Cree Slows the Move to Larger Wafer Manufacturing

On February 6th, LED manufacturer Cree slowed down the pace of shifting to larger wafer manufacturing in order to maintain higher plant utilization and profitability.

Although the LED lighting market continues to grow, it is still in the early stages of development. The excess supply of LED chips in the supply chain has dampened overall demand and has also led to price declines.

Cree has already started the transfer of wafers from 100 mm (4 inches) to 150 mm (6 inches) wafers, which will help boost production and productivity and reduce chip prices. However, Cree CEO Chuck Swoboda said that the transfer will be delayed in order to control costs. The move to larger wafer fabrication is expected to take place in the next three to six quarters.

As of the end of Christmas in the last three months of 2011, Cree has achieved a total revenue of US$304 million, an increase of 18% year-on-year, mainly due to the recent acquisition of Ruud Lighting by Cree. However, sales of Cree's LED products decreased by 8% year-on-year during this period.

During the quarter, Cree’s sales of lighting products reached US$95.7 million, while the quarterly lighting sales between Ruud acquisitions were approximately US$20 million.

Swoboda said: "The second quarter performance reflects the strength of our lighting product line and the strong growth of indoor and outdoor product sales. In such a continuously difficult market environment, the performance proves that our strategy is feasible."

LED manufacturer SemiLEDs said that an extremely significant trend in solid-state lighting emerging markets is the continued sharp decline in the average price of LED chips. This is good news for potential customers, which helps to increase the application of LED products in the field of general lighting, but it is a great disadvantage to chip manufacturers.

The drop in the price of LED chips also affected Cree. Cree announced that its GAAP net income was US$12.1 million, which was a significant drop from US$49.8 million a year ago. Gross profit margin also dropped from 47% in the same period last year to below 35%.

Swoboda admitted that the market situation is indeed more difficult, he expects the sharp decline in the average price of LED chips will make some of the industry manufacturers have been eliminated. Swoboda said: "Although the difficulty of the LED market makes our performance worse than the previous year, but also stimulated the decline in lumens prices, promoted the adoption of LED, and may force weaker companies to integrate or withdraw from the market."

Swoboda also introduced Cree's newest product, XLamp XB-D. The XLamp XB-D is half the size of previous products, and its lumen-price ratio is twice that of the LEDs sold in the market before, which can significantly reduce system costs in almost all lighting applications. The XLamp XB-D uses Cree's traditional silicon carbide substrate, which can achieve up to 139 lumens per watt for cool white light and up to 107 lumens per watt for warm white light. Swoboda said XB-D is the most important LED chip Cree has released in the past two years. Cree plans to start production of the first commercial design using the XLamp XB-D chip in June (the last month of the current fiscal year).