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Cree’s $888 million question

by Stephen Entwistle | 11月 05, 2009

What would you do with $888 million?

  • Expand your manufacturing capacity?
  • Acquire a competitor?
  • Enable the solid-state lighting revolution by moving up the supply chain?
  • Shore up for an expensive legal battle?
  • All of the above?

Such are the options for Cree. The North Carolina company, whose GaN LED chips are selling like very hot cakes indeed, has just posted record quarterly revenues and a pre-tax income of $28.4 million. That merely added to the company’s already swollen coffers, thanks to its September stock offering.

Cree sold 11 million shares at $35.50, doubling its cash balance at a stroke. As much as $900 million will soon be burning a sizeable hole in its pocket.

As Cree tries to keep up with the demand for its high-performance chips, the company needs to seriously expand its manufacturing capacity. It has earmarked up to $165 million to make significant additions to LED production and component packaging facilities. But even that expansion will still leave some $750 million in Cree’s war chest.

With a history of acquisitions, Cree could be scouring the corporate landscape for the kind of company that will help it kick on to another level. Another chip maker perhaps? Cree CEO Chuck Swoboda suggests a different tack entirely. With no obvious gaps in its stable of products (unless you count AlInGaP LEDs), he is looking for a deal that will catalyze the LED lighting revolution, rather than merely service it, thereby enabling the market for Cree’s customers, and their need for LED chips.

There is another reason why Cree might need that pile of cash. As one of the only companies to decline a settlement with the octogenarian academic Professor Gertrude Neumark Rothschild, its lawyers are probably preparing to do battle over key patents relating to GaN chips. These battles can be very expensive and Cree will want to make sure that it has the means to win the case, or at least afford any settlement agreement.

Strategy Analytics’ Strategic Technologies Practice releases regular insights and reports on the compound semiconductor industry, covering GaAs RF, GaN, LED and laser diode technologies and more. To find out more click  --->> HERE

Asif Anwar

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