LED Lights At Home

LED lighting leader Cree announced their quarterly and fiscal annual earnings. The numbers are good and come with the usual “record-breaking” spin of earnings announcements. Behind the numbers Cree’s perceptive understanding of the lighting market and creative approaches to overcoming resistance to LEDs is even more impressive.

Cree’s 2009 revenue surpassed half a billion dollars, a 15% gain over 2008. Good stuff. But what was more interesting was to dig into the earnings call transcript at Seeking Alpha.com. Two interesting themes emerged:

1. Lighting is the focus; other markets play a supporting role. A number of the analysts probed about Cree’s business in selling LEDs for backlighting laptops and potentially for TVs, and kept returning to question and push Cree management on how aggressively they are purusing this segment. From the financial analysts’ point of view, these are big markets now, not developing markets that will take some time to mature. From Cree’s standpoint, they are great for capacity utilization, but are short term opportunities. CEO Charles Swoboda kept emphasizing that, no, lighting is the strategic growth opportunity.
2. Lighting is not just about better LEDs and light efficiency, it is about market education and product packaging. Swoboda stated (in as many words) that what keeps him up at nights is that the lighting industry is not used to new technology. He articulated how the learning curve the industry faces imposes higher costs and inefficiency that keeps the lighting industry using the safe, known products and is a potential barrier to conversion to LED lighting. But here’s my favorite line that provides insight into Cree’s real advantage:

“The entire LED industry still thinks about LEDs like we’re semiconductor guys and the lighting industry thinks about them a little different.”

How refreshing that a technology company recognizes that they need to think more like their customer!  He gave an excellent example of a simple packaging of four chips and optics into a system that made it easier for their customers to develop products. The financial analysts should love this: no massive CapEx investments or risky upgrades to 6-inch wafer technology that make obsolete the investment they just made in going from 3-inch to 4-inch. But I’m not sure the number crunchers got the elegance of this approach. 

This also explains programs like Cree’s LEDCity Initiative. Get out of the factory, sit down with the buyer, understand their barriers, adapt products and help implement.

Congratulations on a great year, Cree. I’m betting that 2010 gets even better!