News Article

Lighting Guides Cree Through Financial Gloom

Improved manufacturing efficiency and sales of high-performance products plus a welcome bonus from patent licenses brings the chipmaker record quarterly revenue.

LED pioneer Cree has bucked the trend currently dragging the world through recession by increasing its sales and profits for the last three months of 2008.

Although its $147.6 million quarterly revenues were enhanced by $5.6 million in one-off patent licensing fees, underlying product sales were still 1.3 percent higher than the previous quarter.

Products for general illumination propelled Cree's continued sales growth, and helped the company boost its profits to $10.7 million, up from $5.9 million sequentially. $4.4 million of that figure came directly from deals to license GaN substrate technology to Mitusbishi Chemical and LED chip patents to Bridgelux.

The patent windfall combined with higher utilization levels and product yields at the company s Durham, North Carolina, and Huizhou, China, facilities to drive the overall income leap.

Now Cree expects sales and consequently utilization to fall as Asian packagers close for the Chinese New Year, but says that its order pattern is in line with the previous year. Meanwhile, increased supplies of LEDs in the market are having an inevitable effect on the price that customers are prepared to pay.

Nevertheless, chief executive officer Chuck Swoboda expects efficiency drives and increased sales of more lucrative products to offset this.

“We re having to meet more aggressive price requests from our customers," he said. “Through product mix and yield we've been able to offset it, and this quarter [price pressure will] have less of an effect on us than others."

Product evolution
Cree s product mix change includes continued double-digit growth in sales of its high-power XLamp LED component lines, which now boast above-company average profit margins.

Lighting fixture revenues are growing at a similar rate, although they are currently less than $10 million overall and are currently dragging down profit margins.

However Cree expects to enhance these product lines financial performance as their manufacturing processes mature, while installations at the US Federal Reserve and Pentagon raise their profile.

“The Pentagon raised a lot of eyebrows, not just because it was 4,200 fixtures and it was an entire wing," said Swoboda.

He emphasized that although the initial deployment might be seen by some as expensive, money saved in energy efficiency over current installed lighting would rapidly compensate. “They re talking about less than four-year payback."

Swoboda expects a small amount of shipments for the Pentagon deal to begin in the current quarter.

XLamps and lighting fixtures have offset single-digit falls in sales of LED chips and high-brightness components caused by lower demand in automotive applications and cellphones. Revenue from Schottky diodes and government contracts also fell.

Products for illumination also helped balance research into Cree s next-generation LEDs, which turned out to be more expensive in the December quarter than had been anticipated.

For the three months to March Cree is expecting revenues to fall below $135 million, but is still targeting a profitable quarter.

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