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Cree looks to TV application as demand slows

Despite posting a healthy profit in its most recent quarter, Cree says that weaker LED chip demand will see its revenue stay flat in the near term.

LED chipmaker Cree posted revenue of $97.5 million for its financial quarter ended 26 December 2004, slightly lower than it had predicted in previous guidance.

Although that figure represents a 34% increase on the same period one year ago, it is only slightly higher than revenue in the prior quarter. "Overall LED chip demand has slowed," admitted Cree CEO Chuck Swoboda.

As a result, Cree now expects revenue in the current quarter to be flat or slightly down, in the range $94-98 million. That guidance appeared to spook investors hoping that Cree would break through the $100 million figure, with the company's share price tumbling 20% in after-hours trading.

Swoboda said that the cost of the ongoing conversion from 2-inch to 3-inch wafer production had so far outweighed the benefits of manufacturing on the larger wafer sizes. That had a negative impact on profit, which came in at $25 million - up slightly on the prior quarter.

Around 15% of Cree's LED wafers are now made at the larger size, with Swoboda expecting that the figure will rise to over 50% by the end of the current fiscal year in June. He admitted that Cree was experiencing some "teething troubles" as it made the switch to the larger wafers.

Swoboda went on to identify applications in LCD television backlighting as "probably the single biggest business opportunity for both Cree and the industry".

Revealing that Cree had supplied the LEDs used to backlight a 40-inch LCD television demonstrated at the recent International Consumer Electronics Show held in Las Vegas, Swoboda added that the application could prove to be a company-changing growth catalyst.

He forecast that the next 6-9 months would be the critical period during which design-ins would be won and lost, with television makers preparing to launch new products in time for the 2005 holiday season.

Cree's rival Lumileds currently has the only commercial design win in this application area, supplying the LED backlights for large Sony televisions.

In a conference call to discuss the latest results, Swoboda said that Cree was looking to use a sub-contractor in Asia to take on some back-end LED production. Depending on chip demand, this could happen as early as the middle of this year.

Swoboda also announced Cree's development of blue LED chips that emit 30 mW at a drive current of 20 mA and 2.9 V. The devices are said to be the first 30 mW blue chips to operate at 50% wallplug efficiency.

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