Filing summary
Registrant: The filing is for Cree, Inc. (now associated with the Wolfspeed name), not a company identified in the filing as Wolfspeed, Inc. It is a Form 10-Q for the fiscal first quarter ended September 26, 2010; the comparable quarter ended September 27, 2009. Financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and financial results
Cree developed and manufactured semiconductor materials and devices based primarily on silicon carbide and gallium nitride. LEDs generated most revenue; the company also sold power and radio-frequency products. It reported one business segment.
| Metric | Quarter ended Sep. 26, 2010 | Comparable 2009 quarter |
|---|---|---|
| Revenue | $268.4 million | $169.1 million |
| Gross profit / margin | $130.5 million / 48.6% | $73.8 million / 43.6% |
| Operating income | $73.4 million | $26.7 million |
| Net income | $58.0 million | $21.0 million |
| Diluted earnings per share | $0.53 | $0.23 |
| Cash from operations | $88.5 million | $61.2 million |
Revenue increased 59% year over year. LED products contributed $244.4 million, up 57%, and power and RF products contributed $24.1 million, up 84%. Management attributed the higher gross margin mainly to product mix and improved production yields. The effective tax rate was 23%, versus 26%, reflecting the Malaysia tax holiday, income mix across jurisdictions, and tax credits.
Cash, liquidity and capital
- Cash, cash equivalents and short-term investments totaled $1.099 billion at quarter-end, compared with $1.066 billion at June 27, 2010. Working capital was approximately $1.3 billion.
- Operating cash flow was $88.5 million. Investing activities used $83.2 million, including $61.6 million of property and equipment purchases; financing activities provided $9.7 million. Cash and cash equivalents rose $15.2 million during the quarter.
- The company stated it had no debt or lines of credit and minimal lease commitments. It expected available liquidity and operating cash flow to meet needs for at least the next 12 months.
- Capital expenditures were $61.6 million, versus $20.4 million in the prior-year quarter. Management targeted $250–$260 million of fiscal 2011 capital expenditures for capacity expansion.
Changes, outlook and risks
- Revenue and operating income rose substantially year over year, while research and development and selling, general and administrative expenses increased 23% and 24%, respectively. Inventory rose to $125.9 million from $112.2 million at June 27, 2010; days of inventory supply increased from 76 to 82.
- Management emphasized LED lighting adoption, customer support, manufacturing expansion, transition to 150 mm wafer production, and growth in SiC power products. It planned to more than double XLamp LED component capacity and expected R&D spending generally to rise. The filing provides no specific revenue or earnings forecast.
- Key risks include uncertain adoption of LEDs for general lighting, intense competition and pricing pressure, capacity ramp and yield execution, customer and distributor concentration, reliance on suppliers, international and foreign-exchange exposure, intellectual-property litigation, and possible impairment or excess-inventory charges.
- A patent-infringement action filed against Cree by The Fox Group was pending; Cree denied infringement and challenged patent validity and enforceability. Cree also filed a separate patent suit against SemiLEDs and Helios Crew in October 2010.
- The company reported $7.6 million of unrecognized tax benefits and said approximately $1.4 million might change within 12 months. It anticipated recognizing about $5.1 million of fiscal 2011 tax benefit related to Section 48C credits, including $1.3 million recorded in the quarter.
Most important facts to verify
- Confirm the registrant and filing identity: this source is Cree, Inc.’s 2010 Form 10-Q, despite the request metadata naming Wolfspeed, Inc.
- Review the drivers and sustainability of revenue growth and the 4.9 percentage-point gross-margin improvement, particularly product mix and production yields.
- Track manufacturing expansion, the $250–$260 million fiscal 2011 capital-spending target, inventory growth, and capacity utilization.
- Assess tax-holiday and tax-credit assumptions, pending patent matters, and the company’s stated liquidity outlook against subsequent developments.