Once upon a time, there was an LED and lighting company called Cree. As much as any LED provider, Cree innovated. It was known for advances in brightness, in efficiency, and for an impressive collection of patents.
Then one day a Bay Area engineering “solutions” outfit with a 32-year history of going in and out of public ownership as a computer-memory products firm, and which had recently entered the high-performance computing services business, acquired the Cree group that made LED chips.
The strains of the LED business had become such that Durham, NC-based Cree Inc. agreed in October 2020 to sell its Cree LED unit to Milpitas, CA-based SGH (previously Smart Global Holdings) for around $300 million. The sale closed last March. It was Cree Inc.’s second big move out of LED illumination, as it had previously sold its LED lighting and bulb division, Cree Lighting, to Sycamore, IL-based Ideal Industries.
While “Cree” might not be the immediately recognizable name it was back in the…well…Cree days, new owner SGH’s fiscal year 2022 first-quarter results suggest that the Cree LED business has plenty of puff.
SGH this week reported that its “LED Solutions” unit — the financial reporting name for the company’s Cree LED operations — had sales of $111.9M for the three months ended Nov. 26. (You read that correctly — SGH’s fiscal reporting periods do not neatly end on the last day of a month).
In a call with analysts, SGH CEO Mark Adams described the $112M as “up substantially” from the same quarter a year earlier when Cree LED was still part of the broader Cree organization. (Cree Inc.— the North Carolina company — changed its name three months ago to Wolfspeed Inc. to reflect its new focus on the Wolfspeed line of high power semiconductors.)
The moniker “Cree” has not vanished from the SGH stable. The company uses the “Cree LED” brand name in the market - but not in its accounting books.
So who is buying SGH’s Cree LED chips?
“Revenue growth was driven by customer wins with our high-brightness products into the video, architectural, and landscape specialty lighting markets,” Adams told analysts, adding that LED revenue was “in line with our expectations.”
Reading between the lines, margins were healthy, as both Adams and chief financial officer Ken Rizvi suggested to analysts that LED Solutions was a strong factor in the company’s overall GAAP gross margins of 26%, which were up 8% year-on-year. The company’s other lines of business include products and services for high-performance computing and artificial intelligence systems — started via its 2018 acquisition of Penguin Computing — and computer memory products.
Combined SGH revenue for the quarter totaled $470M, with net income of $20M. A year earlier, without LED Solutions, revenue for the first quarter was $291.7M and net income was $2M.
Adams and Rizvi were optimistic about LED Solutions’ future, with Rizvi saying that LED margins should increase to the “low to mid 30% range over time.”
The work to make that happen is already underway through what CEO Adams has labeled a “manufacturing transformation,” scheduled for completion by the end of calendar 2022.
The company is moving toward what Adams calls a “fab-lite” model, outsourcing much of its LED production. CFO Rizvi said the outsourcing will enable “a more flexible operational model to better manage fluctuations of demand and supply.” Like companies across all industries, SGH has had to contend with ongoing, pandemic-rooted global supply chain snags. It seems to have weathered them well. Other companies we track here at LEDs Magazine such as ams Osram, Fagerhult, and Signify have reported varying degrees of supply chain disruptions.
In another manufacturing shift, SGH is switching from silicon carbide to sapphire wafers.
The company has also been investing in new products. In the first quarter, it launched three new products in its “extreme high-power product line,” delivering improvements in brightness and efficiency. It also won commitments for its CV94D products for video displays, used in billboards and traffic signs.
More new wares are coming, as SGH has put color-mixing LEDs on its roadmap, which Adams said it will position for architectural, horticultural, medical, and stage lighting applications.
The changes in manufacturing and in products reflect the experience of Adams, the former CEO of LED outfit Lumileds. Adams joined SGH as boss in August 2020. Two months later, the company agreed to buy Cree LED.
SGH is feeling upbeat enough about its prospects in LEDs and other areas that it announced a two-for-one stock split, effective Feb. 1, 2022. The intermittently private and public company, founded in 1988 as Smart Modular Technologies Inc., last went public in 2017, on NASDAQ.
The Cree story carries on, even if it sometimes goes by other names.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
*Updated Jan. 6, 2022 1:34 PM for parent company executive clarification.
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