Cree Inc Conference Call to Discuss Acquisition of Ruud Lighting, Inc Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Steve Milunovich - BofA Merrill Lynch - Analyst : Thank you very much. Chuck, could you comment on a couple of potential concerns, specifically, first, what this does to your business in terms of ticking off your customers? Are you assuming anything in terms of your component business in effect? And then second, are you emphasizing the systems business because you are increasingly concerned about the margins on the component side?

Question: Steve Milunovich - BofA Merrill Lynch - Analyst : If you are doing this because you are concerned about the margins coming down on the component side over time or are you still confident that that is going to get back into the 40s?

Question: Steve Milunovich - BofA Merrill Lynch - Analyst : Thank you.

Question: Chris Blansett - JPMorgan - Analyst : Chuck, I wanted to touch on the comment you just made about selling through the Ruud channel. Could you put into context how much broader that channel is than your current -- the one you have developed within Cree? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 18, 2011 / 12:00PM, WOLF.N - Cree Inc Conference Call to Discuss Acquisition of Ruud Lighting, Inc

Question: Chris Blansett - JPMorgan - Analyst : Then when you think about the manufacturing synergies between the two companies, obviously combined you are kind of looking at about a $200 million rate for lighting, kind of using your basic numbers. Putting those two together to get that to $200 million, what kind of leverage does it give you on your COGS? And is that the primary reason why you think you can get the margins back up or you can improve the overall lighting division margins in a relatively reasonable period of time?

Question: Chris Blansett - JPMorgan - Analyst : Quick follow-up on that. Would that imply that some of your newer products will probably go through the Ruud manufacturing side as opposed to maybe your -- what you have been doing in Asia so far? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 18, 2011 / 12:00PM, WOLF.N - Cree Inc Conference Call to Discuss Acquisition of Ruud Lighting, Inc

Question: Chris Blansett - JPMorgan - Analyst : All right, thank you.

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Congratulations, Chuck. It's a very nice acquisition. Housekeeping and then a real question. Housekeeping is I think you said that your lighting revenues are in the $80 million annualized run rate and Ruud is in the about $200 million, so that puts the two together, roughly annualized, slightly below $300 million, is that correct?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Okay. Let's talk about patents for a moment. You have developed a considerable patent portfolio for chips, components, optics, and so on, which you have used in the market to prevent other entrants from getting into that side of the business. Now you also have developed quite a patent portfolio for lighting systems and you are acquiring considerable patent knowledge here with Ruud. How do you look forward in the market with those patents? Are you going to sell those license free with people who buy your components? Let's talk about both sides of the business and your patent strategy.

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Okay. One final question. When you take a look -- you have mentioned that most of your competitors, top-tier LED competitors, are already in the lighting business and have distribution in one form or another. How do you see that competitive landscape out there compared to both indoor and outdoor?

Question: Joshua Paradise - Morgan Stanley - Analyst : Thanks for taking the question. This is a much larger acquisition than either COTCO or LLF. So can you talk about how you thought about valuation, what you are getting for the over $500 million purchase price, and how you get comfortable that this is the best use of shareholder dollars?

Question: Joshua Paradise - Morgan Stanley - Analyst : Okay. And then one follow-up if I can. This is focused on outdoor lighting and really focused on North America. So does this get you where you need to be or to continue to pursue this strategy do you need to go after other markets besides outdoor and other markets besides North America?

Question: Andrew Huang - Sterne Agee - Analyst : Thanks. First, it seems to me that over the next five years the systems business should be much less cyclical than the components business. Would you agree with that?

Question: Andrew Huang - Sterne Agee - Analyst : Okay, great. Then, second, on one of the slides I think I think I briefly saw that Ruud's gross margin was 40%. Do you happen to know offhand if gross margins for the non-LED business are above or below the corporate average?

Question: Andrew Huang - Sterne Agee - Analyst : Okay, thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 18, 2011 / 12:00PM, WOLF.N - Cree Inc Conference Call to Discuss Acquisition of Ruud Lighting, Inc

Question: Jed Dorsheimer - Canaccord Genuity - Analyst : Thanks and congratulations on the acquisition, Chuck.

Question: Jed Dorsheimer - Canaccord Genuity - Analyst : Great. Well, good luck and that is it for me. Thanks.

Question: Harsh Kumar - Morgan Keegan - Analyst : Couple of questions. Could you give us an idea how fast Ruud is growing? Just based on some preliminary math, I think it's about 40%. Am I even in the ballpark with your expectations or is it higher or lower than that?

Question: Harsh Kumar - Morgan Keegan - Analyst : Yes, yes, there is a second question. When I was doing the math, Chuck, I was getting more like a price around $668 million. Does your $525 million price exclude the $143 million that you are getting a tax benefit? And if so, that puts the multiple at 3.3 times sales. I am trying to figure out if -- how you came up with that sort of evaluation or am I wrong in my assumptions here?

Question: Harsh Kumar - Morgan Keegan - Analyst : Fair enough. And if I can [just grab] one more, I thought you would be getting a tax benefit. I am sort of surprised to see your tax rate go up a little bit. Is that just geography and where are you getting your mix from? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 18, 2011 / 12:00PM, WOLF.N - Cree Inc Conference Call to Discuss Acquisition of Ruud Lighting, Inc

Question: Harsh Kumar - Morgan Keegan - Analyst : Okay, thanks, guys. Thank you.

