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13 August 2008


Cree grows 25% to record $493m revenue for fiscal 2008

For its fiscal fourth-quarter 2008 (ended 29 June), LED maker Cree Inc of Durham, NC, USA has reported revenue of a record $135.9m, up 9% on last quarter and 22% on $111.2m a year ago (and exceeding April’s guidance of $129-133m). This took fiscal 2008 revenue to a record $493.3m, up 25% on fiscal 2007’s $394.1m.

“Q4 represented a strong finish to a very successful year,” says chairman and CEO Chuck Swoboda. Non-LED business was flat sequentially at $19.2m as higher-power device sales were offset by slightly lower RF and government contract revenue. However, LED sales of $116.6m were up 11% on last quarter’s $105m and up 27% on $92m a year ago.

LED revenue growth was led by another double-digit increase in sales of XLamp packaged LEDs (which have grown 140% in full-year fiscal 2008 over fiscal 2007), stronger-than-expected double-digit growth in packaged high-brightness LEDs (with infrastructure build-out in China driving the large-area video display market), on-target sales of LED chips (a few percent down on Q3), and sales from LED Lighting Fixtures (LLF) of Morrisville, NC (acquired in March for $100m) within the target range of $2.5-3m.

Earlier this year, revenue from LED lighting components outpaced sales of LED chips for the first time in Cree’s 21-year history. Overall, for Q4/2008, LED lighting component revenue was 30% higher than LED chip revenue, illustrating the progress made in building the LED component product line while maintaining a strong merchant LED chip business, says Swoboda. He adds that, over the last 18 months, Cree has executed its strategy to transition from an LED chip company driven by mobile phone market trends to a broad-based LED company with chips, components and systems.

“We made great progress on all five of the key objectives outlined for fiscal 2008,” says Swoboda. “We grew XLamp sales more than 140% from the previous year and continued to drive the LED lighting revolution through our acquisition of LED Lighting Fixture and the growth in our LED City and LED university market development initiatives,” he adds. “We successfully integrated COTCO [of Hong Kong] , which has become our high-brightness LED product line, and achieved a first-year revenue and profit objective [being accretive to Cree’s earnings].” After transitioning production to China over the past year, Cree trebled XLamp packaging capacity at COTCO last quarter.

Non-GAAP gross margin was 34.2%, down for a second consecutive quarter and at the low end of the targeted 34-36%. This is due to three main factors: lower utilization in the LED chip and wafer fab as Cree chose to reduce inventory levels (by $3.2m to $80.2m); improvements in XLamp yields coming online later than forecast; and higher-than-targeted RF product and government contract costs.

Net income was $8.4m, up from $6.4m a year ago and $5.7m last quarter. However, full-year fiscal 2008 net income of $33.4m is down from fiscal 2007’s $57.3m.

“While we recognize that there is caution in the market about the global economic environment, we remain optimistic about the year ahead as the momentum continues to build for our new products and energy-efficient lighting,” says Swoboda. During fiscal Q4, Cree launched several new LED lighting products, including: a new version of the LR6 designed for 220-240V electrical systems (to address markets such as Europe and Asia); the LR4, a four-inch architectural recessed LED down-light delivering up to 540 lumens of dimmable light from less than 11W of power; and the XLamp XP-E and XP-C LEDs (which have the smallest footprint in the industry for lighting-class LEDs, claims Cree, providing the same lighting performance and reliability as the XR-E and XR-C LEDs but in an 80% smaller package).
Also, at the Lightfair International event, Cree demonstrated the XLamp MC-E multi-chip LED, which retains the same footprint as the XLamp XR family LEDs while providing four times the light output of the XR-E.

Cree is ramping up pilot production of both XP and MC products in Durham over the next couple of quarters, prior to transfer to COTCO in China in fiscal second-half 2009.

At the end of June, order backlog was $89.3m, up on $69.8m a year ago. Consequently, for fiscal first-quarter 2009 (ending 28 September 2008), Cree expects revenue to grow slightly to $138-142m due to higher LED sales (driven by further double-digit growth in XLamp and LLF products) offsetting a 10-15% drop in non-LED revenue (due mainly to lower revenue for both the power and RF product lines as well as government contracts). Power device customers have pushed out orders to rebalance their inventories, while some RF foundry jobs have been delayed, according to chief financial officer John T. Kurtzweil. “Despite these challenges we continue to win new designs and are optimistic about the potential for these product lines,” he adds. “While we expect there will continue to be some fluctuation in these product lines over the next year, we target the growth in the LED business to more than offset this variability.”

Gross margin is targeted to rise slightly to 34-36% as Cree gets the full-quarter benefit from new XLamp product yields made at the end of last quarter plus slightly higher factory utilization (offseting the negative impact of lower RF and power device revenues). “This quarter we are introducing two new XLamp products and two new LLF products into production,” says Kurtzweil. “It will take time to work through the new product launch challenges and for the product yield to achieve targeted production levels.”

Cree is also targeting capital expenditure of $18-20, mainly for capacity additions, new product introduction and the continuing transition of LED chip production to four-inch wafers.

For full-year fiscal 2009, Cree is aiming to build on the momentum created over the last year in driving revenue growth by focusing on LED lighting, says Swoboda, targeting growth from LED components and LLF (which is targeted to be accretive to earnings by fiscal fourth-quarter 2009).

“We continue to expand our global sales coverage and drive growth with our distribution partners as component distribution sales more than doubled over the previous year. We expanded our manufacturing capabilities in Asia as we transitioned most of our XLamp LED production to China [COTCO] during the year, which reduced manufacturing costs and positioned these products for improved margins in fiscal 2009,” says Swoboda. Cree plans a further doubling of XLamp packaging capacity in fiscal 2009.

“We recognize that there’s a growing uncertainty around the world regarding the near-term global economic environment, especially in businesses that are affected by trends in consumer spending,” says Swoboda. “While this is a challenge that all companies will need to manage in the year ahead, we continue to target growth opportunities for Cree in fiscal 2009 due to the increased adoption of LED lighting,” he adds. “The LED lighting revolution continues to gain traction and our XLamp LED components and LED lighting solution product lines are well positioned to benefit from the growing demand for energy-efficient LED lighting,” he believes.

See related item:

Cree sustains growth through focus on LED lighting

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