At Cree LED, the products keep coming out but the sales keep going down

April 11, 2023
It’s been a tough year for revenue, but things could soon turn around, says holding company CEO Mark Adams, as the second quarter tumbles.

Cree LED has been steadily rolling out new products for over a year, but its revenue stream has been another story, as owner Smart Global Holdings Inc. last week reported a precipitous Cree decline for the third straight quarter. SGH did, however, envision a turnaround soon.

Milpitas, Calif.based SGH recorded Cree sales of $55.6 million in its fiscal second quarter ending Feb. 24. The amount was barely half of the $106.8 million in revenue in the same quarter a year ago.

“Cree LED faced ongoing challenges due to soft demand stemming from the current economic environment, which was further suppressed as customers continued working down inventory levels,” SGH CEO Mark Adams told analysts on a conference to discuss financial results at the company, which also owns businesses in high-performance computing and memory components. 

“Given such market conditions, the [Cree] team has focused diligently on cost controls to tightly manage the business and navigate near-term challenges,” Adams said. “While being mindful of spending, Cree LED continues to invest and strengthen as a leader in customer-focused innovation.”

Indeed,  innovations continued in the quarter as Cree introduced three high-brightness,  surface-mounted LEDs aimed at large video displays serving in stadium, airport, and roadway applications, just to name a few. It also introduced a new emitter, the Pro9, in its general lighting XLamp series for which it claimed high color rendering geared toward indoor environments such as retail stores.

Adams said the company’s outsourced manufacturing model and its continued innovations “have us well positioned for recovery,” noting that “we are starting to see signs of improvement in customer demand, and expect revenue to be up modestly in fiscal Q3.”

Both Adams and SGH CFO Ken Rizvi told analysts that the recovery is underway as customers work through inventory and start to buy anew.

SGH did not break out profits for Durham, N.C.based Cree known as the LED Solutions division or for the other two divisions. Cree LED represented 13% of the SGH total. High-performance computing known as the Intelligent Platform Solutions (IPS) division comprised 52%, and Memory Solutions 35%. 

IPS is taking on a growing importance in SGH’s revenue stream. It exceeded 50% for the first time, helped in part by SGH’s acquisition of computing outfit Stratus Technologies, which finalized last August. It was also the only division to grow, as IPS sales soared to $222.5 million from $82.3 million a year ago. Memory tumbled to $151.1 million from $260.1 million in the previous year’s second quarter.

For the corporate total, SGH reported a revenue dip of 4.5% to $429.2 million from $449.2 million,  and a loss of $27.2 million compared to $2.5 million in net income a year ago. SGH did, however, note that gross margins rose by 60 basis points to 25.7% using generally accepted accounting principles (GAAP), and by 28.9% on a non-GAAP basis, which Adams described as a record level for the company.

The downturn in Cree’s LED revenue has come amid what Adams calls the “challenging macroeconomic environment.” 

The slide marks a negative pivot from what was a good start to sales under SGH ownership. SGH closed its acquisition of Cree LED from what had been called Cree Inc. in March 2021. 

By January 2022, Adams said LED sales were “up substantially” compared to sales under the previous owners, as SGH reported first-quarter 2022 sales of $111.9 million.

But the performance soon reversed. By the third quarter of 2022, sales had flatlined in part because of COVID-related lockdowns in China. Things worsened after that. Fourth-quarter 2022 revenue fell to $83 million from $122.8 million in the fourth quarter of 2021.

First-quarter 2023 revenue crashed to $62.5 million from $111.9 million in the year-earlier quarter. Each time, the company cited COVID-related lockdowns in China and other supply chain constraints. In the first quarter SGH also noted that the slowdown had spread to Europe and the U.S.

This past quarter was no easier, with the nearly 50% drop to $55.6 million in revenue. During the course of the decline, a new Cree president stepped in.

But all the while Cree has continued developing new products and bringing them to market, as Adams told LEDs Magazine it would do back in an early 2022 interview. Those products have spanned target markets including displays for various settings and lighting applications such as horticulture, general indoor, and architectural, among others.

The product output has continued in the current quarter, as Cree last month introduced an LED in its J series which it claims has the highest efficacy in the 5050 class of LEDs at 228 lumens per watt measured at 4000K, 70 CRI and 1W. The surface- mounted, 5×5-mm devices, with three diodes per chip, are often used in light strips. 

“Despite the near-term economic uncertainty, we remain optimistic about our competitive positioning in the industries we serve,” Adams said. That includes LEDs.

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.