11 August 2011

Cree’s quarterly revenue grows 11%, driven by LED lighting

For fiscal 2011 (ended 26 June), Cree Inc of Durham, NC, USA (which makes LED chips, lamps and lighting fixtures as well as gallium nitride and silicon carbide power-switching and RF/wireless microelectronic devices and SiC substrates) has reported record revenue of $987.6m, up 14% on fiscal 2010’s $867.3m.

Although down 8% on $264.6m a year ago, fiscal fourth-quarter revenue of $243m is up 11% on $219.2m last quarter, and at the high end of the targeted range of $225–245m.





Growth was driven mainly by strong growth in sales of LED lighting products to commercial and retail customers, and solid growth in XLamp LED component sales (driven by a rebound in demand across applications from direct customers and through distribution), offsetting slightly lower sales for LED chips and power & RF devices.

“We continue to build momentum in growing our LED lighting business and delivered a range of revolutionary new market-leading products, including our CR6 downlight, high-output-power lamps and CR series troffers [offering shorter payback, better light quality and better efficacy than comparable fluorescents],” says chairman & CEO Charles Swoboda about fiscal 2011. “Our success over the last year has reinforced the value of having a lighting systems product line to complement our components business and give us the ability to drive the market and LED lighting adoption,” he adds.

“We grew the LED component business year-over-year despite a very tough business cycle by continuing to enable the market with innovative application-optimized new product platforms, including our XM, ML-E, MT-G, CXA arrays and LMR modules,” says Swoboda.

“We made progress in growing the Power & RF product line, and we released the first silicon carbide power MOSFET,” he notes.

On a non-GAAP basis, fiscal Q4 gross margin has fallen further, from 49.9% and 42.4% last quarter to 38.8%. This is due to lower factory utilization (while slowing LED production to reduce inventory) and the very competitive LED pricing environment, offset partially by yield improvements and cost reductions.

Operating expenses cut from $71.7m last quarter to $61.4m. Although almost halved from $60.1m a year ago, net income for fiscal Q4 of $30.6m is up slightly on $30.1m last quarter. This took full-year net income to $186.8m, up 4% on $179.2m in fiscal 2010.

For fiscal 2011, operating cash flow was $251.4m (up slightly from $250.6m for fiscal 2010). After capital expenditure of $204m (up from $168m in fiscal 2010), free cash flow was just $14.3m (down from $81.9m in fiscal 2010).

However, for fiscal Q4/2010 in particular, operating cash flow was $65.4m (up from $41.2m last quarter). After capital expenditure of $47.9m (down from $62.8m last quarter) and depreciation and amortization of $30.2m, free cash flow was $16.6m (an improvement on –$21.7m last quarter). During the quarter, cash, cash equivalents and investments rose by $12.7m to $1,085.8m. Cree continues to be debt-free.

“As we look ahead to Q1, demand has improved from earlier in the calendar year [with backlog slightly ahead on this point last quarter], but we are still operating in a short-lead-time environment with limited visibility,” says Swoboda. For fiscal first-quarter 2012 (ending 25 September 2011), Cree expects revenue to rise to $245–255m, driven by double-digit growth in LED lighting and mid-single-digit growth in LED components. However, LED chip sales will be flat to down, and Power & RF sales will be slightly down due to lower demand from solar inverter-related customers.

On a non-GAAP basis, gross margin should be steady at 38–39%, factoring in the competitive pricing environment and higher inventory costs from Q4, offset partially by higher factory utilization and cost-reduction programs.

Operating expenses are targeted to rise by about $2m, mainly in R&D expenses in order to further support new LED chip development, the 150mm LED chip product qualification, new LED component platforms, and continued investment in LED lighting products. In particular, the 150mm wafer development program is on schedule: the first chip-level products have been qualified, and the initial production ramp has started in fiscal Q1. Net income should be $27.5–31m.

“Our long-term goal for gross margins continues to be in the mid-40s, but over the short- to mid-term our goal is to get back into the low 40s,” says chief financial officer John Kurtzweil. “To hit the short-term goal, we target an improvement later in our fiscal year for new product introductions, higher factory utilization rates, and cost reductions from programs such as the transition to 150mm wafers,” he adds. 

For fiscal 2012, Cree aims to authorize capital spending of $160m. This is down on fiscal 2011’s $204m, but current capital spending is focused primarily on new-product-related areas, as the current factory utilization can provide sufficient first capacity in the near term.

“The investments we’re making in the near term are really going to be technology oriented,” notes Swoboda. “As the utilizations come up, that’s when we would start to spend more of the money on capacity... very little of our short-term CapEx is for capacity, just because the utilization rates give us a plenty of buffer in the near term,” he adds. “We will continue to invest, but it will be at a lower rate until we see the demand in the utilization rates pickup.”

See related items:

Cree’s profit halved as revenue falls 15%

Cree cuts March-quarter revenue forecast by 15%

Cree’s sales falls 4% after standards-induced pause in China LED streetlights

Cree’s quarterly revenue rises 1.5% to another record of $268m

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

Record, above-target performance at Cree from buoyant lighting market

Tags: Cree LEDs LED light bulb

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