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Technical Insight

Strong Results for Cree; LED Prices Decline (LED News)

Bolstered by a 114% increase in sales of LED products, Cree s revenue grew 67% from $24.8 million in the September quarter of 2000 to $41.5 million in the December quarter. Average prices for LEDs declined 18% in the quarter, indicating a very large increase in unit volumes. The company s net income increased 145% to $13.8 million compared to $5.6 million in the year-ago period. "We are particularly pleased with our continued revenue and earnings growth and the fact that we have now reported eighteen consecutive quarters of profitability," says Neal Hunter, Chairman and CEO of Cree. Around 40% of Cree s LED chip production serves the automotive market, with displays and cellular handsets accounting for around 20% each. Penetration in these markets is very low, and will only be improved by tackling the key issues of cost and brightness. "The two primary drivers for our LED product line are higher brightness and lower pricing," says Hunter. "The recent introduction of our ultra-high brightness chip has closed the gap between SiC and sapphire, and Cree Lighting recently demonstrated a blue LED on SiC that is brighter than any device grown on sapphire." Cree s new ultra-bright LEDs range from a 5.5 mW deep blue chip (460 nm) through to a 3.0 mW green chip (525 nm), and are two times brighter than the company s high-brightness devices [see CS 6(8), p.11]. Although only introduced in October of last year, the new ultra-high-brightness LEDs generated 8% of Cree s LED revenues during the December quarter. Because they offer a much lower cost per lumen, Cree expects the ultra-bright LEDs to replace demand for some of the company s older products. They may also allow Cree to gain greater penetration into the outdoor display and traffic signal market. The company predicts that the ultra-bright LEDs may account for up to 25% of LED sales in the March 2001 quarter. Cree s goal is to reduce costs by at least 30% over the next six months through yield enhancement and automation. However, the company does not plan to switch from 2-inch to 3-inch wafers, partly due to the problems of epitaxial growth on larger diameter wafers. "Also, we don t believe moving to 3-inch offers us the best opportunity for short term cost reduction," says Hunter. "If we can get 20-30% higher yields from a 2-inch wafer, we can lower costs much more aggressively than by converting to 3-inch." Since July 2000, the average sales prices (ASPs) of Cree s LEDs have already declined 13% due to expected contractual volume discounts. The company expects ASPs to decline approximately 25% in total during the fiscal year ending June 2001. Lower brightness products will experience more aggressive pricing declines. Interestingly, Cree has recently seen growth in demand for its oldest chip, which now sells in the region of 11 cents. Cree is also gearing up to increase its production capacity. "Our facilities are expanding," says Hunter. "Our new epiwafer fab is partially operational and is coming on line in accordance with our needs, while our new packaging and test facility is now operational." Sales of SiC wafers in the December quarter were up 40% compared to the previous three months. However, sales of SiC crystals for faux gemstone use appear to stagnating at around 5% of Cree s total revenues.
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