With a fourth consecutive quarterly loss now denting its books, things could be about to straighten out financially for Cree LED.
So said the CEO of Cree owner Smart Global Holdings, Mark Adams. He told analysts that a key indicator suggests revenue could pick up when the company reports results for the ongoing fiscal fourth quarter in about three months, and that Cree’s sales performance could solidify in fiscal 2024.
That would be welcome news for the Durham, N.C. LED vendor, which despite making the most of things in a tough macroeconomic environment reported a 36.7% downturn in sales for its third quarter ending May 26, to $64.1 million from $101.3 million in the same quarter a year earlier.
Cree sells LEDs for use in large displays, outdoor and architectural lighting, horticulture, video gaming, and other applications. While customers have not yet renewed significant ordering activity — many are drawing on LEDs still in stock — they are now conceiving new products, which Adams said should soon lead to increased sales.
“While customers are continuing to work down inventory levels, we are seeing customer design activity improving,” Adams told analysts on a recent call to discuss third-quarter results for all of SGH. “Typically as we go through these cycles, we look for this as a precursor to demand improving. And while we are still in early days in the cyclical recovery of the LED market, we are optimistic that the business will have a stronger fiscal 2024.”
The third-quarter results analysts’ call echoed that of the second quarter, when Adams similarly described customers as working through inventory. In the second quarter, sales had plunged by a more precipitous 48%. This quarter’s 36.7% fall marks an improvement in that sense, although Adams had said three months ago that “we expect revenue to be up modestly in fiscal Q3.” That did not come close to happening on a yearly comparison; however, on a sequential basis, Cree LED sales rose by 15%.
Adams also noted that the LED market in general — not just Cree — has been struggling. Indeed, sales at LED, laser, and sensor maker ams Osram collapsed in that company’s most recent quarter, in part because of LED softness.
Throughout the now year-long stretch of its sales decline, Cree has expressed confidence in the long term by rolling out new products and with innovations that recently earned it three LEDs Magazine BrightStar awards.
“We expect revenue to be up modestly in the fourth quarter,” Adams said, citing factors including innovation, intellectual property, expense controls, and the company’s outsourced manufacturing model — themes that he also cited three months ago.
Milpitas, Calif.–based SGH also includes two considerably larger businesses — one in high-performance computing comprising 45% of company revenue, and another in computer memory, accounting for 39%, leaving Cree LED — called the “LED Solutions” division — with 17%.
Adams outlined a strong future for the high-performance computing group — called Intelligent Platform Solutions (IPS) — based on developments in generative artificial intelligence (AI).
Third-quarter revenues at SGH as a whole fell 17.1% to $383.3 million from $462.5 million on a non-GAAP basis. IPS was the only division to report an increase, to $170.9 million from $95.3 million, strongly buoyed by the acquisition of Stratus Technologies. Non-GAAP income fell 27.8% for the quarter, to $33.1 million from $45.9 million, although non-GAAP gross margins rose 2.3% from a year ago, to 28%.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
Cree LED president Joseph Clark sees silver linings
During LightFair in May, we spoke with Cree LED president Joseph Clark as he accepted the aforementioned BrightStar Awards on behalf of the LED Solutions division. As LEDs Magazine reported back in September 2022, Clark moved from his role as vice president of global operations into the president's office as Claude Demby retired.
Clark gave a broad and optimistic view of the LED unit's prospects further into 2023 and 2024, declaring a focus on opportunities with high-power LEDs and forthcoming extensions to the XLamp family of emitters. "We have a great team, and we're more enthusiastic than we have been in a long time," Clark said, "especially since our new headquarters has opened. Having so many people in the same building in Durham [N.C.] is generating a great spirit to work together and plot out our next innovations."
The SGH company opened its new 85,000-plus-square-foot facility in Research Triangle Park in late June. Clark expects the 42,000 square feet of laboratory space and pilot component production line to "enable a constant stream of performance improvements."
When asked about the company's transition from silicon carbide technology to a sapphire-based material architecture, Clark answered that the move has been "largely completed." He said, "All three of our BrightStar recognized LEDs were produced on the new sapphire platform, and we're confident that demonstrates that customers are getting a better product with a shorter, healthy lead time going forward."
He continued, "SiC was a bottleneck through the pandemic. It was thought out in advance of the transition, and we're getting an opportunity to work with multiple partners to bring innovation to manufacturing [our LEDs]."
To refresh reader's memories: SGH CEO Mark Adams had discussed the move from SiC wafers to sapphire in early 2022 with LEDs' Mark Halper, noting that the breakout of Cree LED from the Wolfspeed organization motivated an overdue change, as that company's radio-frequency communications and high-speed computing chips were more suited to the SiC platform and process than LEDs are. With Wolfspeed no longer directing that manufacturing decision, Adams explained, Cree LED was able to adopt a more cost-effective process with its manufacturing partners. — Carrie Meadows, Editor-in-Chief, LEDs Magazine
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