Cree Q1 2003 Earnings Conference Call Transcript

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

Question: Dale Pfau - CIBC Oppenheimer - Analyst : Yes, good afternoon, Chuck, Cindy. Great quarter, congratulations.

Question: Dale Pfau - CIBC Oppenheimer - Analyst : A few questions, here. A couple of housekeeping. When we look forward, Cindy, you said low 40s gross margin in the next quarter. Is that including negative gross margin at Cree Microwave again?

Question: Dale Pfau - CIBC Oppenheimer - Analyst : And so the implication there is that you're going to improve your efficiency and your gross margins and the LED business would be over 45 percent?

Question: Dale Pfau - CIBC Oppenheimer - Analyst : This is another housekeeping. Cindy, you said that in the R&D in Q1, there was effectively a $1 million charge included in that l i n e (ph) . Did I hear that correctly, or did I write that down wrong?

Question: Dale Pfau - CIBC Oppenheimer - Analyst : OK. And the next clarification -- you said that you are capacity constrained in the current quarter, and then you said something about 75 percent booked. Help me with this. Do you, indeed, have more demand than you can currently ship with your current capacity?

Question: Dale Pfau - CIBC Oppenheimer - Analyst : Great. X - b r i g h t (ph) popped up to two percent of revenues. What is the plan for Q2?

Question: Dale Pfau - CIBC Oppenheimer - Analyst : And the primary application for the X - b r i g h t (ph) ?

Question: Dale Pfau - CIBC Oppenheimer - Analyst : Great. Things are going well. And now for kind of a generic question. There was a report out by WBS or somebody suggesting that someone else t o C h i a (ph) out there has the highest bright products on the market, and then suggesting talking about some market share losses in your comparison with T G (ph) and the C h i a (ph) . Can you give us a couple of comments about your thoughts on the brightness of the market place, and then what your belief is in

Question: Dale Pfau - CIBC Oppenheimer - Analyst : And one final question. We saw ASPs go up in the quarter. That's the first time in quite a while we've seen that. With demand and capacity being constrained -- and I would assume that there is some capacity constraints across the industry -- could we actually see ASPs go up again next quarter? Unidentified You know, D a l e (ph) , we're modeling for the year, still, our historical 25 percent rate. And, you know, that's subject to change. But, at this time, our fundamental business strategy is still to drive this market. I feel like, you know, over the last six months with some of the aggressive moves, we're in the driver's seat, and I don't think we want to sit back on our accomplishments. I think we're gonna continue to push price performance and try to drive market share. So, I wouldn't -- I don't have a good projection for you in exact numbers, but you should still assume we're gonna try to lower that ASP and improve price performance over the next nine months.

Question: Dale Pfau - CIBC Oppenheimer - Analyst : Thanks anyway. I appreciate everything guys.

Question: Brinn Stevens - UBS Warburg - Analyst : Yes, this is B r i n n S t e v e n s (ph) for Alex. A question on the automotive end market. Could you just give a little more color as to how that end market is doing? We understand and the Honda Accord are there any other new, you know, Big Three manufacturers coming on and is there any new content, you know, besides the Dash. I mean, anywhere else LEDs are being designed that you can talk about.

Question: Audrey Snell - Brean Murray - Analyst : Hi, I have a couple of questions for you. Just to pick up on that automotive question, have you been sampling for any manufacturers in auto outside of existing auto manufacturers, thereby potentially gaining share? And the second part of that question is moving outside of interior, could you talk about the movement in the industry toward exterior LED lighting?

Question: Audrey Snell - Brean Murray - Analyst : OK. If you had to project, would you anticipate that by the June yearend, automotive would still be roughly 24 percent of sales? Or do you anticipate a growth, there?

Question: Audrey Snell - Brean Murray - Analyst : And who are your principle competitors? Or, who were they this quarter as you anticipate in handsets?

Question: Audrey Snell - Brean Murray - Analyst : Have you seen additional LED capacity coming on line in Asia, Chuck?

Question: Audrey Snell - Brean Murray - Analyst : So, you're competing on price performance. Are your LEDs -- is the line of LEDs you're selling on a higher brightness overall to the cell phone market, versus, let's say, the Taiwanese? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Audrey Snell - Brean Murray - Analyst : OK. And the d r i v e b y (ph) the Nokias of the world is to increase the backlighting and the color displays and the size of the screens as greater w i d e b a n d (ph) functionality is incorporated, isn't it, over the next 12 months?

Question: Audrey Snell - Brean Murray - Analyst : Right. Like color TV -- you never go back to black and white.

Question: Audrey Snell - Brean Murray - Analyst : Are you taking additional customers from others in the market? Are any of these 10 percent customers new customers for you?

Question: Audrey Snell - Brean Murray - Analyst : As the price point in these handsets rises, does the average selling price going into these higher priced handsets increase for you as well?

Question: Audrey Snell - Brean Murray - Analyst : Well let me ask it a slightly different way; are your--is the dollar content of your LEDs rising in the handset?

Question: Audrey Snell - Brean Murray - Analyst : Okay. And any new products on the horizon you're prepared to talk about?

Question: Audrey Snell - Brean Murray - Analyst : And the initial blue application you mentioned is a read-write--what was it, read-write what?

Question: Audrey Snell - Brean Murray - Analyst : Oh, okay. Thank you.

Question: Chris Versace - Friedman, Billings, Ramsey - Analyst : Good afternoon, everybody.

Question: Chris Versace - Friedman, Billings, Ramsey - Analyst : Just a couple of quick questions, here. I know we're a little long in the tooth. Just to skip back real quick, Chuck, to the automotive market. You know, you mentioned European and Asia. Anything on the radar screen in terms of the, you know, domestic automotive market?

Question: Chris Versace - Friedman, Billings, Ramsey - Analyst : So would--I mean, you're seeing the '03 model you already saw. That sounds like maybe it's an '04 event?

Question: Chris Versace - Friedman, Billings, Ramsey - Analyst : OK. And then you said before that you guys are, you know, planning on further increasing your capacity, yet you plan on bringing--adding on additional new customers. But you said that, you know, with each new customer there's certain specifications. So, I'm trying to understand, you know, the ability to really improve your margins on the LED business dramatically from here. Or is that something we should see, maybe, in the second half of the fiscal year?

Question: Chris Versace - Friedman, Billings, Ramsey - Analyst : OK. And then one, then, for Cindy. The question was asked, Cindy, are you guys going to be, you know, cash flow positive from operations. You said yes. Do you plan on being free cash flow positive in '03? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Chris Versace - Friedman, Billings, Ramsey - Analyst : That's OK. Alright, thank you.

Question: Audrey Snell - Brean Murray - Analyst : now that I guess it's only fair to ask why --- how do you win handset or auto or signage customers? Is it an overall evaluation of price performance, is it particular colors, brightness, wavelength?

Question: Audrey Snell - Brean Murray - Analyst : How do you guard in the future against defection from one OEM going from you to another supplier without a whole lot of visibility because the annual contract type of booking is just kind of going by the wayside?

Question: Audrey Snell - Brean Murray - Analyst : Is it also fair to assume that you're working with current customers on future generations of brightness products?

Question: Audrey Snell - Brean Murray - Analyst : One last question, does the association with OEMs in handsets provide any sort of marketing synergy on power amplifiers?

Question: Audrey Snell - Brean Murray - Analyst : Okay, thank you.