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19 January 2007


Cree's revenues fall more than expected due to lower LED chip sales

For its fiscal second-quarter 2007 (to 24 December 2006), Cree Inc of Durham, NC, USA has reported revenue of $88.8m, down 15% on $103.9m the previous quarter and 16% on $105.6m a year ago (and lower than the $90-92m forecast in early December). Net income was $16.5m (down from $17.7m a year ago, but up from $13.3m last quarter) ­ however, much of this was due to the sale of marketable securities.

Gross margin was 34% (down from 49% a year ago and 41% last quarter). This is mainly due to lower factory utilization associated with the decline in LED chip orders, increased pricing pressure for LED chips, and higher start-up costs related to new product lines. Operating profit was just 3.5% of revenue (down from 16% last quarter). Cree's share price has fallen from a 52-week high of $35.30 in May 2006 to a recent 52-week low of $15.25.

"As we announced in early December, the second quarter was more challenging than we had targeted with lower LED chip sales," says chairman and CEO Chuck Swoboda. "Despite the challenges in the LED chip business, we continued to make progress on our strategy to expand our business by leveraging our strengths in LED chip and SiC materials technology to broaden our product line with higher-value, component-level products for the emerging markets in LED lighting and power," he adds. "Our new product lines delivered double-digit growth in Q2, with LED component sales increasing to more than 10% of total LED revenue for the first time. The growth in these new product lines is an important, leading indicator of how we plan to grow the company over the next several years."

During the quarter, Cree began volume shipments of its newest white Cree XLamp 7090 power LED, which has luminous flux of up to 95 lumens (an efficacy of 85 lumens per watt) at 350mA and up to 160 lumens at 700 mA. New customer wins have already been secured, Cree says.

Cree also signed a global distribution agreement with electronic components distributor Arrow Electronics to sell XLamp products ("an important piece of our strategy to expand sales of our component products") and recruited
Robert Pollock (VP of sales at rival LED maker Philips Lumileds) as senior VP of Worldwide Sales.

For its fiscal Q3/2007, Cree expects revenue level with Q2.