19 April 2011

Cree’s profit halved as revenue falls 15%

For its fiscal third-quarter 2011 (ended 27 March), 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 revenue of $219.2m. This is down 6% on $234.1m a year ago and 15% on $257m last quarter (and 10–17% below the original guidance of $245–265m).

“Q3 results were in-line with our revised lower targets for the quarter,” says chairman & CEO Chuck Swoboda. The drop is attributed mainly to lower sales of LED chips and LED components. “The results reflect both our continued success in LED lighting and the challenges of managing the LED chip and components business through a business cycle with short lead-times and low order visibility,” he adds. Cree said in late March that it has taken longer to work through customer inventories than previously anticipated and pricing was lower than forecast, and that the LED chip business was also weaker than targeted due to more aggressive pricing and weaker demand.

On a non-GAAP basis, gross margin has fallen further, from 48.1% a year ago and 47.7% last quarter to 42.4% (below both its revised forecast of 43% and its original forecast of 46%). This is attributed mainly to the increased pricing pressure in the LED chip product line. Likewise, operating margin has also fallen further, from 27.9% a year ago and 26.5% last quarter to 14.9%.

Non-GAAP net income of $30.1m is down 41% on $51.3m a year ago and half last quarter’s $60.7m. Cash flow from operations has fallen from $72.9m a year ago and $57.2m last quarter to $41.2m. So, despite capital expenditure being pared further (from $66m a year ago and $64.7m last quarter to $62.8m), free cash flow has declined further, from $6.9m a year ago and –$7.5m last quarter to –$21.7m. This contributed to cash and investments falling by $37.7m during the quarter, from $1110.8m to $1073.1m (although this is still up on $1066.4m a year ago).

In early March, Cree announced a two-year extension of its strategic agreement with Zumtobel Lighting GmbH (signed in 2008). Since the end of the quarter (in early April) Cree signed a comprehensive, worldwide patent cross-license agreement with Germany’s Osram GmbH (designed to accelerate growth of the LED lighting market).

In late February, Cree launched its XLamp MT-G LED (claimed to be the first LED to deliver the performance required for high-output halogen retrofit applications such as 35–50W MR16 replacement bulbs). Meanwhile, in early April, Cree launched the XLamp XM-L EasyWhite LED (a lower-cost solution for 25W replacement lamps through combining the firm’s color mixing technology in a single high-output, small-footprint package). Also, during the quarter, Cree set what is claimed to be a new industry benchmark for color rendering index (CRI) with the commercial release of its LBR-30 LED lamp.

“We continue to be a leader in LED lighting and remain confident we are on the right track as we look forward to further disrupting the market and leading the LED lighting revolution in the years ahead,” believes Swoboda.

Swoboda said in late March that the LED components business “appears to be turning the corner... Despite the challenges we faced in Q3, distributor sell-through has improved and we target solid growth”. For fiscal fourth-quarter 2011 (ending 26 June), Cree expects revenue to rebound to $225–245m, but gross margin to fall further to 40%. Non-GAAP operating expenses are expected to rise by about $0.5m to $61m. Non-GAAP net income is targeted to be $28–35m.

See related items:

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

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