CREE Has Reported Revenue of $1.16bn, up 18% on $988m for Fiscal 2011

For full-year fiscal 2012 (ended 24 June), Cree Inc of Durham, NC, USA has reported revenue of $1.16bn, up 18% on $988m for fiscal 2011. This consisted of $757m for LED products (components, chips and materials), $335m for lighting products (indoor and outdoor LED lighting products, plus traditional lighting systems), and $73m for power & RF products.

Fiscal fourth-quarter 2012 revenue was a record $306.8m, up 26% on $243m a year ago and 8% on $284.8m last quarter. “Revenue was slightly higher than the midpoint of our target range [$295-315m] as LEDs, lighting and power & RF delivered solid growth,” says chairman & CEO Chuck Swoboda.

Specifically, revenue from power & RF products was $21m (up 21% on $17.3m last quarter), driven by growth in both product lines. Revenue from LED products was $185m (up 23% on $180.9m), driven by growth in LED components. Revenue from lighting products was $101m (up 16% on $86.5m) after seeing the initial benefits of new product launches and after regaining momentum with sales agents.

In fiscal Q3, Cree transitioned to new agents during the integration with Ruud Lighting Inc of Racine, WI, USA (acquired in August 2011), causing greater-than-expected disruption to the project pipeline). Nevertheless, during Q4 Cree enabled the largest municipal street lighting project in China, as the Beibei district of Chongqing completed the installation of 20,000 street lights featuring 1.9 million Cree LEDs.

Also during fiscal Q4, Cree launched its CS Series LED linear luminaire (to deliver fast payback to low-bay lighting applications) and expanded its CR Series LED downlights (offering high performance and low prices for mainstream residential and commercial lighting applications). The firm also introduced the XLamp XP-G2 LED to deliver luminaire manufacturers up to 20% more lumens per watt and 2.5 times the lumens-per-dollar over the firm's original XP-G LED.

''We finished the year strong in our fiscal fourth quarter with record revenue and non-GAAP earnings per share on the high end of our target range," says Swoboda.

On a non-GAAP basis, although still down on 38.8% a year ago, gross margin has risen from 35.6% last quarter to 36.3% (slightly above the targeted 36%), driven by slightly higher factory utilization, factory cost reductions, and lower-cost new products. Nevertheless, full-year gross margin has fallen from 44.7% in fiscal 2011 to 36.1% in fiscal 2012 (specifically, 30.9% for lighting products, 38.4% for LED products, 43.9% for Power & RF products).

Operating expenses have risen from $76.9m last quarter to $81.4m. In particular, R&D expenditure rose $900,000 to $34.3m, while SG&A (selling, general & administrative) expenditures rose $3m to $45.7m. However, although down from 13.5% a year ago, operating margin has rebounded from 8.6% last quarter to 9.8%.

Net income was $29.2m, down 4% on $30.6m a year ago but rebounding from $23.3m last quarter and on the high-end of the targeted range. Full-year net income has fallen from $187m for fiscal 2011 to $109m for fiscal 2012.

Cash flow from operations has recovered from $48.3m last quarter to $72m in fiscal Q4. Capital expenditure has been reduced from $26m to $25m. Hence, free cash flow has more than doubled, from $22m to $47m. Also during the quarter, Cree repurchased 500,000 shares at an average price of $23.98 per share. Consequently, cash and investments rose by $34m to $745m.

''We had good success in fiscal 2012 with lower-cost LEDs and lighting systems that doubled the lumens per dollar,'' says Swoboda. ''We are currently building sales momentum for these new products, while we work on next-generation designs to deliver even higher performance and better value to the customer.'' In fiscal Q4, Cree unveiled a 170 lumen-per-watt prototype LED light bulb that aims to optimize performance, lower cost, and drive LED lighting adoption.

''As our new lighting products close the price gap with conventional lighting, and we expand our sales & marketing reach for these products, we target faster paybacks to drive increased adoption, sales growth and incremental improvement in product margins,'' says Swoboda.

''Both the LED and lighting product lines are operating with short lead times, which is similar to the previous few quarters, and adds additional variability to our forecasts,'' says Swoboda. ''The macroeconomic environment has also made some of our customers more cautious in the near term, which is in line with what some of the major electronic component distributors have recently stated,'' he adds.

For fiscal first-quarter 2013 (ending 23 September 2012), Cree targets revenue of $305-325m, consisting of solid growth in lighting (driven by indoor and outdoor product sales); flat LED product sales (with strength in new products offset by macroeconomic weakness as customers continue to maintain low inventory levels); and Power & RF sales in line with fiscal Q4.

''As we start the new fiscal year, we target incremental margin improvement through factory cost reductions, process improvements and lower-cost new product designs,'' says Swoboda. Building on momentum from the last two quarters by delivering higher revenues on a similar cost base as fiscal Q4, Cree expects gross margin to rise further, to 37%. Operating expenses should rise by $1m (targeting increased R&D spending to support expanded new product development. Net income is expected to be $27-33m.

''For fiscal 2013, we are continuing to actively manage our capital spending,'' says interim chief financial officer Mike McDevitt. “In the near-term, we target similar levels of investment as Q4 to support our strategic priorities to lead the market, drive adoption of LED lighting, accelerate cost reductions, and support incremental capacity as needed.''