17 November 2020
Cree’s revenue rebounds in September quarter
For fiscal first-quarter 2021 (ended 27 September 2020), Cree Inc of Durham, NC, USA has reported revenue of $216.6m, down 11% on $242.8m a year ago but up 5% on $205.7m last quarter, and at the high end of the $203-217m guidance, despite ongoing macro-economic headwinds.
By segment, LED Products revenue was $101.1m (47% of total revenue), down 12% on $115.1m a year ago but up 4% on $97.3m last quarter.
Revenue for Cree’s Wolfspeed silicon carbide materials and silicon carbide (SiC) power device & gallium nitride (GaN) RF device business was $115.5m (53% of total revenue), down 10% on $127.7m a year ago (due to continued soft global demand, largely related to the COVID-19 pandemic) but up 6.5% on $108.4m last quarter (driven by continued demand in the power device business and better performance in the materials and the RF device businesses).
Wolfspeed gross margin was 36.6%, down on 46.3% a year ago but up from 35.3% last quarter, driven by yield and cost improvements in the power & RF businesses, partially offset by lower utilization in the SiC materials business. Gross margin also continues to be dampened by the firm’s continued COVID-19 safety measures.
LED Products gross margin was 22.2%, down from 22.8% last quarter but still up on 19.2% a year ago. “LED executed well despite ongoing challenges in the market,” comments chief financial officer Neill Reynolds.
Consolidated company gross margin, on a non-GAAP basis, was 27.1%, down on 31% a year ago but up from 26.4% last quarter.
Operating expenses (OpEx) were $87m (40.2% of revenue), up from $83m last quarter and $84m (34.6% of revenue) a year ago.
Net loss has worsened further, from $3.6m ($0.03 per diluted share) a year ago and $20m ($0.18 per diluted share) last quarter to $21.3m ($0.19 per diluted share), but this is better than the guidance of $22-26m ($0.20-0.24 per diluted share).
Cash generated from operations was just $400,000 (down from $10.5m last quarter). Capital expenditure (CapEx) has again risen substantially, from $43.1m a year ago and $70.2m last quarter to $115.9m. Free cash outflow was hence -$115.5m (almost double the -$59.7m last quarter).
During the quarter, cash and short-term investments hence fell from $1251.7m to $1138.5m. Cree has zero withdrawn on its line of credit, and convertible debt with a total face value of $1bn.
“Our balance sheet remains strong in the face of an uncertain environment, with more than $1bn in liquidity to support our target R&D and sales & marketing spend, as well as our capacity expansion plans,” says Reynolds.
On 18 October, Cree agreed to sell its LED Products business unit (Cree LED) to SMART Global Holdings Inc for up to $300m. Specifically, Cree expects to receive an initial cash payment of $50m upon closing plus $125m upon maturity of a seller note issued by SMART to Cree due August 2023, plus an earn-out payment of up to $125m based on Cree LED’s revenue and gross profit performance in the first full four quarters after the transaction’s completion (also payable in the form of a three-year seller note). The transaction is subject to required regulatory approvals and satisfaction of customary closing conditions, and is targeted to close in calendar first-quarter 2021. SMART will subsequently license and incorporate the Cree LED brand name into the SMART portfolio of businesses. Given its pending sale, the LED Products business is now classified by Cree as a discontinued operation.
The agreement to sell the LED Products business unit follows Cree’s sale in May 2019 of its Lighting Products business unit (Cree Lighting, including the LED lighting fixtures, lamps and corporate lighting solutions business for commercial, industrial and consumer applications) to Ideal Industries Inc of Sycamore, IL, USA.
“Our recent announcement to sell the Cree LED business to SMART Global Holdings is an important milestone in our transformational journey,” says CEO Gregg Lowe. “The divestiture establishes Cree as a pure-play global semiconductor powerhouse, with a strong financial profile and positions us well to continue to lead the industry transition from silicon to silicon carbide,” he adds. “This transaction sharpens our focus exclusively on our innovative Wolfspeed business.”
“In RF devices, we continue to execute and build our backlog,” says Reynolds. “We’re pleased by the early signs of strengthening demand that we’re seeing and remain confident in the 5G transition despite delays in certain regions,” he adds. “While regulatory delays and headwinds related to the pandemic impacted some roll-outs in Europe and the USA, momentum is building across the globe,” says Lowe. “We’re still in the early phases of what we expect to be a multi-year growth opportunity for GaN, as 5G momentum picks up.”
