For its fiscal third-quarter 2013 (to end-March), LED chip, lamp and lighting maker Cree Inc of Durham, NC, USA has reported record revenue of $348.9m, up 1% on last quarter and up 23% on $284.8m a year ago (and at the high end of the targeted range of $335-350m, which had been revised upwards from late January’s guidance of $325-345m).
Fiscal Q3/2012 Q4/2012 Q1/2013 Q2/2013 Q3/2013 Revenue $284.8m $306.8m $315.8m $346.3m $348.9m
Recent business highlights that have helped to drive Cree’s improved figures include: introducing the Cree LED Bulbs, marketed at a price “that gives consumers a reason to switch to LED lighting”; launching the XLamp XQ LED family – Cree’s smallest lighting-class LEDs (57% smaller than Cree’s XLamp XB package); and the new CR Series LED Architectural High-Efficiency troffer, which delivers 130lm/W and 90 CRI (color rendering index).
Specifically, by product sector, Power & RF product revenue was $22.7m (roughly level with last quarter’s $22.6m), with gross margin falling slightly from 56.6% to 53%. Lighting product revenue rose by 6% from $122.7m to $130.7m, as strong sales of commercial indoor fixtures and the new Cree LED bulb more than offset seasonally lower outdoor lighting sales in cold weather regions (although gross margin fell from 33.7% to 30.6% due to start-up costs related to the LED bulb launch). LED product revenue fell 3% from $201m to $195.6m, although gross margin rose from 41.9% to 43.8% due to higher LED volumes driven by LED bulbs. Overall gross margin has fallen from 39.2% last quarter to 38.8% (although this is up on 35.6% a year ago).
On a non-GAAP basis, net income was $40.8m ($0.34 per diluted share), up 75% on $23.3m ($0.20 per diluted share) a year ago, and on the high end of the targeted range of $35-41m ($0.31-0.36 per diluted share, which had been revised upwards from $0.30-0.35). The rise was primarily due to the strong sales of lighting products and the firm’s ability to continue to reduce the cost per lumen at the LED chip, package and systems level.
“Our results continue to demonstrate the benefits of being vertically integrated from LED chips through lighting systems, which has enabled us to drive LED lighting adoption,” commented chairman & CEO Chuck Swoboda.
“Cash provided by operations was $46m and capital expenditures were $31m, including $6m related to patents, which resulted in free cash flow of $15m,” said Cree’s newly appointed chief financial officer & executive VP Mike McDevitt. During the quarter, cash and investments rose by $51.2m to $937.1m, due to “solid execution and focused capital spending”. Inventory rose by $10.7m to $195.7m (from 78 days to 82 days on hand) to support new product introductions (specifically, the increase in the lighting business in the LED bulb product brand).
“Overall, the company’s order backlog is ahead of this point last quarter and we are targeting solid growth for the next quarter,” noted Swoboda. “We remain focused on using new product innovation to grow our growth by taking share from traditional technologies,” he added. “The Cree LED bulb is the latest example of what is possible in terms of opening new markets to LED lighting, and creating opportunities for Cree to both increase revenue and build our brand.”
“For fiscal 2013, our first priority in the coming quarter will be to accelerate adoption of LED lighting and increase sales of our indoor and outdoor lighting products,” said Swoboda.
“Our second priority is to drive growth in our LED component product line through innovation by leveraging the SC3 LED technology into a range of customer lighting products. We recently released the XLamp XQ family of LEDs based on our SC3 technology platform, which are 57% smaller than our XB series of power LEDs. This new LED family uses a completely new package design that enables higher-density design, novel optics and lower cost per lumen,” Swoboda added.
“We expanded our CXA series of LED arrays with new higher-output versions from 5000 lumens to over 10,000 lumens,” he continued. “We also set a new R&D record for LED efficacy with a prototype [white] LED that delivers 276 lumens per watt… our track record suggests that we should be able to bring this type of innovation to production LEDs over the next few years.”
Outlook
For fiscal fourth-quarter 2013 (to end-June), Cree expects revenue to rise to $365-385m, consisting of double-digit Lighting revenue growth (driven by commercial fixtures and LED bulbs), single-digit growth in LED product revenue, and Power & RF product revenue up slightly.
On a non-GAAP basis, gross margin should rebound to 39.5%, resulting from increased volumes, cost reductions across product lines, and lower-cost new-product designs. “This builds on the momentum from the last several quarters as we target incremental improvement across product lines, led by gains in factory efficiency due to higher volumes, factory cost reductions and lower-cost new products,” said Swoboda.
Operating expenses are targeted to increase by $5m, mainly to support the media campaign for the Cree bulb launch, seasonal trade shows, and sales & marketing expenses related to the growth in business. Net income is hence expected to rise to $41-47m ($0.34-0.40 per diluted share).
