Cree Inc at JPMorgan Technology, Media and Telecom Conference Transcript

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

Question: Chris Blansett - JPMorgan - Analyst : With that -- let's just kick it off and talk about the lighting market. Obviously, that is what most investors are focused on. So, John, we have seen the North American market start to actually get moving over the past few quarters. And I wasn't sure if maybe you can give us an idea on how things have progressed since the end of last year, maybe last fall, and maybe what you guys are expecting for unit gross sales over the next 12 months?

Question: Chris Blansett - JPMorgan - Analyst : How do you view the sales of your LED components to lighting companies that are selling into the North American market? That seems to have really gotten some momentum lately, so how should we look at that?

Question: Chris Blansett - JPMorgan - Analyst : So looking into another big reason for Cree, obviously, China has been a big market for lighting. Last quarter you indicated that things had still not really recovered in that market after the government set some standards. So I think this is probably top of the mind with most investors is what are you seeing in China? Are we starting to see momentum finally build after the resetting of the standards? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2011 / 2:00PM, WOLF.N - Cree Inc at JPMorgan Technology, Media and Telecom Conference

Question: Chris Blansett - JPMorgan - Analyst : I believe Cree recently signed a supply agreement with NVC Lighting, which is one of the big Chinese lighting companies. You mean, is this a big event for Cree? Did you already supply to them? Is this is more of a formalization of that relationship? And maybe do you expect NVC to become a significant customer say in the next 12 months?

Question: Chris Blansett - JPMorgan - Analyst : Along the lines of slower growth, maybe, in the short term, the Company obviously has had to lower its utilization rates at your factories in order to resolve that issue and to match better in the short term. So I believe during the earnings call you indicated, I think, one or two quarters would be required to burn off the excess inventory. Maybe we can get an update on that. And I don't know if this means maybe in Q3 you might be able to start raising utilization rates again, or is it simply too early to give indication?

Question: Chris Blansett - JPMorgan - Analyst : Now, I think, one of the topics that is really high on investors' minds is the gross margin of the Company, and where it is eventually going to end up. I think over the past few months there has been a lot of difference in the analysts on where it would settle or maybe stabilize. I was thinking if you could potentially give some insight over what have been the biggest influencers of your gross margin? I was thinking of standard things. We would usually talk about utilization rates, the pricing pressure and then, obviously, your mix shift inside what you sell. Maybe if you could rank those or something, give us some idea where the bigger levers?

Question: Chris Blansett - JPMorgan - Analyst : One of the other areas that has really popped up is this transition you're going to start to 6 inch wafer production. This really ties back into cost reduction for the Company. You're going to start it in the summer, basically. It is going to go on for at least a year. But at what point in time should we start to see those cost -- that cost reduction actually start rolling through on the COGS? Is it going to be a delay before it hits or should it start -- it should be fairly linear with the ramp up of the production?

Question: Chris Blansett - JPMorgan - Analyst : Now getting into maybe some more of your newer areas, such as the lighting systems business, you touched on this with your opening comments. So far, or at least over the past few quarters, this business has outperformed the overall Company. We were wondering should -- you have also indicated it has a below corporate average margin. So first question is, is it a big enough business to significantly impact the corporate margin? And two, as you scale up into volume, do you think that you will be able to improve the margins of this productline over time from -- structurally from where they are today? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2011 / 2:00PM, WOLF.N - Cree Inc at JPMorgan Technology, Media and Telecom Conference

Question: Chris Blansett - JPMorgan - Analyst : I guess along those lines, how should we assume the margin progression for that business? Is it going to be a slow evolutionary kind of modest improvement, because obviously, you're going to give some of your price away basically in order to stimulate demand. I guess, is there a margin range that you would be happy with? Obviously, it sounds like it is a little higher than, at least, than what it is now, but at what point in time do you figure that is enough margin and then we really go for pure volume growth?

Question: Chris Blansett - JPMorgan - Analyst : I think the last topic I was going to touch on is really just tied to competition. Obviously, Cree investors are significantly concerned about new LED makers in China, Taiwan and Korea. Those entities have added significant amount of capacity over the past couple of years, more so than you would consider maybe even Cree and Nichia have combined. So what are your thoughts on that? Have you seen any evidence that these additional LED makers are really starting to penetrate into the high-performance lighting market? And how do you -- when you expect them to really become big players in it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2011 / 2:00PM, WOLF.N - Cree Inc at JPMorgan Technology, Media and Telecom Conference

Question: Chris Blansett - JPMorgan - Analyst : Now kind of to talk about the technology progression that Cree has on its roadmap, every semi company, whether it is an LED maker or a semi device has some sort of binning profile. I guess how do we look at the demand strength and the different levels of performance that Cree makes? We have heard some discussion from other -- from LED light makers that they are on allocation from some of their leaving LED suppliers already. That is in a very large contrast to this concept that we have just a glut of LEDs everywhere. So how do we view maybe weakness in strength across the spectrum of products you do sell, since there are binning differences?

Question: Chris Blansett - JPMorgan - Analyst : I have a few more questions, but if -- are there any questions from the audience? We have about seven minutes left. If you do, if you could step up to the mic. If not, I have a few more. John, I wanted to talk about the thought process of who is adopting these products first, these lighting products. Obviously, I don't know if -- most investors aren't really as versed in the lighting market and the large diversity of applications that are out there. But when you think about your sales of components is it to indoor bulb replacement type products? Is it to outdoor commercial replacement? They typically have very different utilization rates and performance requirements. Where do you see this market picking up first? You mentioned 4% to 5% penetrated. Is that mainly in streetlights, is it bulb replacements? What are the areas you expect to pick up first?

Question: Chris Blansett - JPMorgan - Analyst : I think we have a question from the audience. Unidentified Audience Member Yes, we saw the development of a spot market several months ago. Are you participating in that? Who is participating in that, and what are the implications for that in your business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 16, 2011 / 2:00PM, WOLF.N - Cree Inc at JPMorgan Technology, Media and Telecom Conference

Question: Chris Blansett - JPMorgan - Analyst : I had a couple more, John. Can you talk about the importance -- at least in the US -- of utility-based subsidies for energy-efficient lighting? I think there is still a lot of investors who don't understand that when they go to the store and buy a CFL it probably has a utility subsidy baked into the price. So we're starting to see utilities adopt LED-based products once they reach a certain Energy Star certification level. Maybe you could talk about what you're seeing and how you expect this to progress?

Question: Chris Blansett - JPMorgan - Analyst : Do we have another question from the audience? Unidentified Audience Member Just in terms of the some projections of the 50% lighting market penetration for LEDs in five plus years, how does the Company look at those kinds of projections that have come out of Philips or GE at various times?

Question: Chris Blansett - JPMorgan - Analyst : Unfortunately, we are out of time. I apologize. Thanks everyone.