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Cash-rich Cree Eyes Acquisitions

The LED maker is planning its next M & A foray after its war chest is swollen by record sales and cashing-in of Color Kinetics shares "“ even though the dust is still settling from its recent purchase of COTCO.

Cree s cash reserves have surged to $253 million in the past quarter, which the company looks set to use to fund a takeover bid in the next year.

In its first fiscal quarter of 2008, which ended on September 23 2007, Cree made record revenues of $113.4 million.

The Durham, North Carolina, firm recorded $12.8 million net income over this period, thanks largely due to the sale of its outstanding stake in Color Kinetics to Philips. This earned Cree $10.4 million after tax.

Prior to this sale, partly due to continuing costs from the integration of COTCO, Cree s most recent acquisition, the chip manufacturer recorded a $1 million operating loss for the quarter. Considering this, the company admits accommodating another purchase will require some preparation.

“I don t think we re trying to do another deal in the next quarter," commented Cree s CEO Chuck Swoboda, “but I think at some point over the next four quarters we re looking at some things which we have the management bandwidth to do."

“Adding some management bandwidth to our team over the next quarter or two is going to be beneficial in driving some of these strategies," he explained. “You ll see us do the management bandwidth first before we do the next deal."

The operating loss also reflects the fact that Cree is currently unable to meet the growing demand for its XLamp packaged LED products. Over the past quarter, this product sector delivered single-digit growth, however the company has much more ambitious plans.

To address this, Cree is installing an XLamp production line at its COTCO facility in Taiwan. Within a year, this will triple production capacity in comparison to the number of XLamps Cree could make at the beginning of the most recent quarter.

“We knew going in that we had a capacity problem," commented Swoboda. “It already hurt us, last quarter."

“Although our capacity ramp-up took a little longer than we would have liked, we exited the quarter in good shape in terms of throughput and yields."

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