News Article

Color Kinetics Share Sale Tips Cree Into Profit

Cree continues its transformation, posting an operating loss and a net profit in its latest quarter.

Cree posted a net profit of $6.4 million on sales revenue of $111.2 million in its latest financial quarter, which ended on June 24.

However, the headline figures masked a whole host of financial charges and gains recorded as the North Carolina firm continues to transform itself from a "chip and wafer company" into a supplier of key energy-saving electronic components.

For example, Cree registered a gain of $7.8 million in the quarter, following its sale of 364,000 shares in Color Kinetics - the solid-state lighting systems company that Philips is set to acquire (see related stories).

That sale helped to offset an operating loss of $3.1 million, although the operating figure was itself subject to $3 million in charges relating to Cree s recent acquisition of the Chinese LED supplier Cotco.

CEO Chuck Swoboda highlighted fast-growing sales of XLamp packaged LED products as a sign of Cree s transformation, with sequential double-digit revenue growth expected to continue in the future.

Meanwhile, sales of blue and white chips for applications in mobile handset backlighting - previously Cree s staple money-earner - now amount to only 20 percent of revenue, suggesting that Cree is having some success as it diversifies its product portfolio and strategic focus.

Commenting on Philips pending acquisition of Color Kinetics, which will bring the lighting company under the same corporate umbrella as Cree s rival LED maker Lumileds, Swoboda said that the Dutch company had "raised the bar" in solid-state lighting.

As well as netting Cree a nice gain on its Color Kinetics investment (Cree still holds 500,000 shares in the company), added Swoboda, the fact that such a major player as Philips has invested so much in LED-based solid-state lighting can only be good for Cree.

"It puts Cree in a good position as one of the only independent suppliers of lighting-class LEDs," said the CEO, adding that XLamp products were already being used in applications that many people had thought would take years to penetrate.

That said, those applications represent very small niches, and the LED lighting industry remains at a very early stage of its evolution.

Swoboda also confirmed that a potential skirmish with its Japanese rival Nichia over Cotco products had recently been avoided. While Nichia's lawyers had appeared to be sharpening their pencils in anticipation of another battle, Swoboda said that "everything is happy again" regarding the two companies cross-licensing agreement. "It s a non-issue at this point," said the CEO in response to an analyst s question.

Cree also reported its full fiscal 2007 results, posting total sales of $394 million in the year, down from $423 million in fiscal 2006.

Net profit, which included a $19.2 million gain on the sale of Color Kinetics shares over the year, came in at $57.3 million, down from $76.7 million in 2006.

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