Cree Q3 revenue dips 7 percent
Cree has announced financial results for Q3 2017 (ended March 26, 2017) which include the company's Wolfspeed business.
Revenue for Q3 2017 was $342 million, which represents a 7 percent decrease compared to revenue of $367 million for Q3 2016 and a 15 percent decrease compared to Q2 2017.
While the sale of Wolfspeed to Infineon Technologies AG was meant to close during the quarter, the agreement was terminated on March 6, 2017 because the Committee on Foreign Investment in the United States (CFIUS) did not approve the transaction due to national security concerns.
As a result, the company's Q3 financial results included two items that would not have occurred if the Wolfspeed sale had closed.
First, the company was required to record an income tax expense charge of $86 million in the quarter to establish a valuation allowance on its US deferred tax assets and other deferred charges. In addition, the company recorded an additional $12 million in expenses, net of tax, primarily associated with the resumption and catch-up of depreciation and amortisation on Wolfspeed's long lived assets, which was partially offset by the Infineon termination fee.
Wolfspeed depreciation and amortisation of its long lived assets had been suspended while the assets had been held for sale pending the closing of the Wolfspeed transaction.
GAAP net loss for Q3 2017 was $99 million, or $1.02 per diluted share. This compares to GAAP net income of $152 thousand, or $0.00 per diluted share, for Q3 2016. On a non-GAAP basis, net income for Q3 2017 was $749 thousand, or $0.01 per diluted share, compared to non-GAAP net income for Q3 2016 of $17 million, or $0.17 per diluted share.
Excluding the two items mentioned above, which were not factored into the financial targets provided on January 24, 2017 based on the company's belief at that time that the Wolfspeed sale would be consummated, non-GAAP net income would have been $11 million, or $0.11 per diluted share, which is within the target range provided on January 24.
"Q3 non-GAAP results were within our target range," stated Chuck Swoboda, Cree chairman and CEO. "Our Wolfspeed and LED products businesses performed at or above their targets for the quarter, while Lighting Products came in a little below plan due to softer market conditions and the lingering effects of the third party product driver issue that we mentioned in Q2. We believe the factors that impacted our lighting business are temporary and we target improvement in all three businesses in Q4."
Announcement of Joint Venture
Cree also announced that it is forming a joint venture, to be called Cree Venture LED company Ltd., with Sanan Optoelectronics company (Xiamen, China) to produce and deliver to market high performing, mid-power lighting class LEDs in an exclusive arrangement to serve the expanding markets of North and South America, Europe and Japan.
Business Outlook
For Q4 2017 ending June 25, 2017, Cree targets revenue in a range of $340 million to $360 million. GAAP net loss is targeted at a $16 million loss to $22 million loss, or a $0.16 to $0.23 loss per diluted share. Non-GAAP net income is targeted in a range of $2 million to $7 million, or $0.02 to $0.07 per diluted share.
Targeted non-GAAP income excludes $23 million, net of tax, of expenses related to stock-based compensation expense and the amortization or impairment of acquisition-related intangibles. Our fourth quarter GAAP and non-GAAP targets include $3 million+/- of expenses related to non-recurring costs from our Lighting Products business right-sizing initiatives and joint venture start-up costs. The GAAP and non-GAAP targets do not include any estimated change in the fair value of Cree's Lextar investment.
