For fiscal third-quarter 2014 (to end-March), LED chip, lamp and lighting maker Cree Inc of Durham, NC, USA has reported revenue of $405.3m, down 2.4% on $415.1m last quarter but up 16% on $348.9m a year ago.
Fiscal Q3/2013 Q4/2013 Q1/2014 Q2/2014 Q3/2014 Revenue $348.9m $375m $391m $415.1m $405.3m
Specifically, by product sector:
Power & RF product revenue was $27.4m, up 4% on $26.4m last quarter and 21% on $22.7m a year ago (remaining about 7% of total revenue). After rising to 58% last quarter, Power & RF product gross margin has fallen to 57.1%, although this is still up on 53% a year ago due to higher sales, cost reductions and higher factory utilization. LED product revenue (LED components, LED chips and SiC materials) was $201m, down 6.5% on $215m last quarter but up 3% on $195.6m a year ago (though still falling from 56% of total revenue to 49%). LED product gross margin has risen further, from 43.8% a year ago and 45.4% last quarter to 45.6%, due to a combination of higher sales, lower-cost new products, cost reductions and higher factory utilization. Lighting product revenue was $176.7m, up 1.7% on $173.7m last quarter and 35% on $130.7m a year ago (rising from 37% of total revenue to 44%), driven by double-digit growth in lighting fixtures. After rising to 27.9% last quarter, Lighting product gross margin has fallen to 27.4% (down on 30.6% a year ago), slightly below target as LED bulb price reductions offset a more favorable product mix. LED bulb cost reductions that support the lower price points have already being implemented and are targeted to benefit fiscal Q4.
Overall gross margin (on a non-GAAP basis) has fallen further, from 38.8% a year ago and 38.2% last quarter to 37.8% (rather than the expected rise to 38.5%). Operating expenses were about $100m.
Net income was $47.7m, down from $56.8m last quarter but up from $40.8m a year ago.
Cash from operations was $60.2m, down from $98.8m last quarter but up on $45.8m a year ago. However, after rising to $49.8m last quarter, capital expenditures (for property, plant and equipment) have fallen back to $36.2m (again, excluding about $5m related to patents). Hence, free cash flow rose fell back from $43.7m to $19.3m (though still up on $15m a year ago).
During the quarter, cash and investments rose by $39m to $1.2bn, which "puts us in a great position to increase the level of capacity investments over the next year," says chairman & CEO Chuck Swoboda. For fiscal 2014, Cree has raised its property, plant & equipment (PPE) expenditure target again, from $145m to $175m (after raising the target from $120m just last quarter), in order to support new-product priorities and to provide incremental capacity, as needed, primarily to make capacity investments to support forecasted growth over the next year and infrastructure investments to support longer-term forecasted growth," Swoboda adds.
"Fiscal Q3 was a solid quarter as revenue and operating income were in line with our target range and the business is well positioned to grow in fiscal Q4," says Swoboda. "These results once again demonstrate our ability to deliver strong operating results while continuing to make longer-term investments in new technology."
"Factory utilization remains high; we're expanding capacity in the short term and making investments for the mid to longer term," says Swoboda. "Execution is a critical factor to supporting growth in all three product lines, which continue to operate with short lead times," he adds. "We're raising our inventory days on hand target from 80 to 90 days to reflect the increased lighting mix as we plan greater flexibility to support our quick-ship program and better service our sales channels."
For fiscal fourth-quarter 2014 (ending 29 June), Cree targets revenue growth to $430-460m, with growth in all three product segments, led by double-digit growth in lighting in both LED fixtures and LED bulbs, single-digit growth in LED products, and slightly higher Power & RF sales. Gross margin is expected to fall slightly to 37.5%. Operating expenses should rise by $7m, due mainly to the higher sales cost associated with higher targeted revenue, the marketing cost to support two major lighting trade shows within the quarter, increased patent-related legal cost, and a slight increase to Cree brand spending. Even with the increased investment, Cree targets operating profit to grow sequentially faster than sales. Net income should be $46.5-54.6m.
"We continue to take advantage of the global shift to LED lighting and our strategy to use new product innovation to drive our growth by taking share from traditional technologies," says Swoboda. Cree lists the following recent business highlights:
introduced SmartCast Technology, the first self-programming wireless lighting-control system that reduces energy consumption by more than 70% (compared with traditional fluorescent luminaires) at half the cost of traditional lighting controls; launched the new ZR Series LED troffer, delivering significant energy savings, superior color quality and an ultra-slim package starting at only $99; lowered prices of the Cree LED Bulb product line by as much as 23%, and introduced the first 100W-replacement LED bulb to look and light like a light bulb; demonstrated 303 lumens per watt from a white high-power LED (first LED component to break the 300lm/W performance barrier); demonstrated the first 200lm/W LED concept luminaire (more than twice the efficiency of the best linear fluorescent luminaires); introduced three new CXA high-density LED arrays that double the light output of existing CXA LED arrays, enabling the complete replacement of ceramic-metal-halide (CMH) light sources; and released the XLamp XB-H LED, the brightest discrete in Cree's high-density (HD) class of LEDs.
"The strategy is working and we are well-positioned to continue growing our business in fiscal 2015 as LED adoption increases," says Swoboda.
"We are also in the process of working at potential strategic opportunities to expand the Cree product portfolio and gain access to new customers," says Swoboda. "Some opportunities may emerge over the next 24 months to leverage the Cree brand as the shift to new technology accelerates and industry begins to go through a consolidation phase," he adds. "The strength of our operating model gives us the flexibility to make these investments and continue to maintain a strong balance sheet to support the future growth as we remain focused on our long-term customer goal of a 100% upgrade to LED lighting.