“In power, we are pleased by the momentum we’re seeing for our products,” Reynolds. “As well as the improving supply dynamics we experienced in the quarter (which are still below normal levels), our technology continues to gain traction, particularly in the automotive industry. We’re seeing a number of positive developments in the space and continue to have productive dialogues with current and prospective customers,” he adds.
“Our sales team continues to convert pipeline opportunities at an impressive rate,” says Lowe. In fiscal Q1/2021, Cree secured about $700m worth of design-ins for Wolfspeed, exceeding fiscal Q4/2020’s company-wide performance of $600m. Over the last three quarters, more than half of the design-ins are for automotive customers. The rest are spread across communications infrastructure, aerospace & defense, energy and industrial applications.
“Our partnership with [distributor] Arrow Electronics is continuing to drive broad awareness of the benefits of silicon carbide across numerous industrial and other applications. We are particularly pleased with the demand traction we are seeing from our coordinated efforts around the release of our new 650V SiC MOSFET platform,” says Lowe. “We’ve already exceeded our target of $750m of increased pipeline identification, as customers are looking to leverage the benefits of this technology across a wide range of end products, ranging from plasma generators to electric motorcycles and electrosurgical instruments,” he adds. “The Arrow team is also helping us extend our sales reach into new markets. For example, they’ve identified opportunities in 43 countries for a 650V platform. And in more than half of those countries, we did not have a dedicated salesperson.”
Cree’s growing pipeline [for the device business] is now well over $10bn for Wolfspeed alone, anchored by opportunities in the automotive, communications, industrials and energy industries. “In support of this effort, we continue to expand our product portfolio, with the launch of 13 new products in the first quarter alone,” says Lowe.
In materials: “We saw some better order flow in the quarter and we’d expect this trend to continue modestly throughout the remainder of fiscal 2021,” says Reynolds.
For fiscal second-quarter 2021 (for continuing operations, i.e. Wolfspeed only), Cree targets revenue growth to $118-124m.
Gross margin is expected to be 34-36%. Excluding the impact of $4m of corporate items, Wolfspeed gross margin should rise to 37-39%, driven by continued improvement in yields, factory efficiency and increased utilization in the materials business.
Operating expenses are targeted to be $77-79m. “The gradual ramp in our operating expenses is fueled by our investment in R&D including development projects at our [new] Mohawk Valley fab, as well as increased sales & marketing expenses as we pursue new opportunities,” notes Reynolds. “We remain focused on prudent expense control as we look to balance our operating expenses with investments to fuel future growth."
Net loss is expected to rise further, to $25-30m ($0.23-0.27 per diluted share).
“We anticipate the safety measures we’re taking to protect our employees will continue to impact factory outputs in the near term. Longer term, we expect our capacity expansion plan will help drive scale and margin expansion,” says Reynolds.
“We remain committed to investing in our growth and continue to expect net CapEx of about $400m [in full-year fiscal 2021] to support our capacity expansion plans. We expect fiscal 2021 to be our peak investment year to ensure we can ramp production and meet supply needs as electric vehicle (EV) deployments commence beginning calendar 2023,” says Reynolds.
“Our results demonstrate how silicon carbide is building momentum across key end markets… We remain well positioned to execute on our growing Wolfspeed pipeline,” believes Lowe. “Our capacity expansion plans remain on track and will help us in our overall effort to drive the industry transition from silicon to silicon carbide and gallium nitride,” he adds.
“Our Mohawk Valley fab and materials facility in Durham allow us to scale our business, improve productivity and deliver on our customer commitments,” concludes Reynolds.
See related items:
Cree selling LED business to SMART for up to $300m
Cree’s quarterly revenue falls 10%
Cree prices offering of $500m convertible senior notes
Cree’s quarterly revenue falls less than expected as LEDs counteract China-related trade, 5G and EV issues
Cree’s LED revenue down 22% year-on-year due to soft market and China trade and tariff concerns
Delphi partnering with Cree for automotive silicon carbide devices
Cree completes sale of Cree Lighting to Ideal Industries