 ending late September and by about 3 cents a share each future quarter starting Q2, said Chief Financial Officer Mike McDevitt on a Tuesday earnings call.
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The LED maker fought unsuccessfully in the first round to defeat tariffs on LEDs it reimports from China under the Harmonized Tariff Schedule’s 8541.40.20 subheading, based on wafers it produces in the U.S. (see 1806150030). Cree took an additional hit when the second tranche of tariffs that take effect Aug. 23 included duties on the silicon carbide power semiconductors it ships to China for final packaging before reimporting them to the U.S. under HTS 8541.10.00. The company argued unsuccessfully that tariffs on those components would hurt its “competitiveness” in the U.S.
Cree’s quarterly guidance doesn’t include “any potential impact of any tariffs” that take effect Aug. 23 or later, said McDevitt. Cree hasn’t posted comments in docket USTR-2018-0026 on the third tranche of tariffs now under review. The Semiconductor Industry Association urged U.S. Trade Representative Robert Lighthizer to spare two dozen categories of products in the semiconductor supply chain from additional duties for fear they would cause “profound” harm to the U.S. economy and the tech industry (see 1808100020).
The Cree team “worked diligently to minimize the impact” of the tariffs, and is “evaluating ways” to further reduce the company's exposure, said McDevitt. Cree expects a 6 percent Q1 revenue decline sequentially from Q4 in its LED business, attributable partly to “order delays from certain customers, as the industry evaluates how best to navigate the U.S. and China tariffs,” he said. Cree shares closed 7.8 percent lower Wednesday at $46.26.
Though many Americans “may have concerns” about the tariffs being imposed on Chinese imports, “I can assure you these actions were not taken lightly,” said Deputy U.S. Trade Representative Jeffrey Gerrish at Customs and Border Protection’s 2018 Trade Symposium Wednesday in Atlanta. The tariffs follow many years of failed trade negotiations, including those under the Trump administration, "in which the Chinese had repeatedly made commitments to correct their harmful, unfair and distortive actions and then refused to honor those commitments," said Gerrish. The tariffs are designed to “fight back against the egregious actions taken by China," he said. “We remain hopeful that China will come to the table with meaningful and concrete actions to address their market-distorting behaviors.”