Question: Carter Shoop - KeyBanc Capital Markets - Analyst : Good morning. Just a quick clarification on LLF sales and also Ruud's business with the LA streetlight project. With LLF are you saying that it's $80 million in annualized sales or $80 million over the last 12 months or $80 million in aggregate? And in regards to the LA streetlight project, can you remind us how far along we are with that?

Question: Carter Shoop - KeyBanc Capital Markets - Analyst : And when should that be completed?

Question: Carter Shoop - KeyBanc Capital Markets - Analyst : Great. And then as a last question here, in regards to the Beta --

Question: Carter Shoop - KeyBanc Capital Markets - Analyst : Yes.

Question: Carter Shoop - KeyBanc Capital Markets - Analyst : That is actually very helpful, thanks. As a follow up question, can you actually comment if this was a competitive bid or if this is an ongoing conversation that you have been having with the company for the past year or so?

Question: Carter Shoop - KeyBanc Capital Markets - Analyst : Was there anyone else bidding on the asset with you here?

Question: Carter Shoop - KeyBanc Capital Markets - Analyst : Great, thank you very much.

Question: Avinash Kant - D.A. Davidson - Analyst : Good morning, Chuck and John. Quick question. I believe, of course, you were a component supplier to Ruud. Could you talk a little bit about what percentage of their component needs were being met by Cree? Were you a sole there?

Question: Avinash Kant - D.A. Davidson - Analyst : Okay. And also, do they have a presence in Asia? You talked a little bit about that; could you talk about if they have any manufacturing in Asia?

Question: Avinash Kant - D.A. Davidson - Analyst : But they have no component business, right?

Question: Avinash Kant - D.A. Davidson - Analyst : Thank you.

Question: Satya Kumar - Credit Suisse - Analyst : Thanks for taking my question. I was wondering if you can help me understand the math on the margin. If assume that all the incremental revenues in Q1 are coming from Ruud and the gross margin guidance change is also coming from Ruud, I get an incremental gross margin contribution of more like 25%. I think you mentioned that Ruud is only slightly below your average. I was wondering if you can help me think through the math on incremental margins.

Question: Satya Kumar - Credit Suisse - Analyst : Perhaps you can help me think about why -- you mentioned that most of the components purchased by Ruud are from Cree. Is that vertical stacking part of the reason why you are thinking that the gross margins are going to be only slightly lower? Is that sort of a big driver of the gross margins for Ruud for the rest of the quarter?

Question: Satya Kumar - Credit Suisse - Analyst :

Question: Olga Levinson - Barclays Capital - Analyst : Thanks for taking my question. I guess, can you help us think about the medium- to longer-term view on how OpEx, and specifically SG&A, is going to trend now that the lighting systems business is a bigger part of your overall mix? And whether you plan to more aggressively develop the downstream channel?

Question: Olga Levinson - Barclays Capital - Analyst : Got it. And then specifically to their LED product portfolio, you mentioned some proprietary micro-optic technology. Is there anything else that they have inherent in their LED lighting systems that might be beneficial for your products or is this just a matter of leveraging expertise?

Question: Olga Levinson - Barclays Capital - Analyst : Got it, thank you.

Question: Ben Schuman - Pacific Crest Securities - Analyst : Hi, guys. Thanks. Can you just address the timing of the tax benefits with the cash flow there and the confidence that those will be realized?

Question: Ben Schuman - Pacific Crest Securities - Analyst : Okay, great. And then similar to the previous caller, if I take the gross margin guidance down by 100 basis points on $20 million incremental revenue that gets me to 25% incremental gross margins. So again to follow-up on him, help what that math would be great.

Question: Ben Schuman - Pacific Crest Securities - Analyst : Great, thank you.

Question: Hans Mosesmann - Raymond James - Analyst : All of my questions have been answered. Thanks.

Question: Stephen Chin - UBS - Analyst : Hi, Chuck and John. Also, congrats on the acquisition. My question was with this acquisition, Chuck, will Cree looked to provide or think about providing project financing to some of the cities on Ruud's target list to make some of the big projects work for them?

Question: Stephen Chin - UBS - Analyst : Okay. The second question, Chuck, is how long are Alan and Chris set to stay on for -- at Cree? I would assume they probably have the deep customer relationships with the local cities and municipalities. Is there a minimum duration that they need to stay on for?

Question: Stephen Chin - UBS - Analyst : Thanks, Chuck. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 18, 2011 / 12:00PM, WOLF.N - Cree Inc Conference Call to Discuss Acquisition of Ruud Lighting, Inc

Question: Alex Gauna - JMP Securities - Analyst : Thanks very much for squeezing me in here at the end. Good morning, everyone. Just wanted really quickly, you touched on, Chuck, about how it came together, the discussions over the last year. What put you over the top? Why now on this acquisition?

Question: Alex Gauna - JMP Securities - Analyst : Okay. If I heard you right, I believe you talked about Ruud being a market share leader in the outdoor market. Are they the entirety of the LA project right now or is that a shared project? And then do you have new marketing strategies now that you are a larger entity, because I would assume that in going after some of these municipalities scale matters.

Question: Alex Gauna - JMP Securities - Analyst : Thank you. Congratulations, good luck.