Cree, on the road toward a new Cree – YOLE’S INSIGHTS

An article written by Hong Lin, PhD. Senior Technology & Market Analyst at Yole Développement (Yole) – On March 15^th 2019, Cree announced the definitive agreement to sell its Lighting Products business unit, (“Cree Lighting”), to IDEAL INDUSTRIES, INC. for approximately $310 million before tax impacts. This is not a real surprise! This news is in line with Yole Développement’s analysis published in our CREE report published one year ago: Cree-Wolfspeed’s Strategic & Competitive Analysis 2018.

Considering the global context in the lighting business in the recent years, we have pointed out that: “Looking forward, it would not be surprising for us if the company decides to separate at least the lighting business. Philips Lighting, OSRAM and GE, for over a century, have dominated global lighting. In the era of cost driven LED general lighting, these companies have adopted new strategies. For example, Philips Lighting shed its Lumileds lighting business and automotive lighting unit, and launched IPO. OSRAM sold its general lighting business LEDVANCE. As lighting is not as sensitive as the Wolfspeed business, Cree’s lighting business could be acquired by Chinese companies who want to enter the international market: a similar situation occurred when MLS acquired LEDVANCE. Or it could be acquired by another US leading lighting player who would like to consolidate its market share.”

Indeed, Cree has had a difficulty in “fixing its lighting business” since FY 2016, as indicated by its financial results of last eight quarters, and the separation is a good decision for Cree.

Cree is clearly following its stated strategy, benefiting from the rise of the SiC and GaN RF market (See both technology & market reports from Yole Développement: RF GaN market report – Power SiC report ). Wolfspeed’s revenue and market share continuously increase. And the company has highlighted it in the text of the announcement, which has attracted our attention:

“…we have grown Wolfspeed by more than 100%, acquired the Infineon RF business, more than doubled our manufacturing capacity of Silicon Carbide materials, and signed multiple long-term supply agreements, which, in aggregate, are in excess of $500 million.”

The long-term supply agreements are interpreted by Yole Développement as the result of the SiC wafer supply constraint. We believe that the initial cash payment of $225 million from the deal will very likely go to further investments in the wafer and epiwafer business to satisfy the escalating demand. We still believe that “SiC wafers are the key for the SiC power market”.

All the other initiatives of Infineon Technologies (with the acquisition of Siltrectra) and STMicroelectronics (with the acquisition of Norstel – Yole Développement’s feedback) will not impact the market in the coming months.

We will certainly have to wait years before seeing a significant impact of these recent strategic moves. Cree and Wolfspeed will definitely stay ahead in the SiC wafer business for the next couple of years.

Finally, it should also be mentioned that Cree has not succeeded in increasing its LED revenue as forecast in their strategy, just as Yole Développement’s analysts expected: “Concerning the LED business, we believe it is challenging to maintain a high growth rate for Cree.”

Is it likely that the LED business will be disposed of in a second step?

According to Yole, the SiC power device market is becoming more and more a module industry. System makers are asking their suppliers to provide them with modules, not devices, as they have neither the time nor the competency to develop modules based on innovative SiC diodes and MOSFET. Cree may, therefore, need at some stage of its development to reinforce its module design and manufacturing capabilities. As Cree now has significantly more cash to play with, time will tell what the next strategic move will be for the world leader in SiC wafer and SiC power devices.

About the author: 

Hong Lin, PhD works at Yole Développement (Yole), as a Senior Technology and Market Analyst, Compound Semiconductors within the Power & Wireless division since 2013. She is specialized in compound semiconductors and provides technical and economic analysis.

Before joining Yole Développement, she worked as R&D engineer at Newstep Technologies. She was in charge of the development of cold cathodes by PECVD for visible and UV lamp applications based on nanotechnologies.

She holds a Ph.D in Physics and Chemistry of materials.