Perhaps the most telling part of the investor call was not statements from the Cree executives, but rather questions from the investors. During the 24 APR Cree conference call with investors, your humble editor counted 16 questions regarding products or businesses during the Q&A session. Of those 16 questions, only three were related to LED or Lighting. And of those three questions, none give a warm and fuzzy feeling about our industry. The first question dealt with the $15 M OpEx reduction in Lighting. The second question asked details about reallocating capacity from Lighting to Wolfspeed. Not only are the investors relatively disinterested in lighting, the interest they do have is how a smaller Lighting/LED business can help Wolfspeed.
We did find some positive news for Lighting and LED:
- “For LED Products, we concluded from the strategic review process that the business could drive value through greater focus. We have an incredible brand, a great channel and a tremendous amount of IP, positioning us as a leader in high-power technology.”
- “Going forward, we’re going to take those capabilities and focus them in areas like automotive lighting and application-optimized solutions that are stickier and have an opportunity for us to create more value, enabling us to deliver modest revenue growth and gross margin expansion and resulting in great free cash flow generation.”
- “Moving on to lighting. The single objective coming out of the strategic review process was to fix the business. We’ve made significant changes to our design and product release methodologies, resulting in great initial revenue traction on new products and lower warranty claims.”
- “We’ve also improved relationships with our channel and distribution partners, giving us a larger footprint and a better customer-facing presence.”
- “Gross margins improved more than 300 basis points quarter-over-quarter, and we target higher revenue and additional margin improvement in Q4. This is being driven by a combination of factors, continued improvements in quality, better channel engagement and increasing demand for our new products.”
- “In Q3, the hard work of the past year started to pay off. And while it’s still early, it feels like the business is turning a corner.”
On the minus side for LED/Lighting:
- “During Q4, we are implementing a plan to rightsize our Lighting Products resources to align with our business strategy. We target incurring a $7 million, plus or minus, GAAP restructuring charge as part of this effort that will be excluded from our non-GAAP targets. The restructuring plan is aimed to be fully implemented before the end of the September 2018 quarter, after which we target fully realizing $15 million in annual operating expense reductions.”
- “We’ve also combined our sales team in the Wolfspeed and LED semiconductor organizations under the leadership of Thomas Wessel.”
- “Reallocate some manufacturing capacity from LEDs to Wolfspeed.”
- “The company’s new strategic plan will create a pretty significant transformation. Wolfspeed, our smallest and most profitable business today, will become our largest and most profitable business over the time frame of the long-range plan, roughly quadrupling in revenue by 2022. Our LED business will see modest growth by focusing on stickier sub-segments. And our lighting business will also see modest growth from where we’re at today with a focus on improving quality and margin.”