There’s a guitar hanging on the wall in the CEO’s office at Cree LED’s new owner SGH in Milpitas, CA. It’s a signed gift from singer songwriter Matt Nathanson, known for his 2008 hit Come On Get Higher. The tune had nothing to do with LEDs. But by coincidence, the title reflects what’s been quietly going on at Cree.
As LEDs Magazine reported last month, SGH boss Mark Adams described fiscal first-quarter LED sales of $112 million as “up substantially” from the same quarter a year earlier, when Durham, NC–based Cree still belonged to previous owner Cree Inc., now called Wolfspeed Inc. An LED profit margin that is trending toward the “low mid to 30% range over time” contributed significantly to SGH net income of $20 million for the quarter. SGH’s other operations include high-performance computing and memory modules; combined sales across the three divisions were $470 million.
The results at Cree LED were an eye opener, as the once high-profile LED pioneer had been flying under the radar since the SGH acquisition, which closed in March 2021.
In a recent interview with LEDs, Adams explained that Cree has been focused on making specialty LEDs for customers in the architectural, stadium, video display, horticultural, medical, and emergency vehicle sectors, among others.
As we noted in writing about the emphasis on made-to-spec products, Adams provided plenty of other reflections on changes that SGH has implemented or is contemplating with Cree health in mind. For example, he explained how lasers could play more of a role.
We also said in that story that we’d bring you more later. With that in mind, one factor influencing the upward trend in margins has been the company’s decision to largely outsource chip manufacturing. The decision wasn’t necessarily made out of a flash of brilliance. Rather, a certain practicality in the acquisition forced the issue.
“This was a carve-out,” Adams noted. “We didn’t get the factories.”
Nonetheless, the classic economics of outsourcing appear to be paying off. “LED manufacturing capacity is dramatically oversupplied,” Adams said, pointing out that Chinese subsidies of plants, combined with Osram’s opening of a massive factory in 2017 in Kulim, Malaysia has provided an advantage to outsourcing buyers. “Demand has not kept up with supply. We can go out and drive really good costs from the people who own that capacity and help our overall cost structure.”
Adams declined to say who Cree is using for manufacturing, other than to characterize the supplier as “one of the largest manufacturers of LED products in the world.”
Another shift that has taken place since SGH took over has been the move from using silicon carbide (SiC) wafers to sapphire wafers. As Adams explained, the transition — which is in process but not fully complete — was simply overdue. As the former Cree Inc. began de-emphasizing LEDs in favor of its high-speed radio frequency communication chips, it prioritized SiC, a material better suited for the RF line.
Adams noted that sapphire is a superior material for the cost-effective production of LEDs and is commonly used by LED producers.
The SGH boss might never have had the chance to redirect Cree had it not been for a twist of fate. When Adams was CEO of rival LED maker Lumileds, he wanted to acquire Cree LED, but Lumileds owner Apollo Global Management wasn’t interested. Adams left Lumileds in 2019.
Opportunity came knocking when SGH’s former private owners, Silver Lake Partners, solicited Adams’ opinion of Cree when Silver Lake was contemplating acquiring the Durham outfit.
One thing led to another. Silver Lake brought Adams in as CEO of SGH (now a publicly held company) in August 2020. Two months later, SGH agreed to acquire Cree LED. The transaction closed last March.
Based on the sounds coming from Milpitas, the newly joined parties so far seem to be strumming good harmonies.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
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