News

11 August 2006

 

Despite record annual sales, Cree's profits down after LED production problems

For its fiscal 2006 (to 25 June), Cree Inc of Durham, NC, USA, which makes LED and microwave chips as well as SiC wafers, has reported record revenue of $423m, up 10% on fiscal 2005's $384.5m. However, fourth-quarter revenue
of $106.7m (though up 9% on $98.2m a year ago) is down 1% on last quarter's record of $107.7m and at the low end of its target of $106-110m. These fourth-quarter figures confirm Cree's preliminary financial results, reported mid-July. See related item.

CEO and chairman Chuck Swoboda had previously warned in April that unexpectedly high demand from mobile applications meant that chip output was capacity-limited while it was transitioning from 2" to 3" wafers and from
its Durham fab to its new fab in Research Triangle Park, NC and starting up production of high-power products.

Also, net income has fallen from $91.1m in fiscal 2005 to $76.7m in fiscal 2006. For fiscal Q4, net income has fallen from $21m a year ago and $24m last quarter to $13.2m, well below its target of $17-19m.

Cree also confirmed mid-July's warning of a drop in gross profit margin from 48% last quarter to 42% (below Cree's targeted range of 46-47%), which it said at the time was due mainly to "lower LED revenue as a proportion of
total sales, a less favorable mix within the LED product line, and incrementally higher production costs associated with new products".

"Although the fourth quarter was more challenging than we expected, we remain optimistic that we can 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," said Swoboda. "These markets are projected to grow rapidly in the coming years as the global need for more energy-efficient and
environmentally sound technology increases. While this strategy may limit our operating results in the near term, we believe these investments are critical to put Cree in position to increase shareholder value over the next
several years."

Cree said in mid-July that it anticipates that, for fiscal Q1/2007, LED chip sales may decline slightly due to a recent slowdown in demand for mobile products, but this should be mostly offset by increased sales of its XLamp
LED and Schottky diode products. Cree now targets fiscal Q1/2007 revenue of $102-106m.

  
Visit: http://www.cree.com