LED chip, lamp and lighting fixture maker Cree Inc of Durham, NC, USA says that its board of directors has approved the following: a restructuring of the LED Products business; a $500m stock buyback authorization for fiscal 2016; and the fiscal 2016 annual operating plan (which targets increases in revenue to $1.8bn and in non-GAAP operating margin to 8%, as well as free cash flow of about $75m).
Due to recent market trends that have resulted in higher LED average selling price (ASP) erosion than previously forecast and the continued under-utilization of its LED factory, Cree has decided to restructure its LED Products business to reduce excess capacity and overhead in order to improve the cost structure. Additionally, the firm is increasing LED reserves to reflect the more aggressive pricing environment experienced in the current quarter, and to factor in a more conservative pricing outlook for fiscal 2016. Restructuring charges are targeted to be about $85m (comprising $47m in capacity and overhead cost reductions; $27m in channel revenue reserves; and $11m in inventory reserves).
Cree expects most of the capacity and overhead related charges to be reflected in operating expenses for fiscal fourth-quarter 2015 (ending on 28 June), with the balance in fiscal first-half 2016. The channel revenue reserves should be reflected as a reduction in revenue and the inventory reserves as an increase in cost of revenue, both in fiscal Q4.
For fiscal Q4, Cree now targets revenue of $375m (including the $27m revenue reserve):
Lighting Products revenue is expected to increase slightly sequentially, as strong growth in commercial lighting should more than offset a greater-than-targeted seasonal slowdown in consumer bulb sales; Power & RF Products revenue is tracking in-line with targets; LED Products customer unit demand is generally in-line with targets, but the combination of the revenue reserves and lower pricing is forecast to reduce revenue by $35m;? overall gross margin and operating margin are now forecast to be lower than previously targeted due to the restructuring costs, the more aggressive LED pricing environment, and the larger-than-targeted seasonal slowdown in consumer lighting; and during fiscal Q4, Cree completed the previously announced $550m share buyback program by repurchasing 4.8 million shares of common stock at an average price of $33.37 per share (totaling $160m); for fiscal 2015, it repurchased 16 million shares at an average price of $34.33.
