Cree LED sales plummet in first quarter

Jan. 4, 2023
An earlier slowdown in China has spread to Europe and the U.S., triggering cost reductions and honing the focus on specialty LEDs with a possible fiscal third-quarter turnaround in sight.

After chalking up a fast start a year ago under then new owner SGH, Cree LED this week reported a stark reversal in performance as sales for fiscal first-quarter 2023 plunged 44%.

Although the company continued to innovate with new horticultural LEDs and high-intensity chip-on-board products, a slowdown that had previously been contained to China has spread to Europe and the U.S., hitting hard in the quarter ending Nov. 25, 2022.

Sales fell to $62.5 million from $111.9 million in the same quarter in 2022. Whereas a year ago SGH CEO Mark Adams described the results as “up substantially” compared to under previous owner Cree Inc., this year he delivered a much different assessment.

“Cree LED faced continued headwinds in China, with COVID-related policies contributing to supply chain constraints, and impacting demand for the entire industry,” Adams said on a web call with analysts to discuss first quarter results. “In addition to continued softening in China, we are also seeing demand weakness in the U.S. and in Europe.”

SGH has imposed “cost containments” on Cree including a headcount freeze and other measures, Adams noted, while expressing optimism in a recovery that shouldn’t be too far away.

However, he painted a picture of things getting worse before they improve, at least for a short while.

“In Q2, we expect revenue to be lower (than Q1) driven by declining demand and further channel inventory reductions,” Adams said, adding that an LED turnaround could come “hopefully in our third quarter.” In SGH’s fiscal year, the third quarter runs from late February to late May. 

The cost reductions won’t stop the company from continuing to invest in developing LED technologies for what Adams said are Cree’s “key markets” of specialty, high-value applications  “including entertainment and horticulture, premium video applications such as…outdoor lighting designs and high performance general lighting applications such as architectural and street lighting.

“We remain confident in the long-term operating performance of the LED business once macroeconomic headwinds recede,” he noted. 

Adams has been reshaping Cree LED since SGH acquired the company in March 2021, increasing the focus on specialty products while also shifting to new materials and to an outsourced manufacturing approach

Cree changed its top boss last September, as president Claude Demby retired, and former vice president of global operations Joseph Clark took over. 

Durham, N.C.based Cree is known on the SGH books as LED Solutions. It is the smallest of three diverse operating divisions at Milpitas, Calif.based SGH (formerly called Smart Global Holdings), where net sales were down slightly for the quarter to $465.5 million from $469.9 million a year earlier, and net income fell to $5 million from $20 million. 

The high-performance computing division, known as Intelligent Platform Solutions (IPS), reported positive results. Sales soared to $211 million from $118.7 million, in part reflecting the acquisition of Maynard, Mass.based Stratus Computing, announced last July and closed on Aug. 29.  Adams noted that IPS is increasing its emphasis on services, which is a higher-margin business than is products.

Like Cree, SGH’s Memory Solutions division also struggled. Memory Solutions sells memory chips into the consumer market for PCs and phones. Sales fell to $192 million from $239.4 million. SGH does not report separate income for the three divisions.

MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).

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About the Author

Mark Halper | Contributing Editor, LEDs Magazine, and Business/Energy/Technology Journalist

Mark Halper is a freelance business, technology, and science journalist who covers everything from media moguls to subatomic particles. Halper has written from locations around the world for TIME Magazine, Fortune, Forbes, the New York Times, the Financial Times, the Guardian, CBS, Wired, and many others. A US citizen living in Britain, he cut his journalism teeth cutting and pasting copy for an English-language daily newspaper in Mexico City. Halper has a BA in history from Cornell University.