News Article

Cree Qualifies First 4-inch LED Process

Amid falling sales of its chips for mobile handset keypad applications and a drop in fab utilization, Cree says that it has qualified its first LEDs to be fabricated on 4-inch substrates.

SiC and GaN chip manufacturer Cree says it has qualified 4-inch wafer processes for LED and Schottky diode fabrication.

In an investor conference call to discuss its second-quarter 2007 results, Cree CEO Chuck Swoboda said that the switch to the larger format would help with production yields of large-area die typically needed for very-high-brightness, or "power" LED chips.

This is because the "edge" effects that impact wafer yields become much less significant as the wafer manufacturing size is scaled up from 3 inches to 4 inches.

Cree plans to switch a small amount of its LED and Schottky diode production to a 4-inch line in the current quarter.

In the near term, however, Cree faces a greater challenge as declining demand and selling prices hit both its revenue figures and, because of the resulting low fab utilization, its profitability.

In the three months that ended on December 24, 2006, Cree posted total sales of $88.8 million "“ down 16 percent on the equivalent quarter in late 2005 (see related story).

The main reason for that was a sharp slowdown in sales of the mid-brightness LED chips that are mainly used in the backlights of mobile handset keypads. At $65.5 million, LED chip revenue dropped by more than 21 percent sequentially.

Although this application remains Cree s biggest sales driver, the Durham, NC, company is exposed to fluctuations in demand and the intense competition with LED manufacturers in Taiwan that has driven down prices in recent quarters.

Slack demand in the latest quarter meant that unit shipments of LED chips were down 15 percent sequentially. That lack of demand is also affecting other suppliers, and intensified the downward pressure on prices. The average selling price of Cree s LEDs dropped 28 percent over the past year.

The other effect of the low demand is to reduce Cree s wafer fab utilization, which has a negative impact on its overall profit margins. "We slowed the factory down a lot," Swoboda admitted.

Cree did post an operating profit of $3.1 million in the quarter, but one year ago, when its fab was much more full, the equivalent figure was $26.5 million.

Swoboda and colleagues are increasingly focusing on emerging technologies and applications that they believe can drive Cree s sales much higher in the coming years (see magazine interview).

The CEO highlighted two major growth areas in its current offering as sales of "EZBright" high-brightness LED chips and packaged LED components for applications such as automotive lighting. The latter represented more than 10 percent of Cree s sales for the first time in the latest quarter.

And although the move towards 4-inch wafer production will not help to improve fab utilization in the short term, the yield benefits of this switch for manufacturing powerful large-area chips should come to bear once new LED applications such as LCD backlighting, automotive headlamps and general lighting begin to take off.

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