20 January 2010


Cree reports record revenue up 18% sequentially to $199.5m

For its fiscal second-quarter 2010 (ended 27 December 2009), Cree Inc of Durham, NC, USA has reported record revenue of $199.5m, up 18% on $169.1m last quarter and 35% on $147.6m a year ago (and above the targeted $180–190m).

In particular, LED product revenue grew 17% sequentially from $156m to $182m, driven by a strong increase in LED sales for lighting applications and incremental growth in LED lighting products and LED chips. Revenue for power and RF devices grew 34% from $13.1m to $17.5m (including $3.7m of government contract revenue), with RF demand driven mainly by military applications and power demand driven by both high-efficiency power supplies and, increasingly, solar applications.

Operating expenses have grown only slightly from $47.1m last quarter to an under-target $48m. R&D expense was under-target by about $1m, after earlier-than-expected transition of some new products from R&D to production. SG&A (selling, general & administrative) expense was also under-target by about $1m, after slower-than-expected head-count additions. “We continue to hire in both areas, but there is a lag in how quickly we are able to hire new people as compared to our expense targets,” notes chief financial officer John Kurtzweil.

Gross margin has risen from 38.3% a year ago and 43.6% last quarter to 47.2%. This was also above the targeted 44%, due to better-than-expected execution on the LED factory ramp-up (which enabled higher production volumes and better factory overhead spreading), better-than-planned yield improvement across LED product lines, and a more stable pricing environment for LED chips and components, as well as the continued progress in power and RF product lines.

Net income has risen from $10.7m a year ago and $21m last quarter to a record $33.8m. Revenue and profits exceeded targets due to a combination of strong LED demand and solid factory execution, comments chairman & CEO Charles Swoboda.

Cash flow from operations was $21.5m. Minus capital expenditure of $41.4m, free cash flow was –$19.9m. Nevertheless, due to the higher revenue and increased profitability, cash and investments rose $65.6m to $954.1m.

Fiscal third-quarter 2010 (ending 28 March) is normally considered to be a seasonally weaker quarter due to slower consumer market and the Chinese New Year holiday, says Swoboda. However, order backlog is higher than at this point last quarter due to increased demand for LED components (for lighting applications) and LED lighting products, as well as for power and RF devices. In particular, during fiscal Q2, Cree’s LRP38 LED lamps were selected for initial deployment in about 650 Walmart stores, validating that LED lighting is ready for mainstream commercial applications, it is claimed.

For fiscal Q3/2010, Cree therefore targets revenue of $215–225m (up 8–13%, limited by the rate of new capacity ramp-up and factory execution). Gross margin should be roughly level, at 46.5%. R&D expenses should rise by $1m (to support new LED product development) and SG&A expenses by $2.5–3m (due mainly to growth in marketing expenses and sales commissions, along with staffing new design centers in the USA, Europe and Asia as Cree expands global customer support). Net income should rise to $37–40m.

“LED lighting adoption continues to gain momentum, and our near-term focus is on factory execution and capacity expansion at both our US and Asia manufacturing facilities to meet the higher demand,” says Swoboda. Cree was recently awarded $39m in as part of the American Recovery and Reinvestment Act's Advanced Energy Manufacturing tax credit program to support investment in new manufacturing capacity and jobs in North Carolina related to energy-efficient LED lighting.

Kurtzweil says that, to position Cree to meet revenue growth targets for fiscal 2010 and first-half 2011, the firm is raising its targeted fiscal 2010 CapEx to $240–260m (enabling it to triple power LED component production capacity during fiscal 2010). This will cover: expanding LED factories to support increased demand (including bringing online its new LED chip plant in Huizhou, China in fiscal first-half 2011, after buying a facility there in fiscal Q2/2010); manufacturing equipment to support the growth in business; and new product development. In particular, expenditure will support additional LED chip and component packaging capacity, as well as development of the firm’s initial production capability on 150mm-diameter substrates (which should start to come on line over the next two years, says Swoboda).

See related items:

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