22 January 2014

Cree’s quarterly revenue grows 20% year-on-year to record $415m

For fiscal second-quarter 2014 (ended 29 December 2013), LED chip, lamp and lighting maker Cree Inc of Durham, NC, USA has reported revenue of $415.1m, up 20% on $346.3m a year ago and 6% on $391m last quarter (and at the high-end of the targeted range of $400-420m), driven by strong growth in LED lighting fixtures and LED bulbs.

Fiscal	Q2/2013	Q3/2013	Q4/2013	Q1/2014	Q2/2014
Revenue	$346.3m	$348.9m	$375m	$391m	$415.1m

Specifically, by product sector:

• Power & RF product revenue was $26.4m, up 5% on $25.1m last quarter and 17% on $22.6m a year ago (remaining about 6-7% of total revenue). Power & RF product gross margin of 58% is up on 56.6% a year ago and 53.7% last quarter, due to higher sales, cost reductions and product mix.

• LED product revenue (LED components, LED chips and SiC materials) was $215m, on the lower end of the target range and down slightly on $218m last quarter, but up7% on $201m a year ago (though still falling from 58% of total revenue to 52%). LED product gross margin of 45.4% is up on 41.9% a year ago but down from 46.6% last quarter.

• Lighting product revenue was $173.7m, up 17% on $147.9m last quarter and 42% on $122.7m a year ago (rising from 35% of total revenue to 42%) - on the high end of the target range, driven by strong sales of both LED fixtures and LED bulbs. Although still down on 33.7% a year ago, Lighting product gross margin has risen from 26.9% last quarter to 27.9%, due to a combination of lower-cost new products, cost reductions and higher factory utilization.

Overall gross margin (on a non-GAAP basis) has fallen from 39.2% both a year ago and last quarter to 38.2% (slightly down on the expected 38.5%), reflecting the higher mix of Lighting products in overall sales (with lower margin than both LED products and Power & RF products).

Recent highlights include: releasing the LEDway High Output (HO) LED street light to address large multi-lane freeways and expressway applications, replacing inefficient high-pressure sodium (HPS) lighting up to 400W; introducing the CXB High-Bay LED luminaire (which halves energy consumption and nearly eliminates maintenance costs, making it a replacement for energy-wasting fluorescent and HID high-bay luminaires); launching the XLamp CXA 3590 LED array (to replace 250-watt metal-halide fixtures), delivering up to 16,225 lumens at 85oC (68% more lumens compared to Cree’s previous brightest array); and expanding the firm’s product line with the new Cree LED 75-watt Replacement Bulb.

Despite the drop in gross margin, net income has risen further, from $36.9m a year ago and $47.3m last quarter to $56.8m. This exceeds the expected $44-50m due to the catch-up benefit from the award in November - under Phase II of the Advanced Energy Manufacturing Tax Credit (48C) program, initiated under the American Recovery and Reinvestment Act of 2009 (ARRA) - of up to $30m in federal tax credits (hence immediately earning credits on qualified capital investments made beginning in fiscal 2013 through fiscal first-quarter 2014).

Cash from operations was $98.8m, up from $69.2m last quarter. However, capital expenditures (for property, plant and equipment) have risen again, from $33.7m to $49.8m (again, excluding about $5m related to patents). Hence, free cash flow rose from $30.8m to $43.7m. During the quarter, cash and investments increased by $95.6m, from $1.024bn to $1.2bn, due to higher profitability, good working capital management, and proceeds from common stock issued in connection with option exercises.

For fiscal third-quarter 2014 (ending 30 March), Cree expects revenue of $390-420m, with order backlog down quarter-on-quarter but in line with seasonal trends in LEDs and Lighting. In particular, LED component product sales should be seasonally down 5-7% due to the Chinese New Year holiday. Revenue should be level for Lighting products (as strong growth in fixtures is offset by lower LED bulb sales to Cree’s channel partner as they look to balance inventory levels). Revenue should also be level for Power & RF products.

Despite this, due to operational improvement and a more favorable Lighting product mix offsetting the lower LED product sales, gross margin should rise slightly to 38.5%. Net income should be $42-51m.

For fiscal fourth-quarter 2014, the trends in the business suggest that Cree is in a good position to grow LED fixtures, LED bulbs and LED components, concludes the firm. “LED lighting remains a largely untapped opportunity and we plan to continue to make significant investments in new products, new channels and building the Cree brand to grow the company as we remain focused on our long-term customer goal of 100% upgrade to LED lighting,” says chairman & CEO Chuck Swoboda.

“For fiscal 2014, we have raised our target to about $145m of property, plant equipment spending [from $120m] to support our new product priorities and provide an incremental capacity, as needed,” says Swoboda. “This increase from the previous forecast is just to make capacity investments to support forecasted growth to the business over the next year.”

See related items:

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Cree's quarterly revenue grows 24% year-on-year to record $391m

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Tags: Cree LED

Visit: www.cree.com