11 August 2010


Cree reports annual revenue up 53% as LED lighting sales double year-on-year

For fiscal 2010 (ended 27 June), Cree Inc has reported record revenue of $867.3m, up 53% on fiscal 2009’s $567.3m. In particular, fiscal fourth-quarter revenue was a record $264.6m, up 13% on last quarter’s $234.1m and 79% on $148.1m a year ago.











Of total Q4 revenue, LED product revenue was $240.1m (up 13% on $211.8m last quarter and 83% on $131.3m a year ago) and power and RF product revenues were $24.5m (up 10% on $22.3m last quarter and 46% on $16.8m a year ago). In particular, growth was driven mainly by: strong sales of XLamp LED components for outdoor lighting and LED bulb applications; LED lighting products for indoor commercial applications; and power devices for solar inverter applications.

Well over half of overall LED business is now for lighting applications. “Fiscal 2010 was a great year for Cree and the LED lighting revolution,” says chairman & CEO Chuck Swoboda. “We made good progress building momentum in our business and delivering on our four key objectives for the fiscal year,” he adds. “We grew the LED lighting components business more than 100% year-over-year, we further established our leadership in LED lighting and disrupted the market with customer wins like Wal-Mart, we turned power and RF into a profitable and growing product line, and we increased non-GAAP operating profit 244% [from $68m for fiscal 2009 to $234m].”

Non-GAAP gross margin has risen from 40.3% a year ago and 48.1% last quarter to 49.9% (above the targeted 48%), with components a little above the corporate average, followed by chips, then lighting systems a bit below average. The rise is driven by continued strong execution in the factory ramp-up along with the benefit of higher volume scale, better-than-forecast cost reduction due to higher yields, and continued improvement in the power and RF product lines. This boosted full-year gross margin from 38.1% in fiscal 2009 to 47.8% in fiscal 2010.

Non-GAAP net income has risen from $16.3m a year ago and $51.3m last quarter to a record $60.1m. This boosted full-year net income from $59.2m in fiscal 2009 to $179.2m in fiscal 2010.

In fiscal Q4, operating cash flow was $94.9m (up on $72.9m last quarter). After capital expenditure of $40.8m, free cash flow was $54.2m. Cash and investments rose by $75.4m to $1066.4m.

To further accelerate growth of the LED lighting market, during fiscal Q4 Cree signed a worldwide patent cross-license agreement with Philips. The firm also extended the warranty on its family of LED fixture products to five years. It also launched its LR6-DR1000 high-output 6-inch downlight (delivering 70% more light than the original LR6) and the LR24HE LED-based troffer (the first indoor fixture to deliver more than 100 lumens per watt efficacy), both featuring Cree’s TrueWhite technology.

“Entering fiscal 2011, we are focused on extending our leadership position while we build the scale, cost structure and channels to win in the market,” says Swoboda.

For fiscal first-quarter 2011 (ending 26 September 2010), Cree expects revenue to rise to $270–280m. This should be driven by double-digit growth in LED components and lighting products (as Cree continues to invest in its factories to support the increased adoption of LED lighting), driven by the USA and Asia while European demand is seasonally slow. However, this growth will be offset partially by lower LED chip sales for consumer backlighting application, particularly in Europe (a short-term supply/demand correction), as well as flat power & RF product sales (due to production constraints that will last until new capacity comes online, probably in fiscal Q3/2011).

Non-gross margin in fiscal Q1 should fall back a little to 48–49%, as Cree aims to operate its factory at a more sustainable level of utilization (i.e. down closer towards 90% for LED chips). Non-GAAP net income should rise to $62–65m.

Cree’s authorized capital expenditure for fiscal 2011 is about $300m (up from $168m in fiscal 2010), as the firm aims to: support targeted growth in LED lighting applications (by more than doubling XLamp LED capacity by the end of fiscal 2011); support initial capacity to develop and qualify LED products based on 150mm (6-inch) substrates; and position the factory to support additional growth in fiscal 2012.

As well as increasing manufacturing capacity (and adding new pilot production and testing capabilities to reduce time to market for LED component and lighting system products), Cree will transition LED chip production from 4-inch to 6-inch wafers. The plan is to ramp the 6-inch process into production on silicon carbide wafers (on which Cree produces most chips), but it also has a parallel program for 6-inch sapphire substrates, aiming to be able to run the process on both platforms. “We are putting in place the initial 150mm capacity to start to develop and qualify the process,” says Swoboda. Cree targets the first 150mm products to be qualified by the end of fiscal 2011 (end-June 2011), followed by the first production volumes in early fiscal 2012.

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