Cree Inc. Q1 2009 Earnings Conference Call Transcript

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

Question: Harsh Kumar - Morgan Keegan & Co., Inc. - Analyst : Hey, guys, first of all congratulations -- these are, I'd say, extremely good numbers in what I'd characterize as an extremely tough environment. Couple questions. Your product, inherently by nature, is sort of discretionary, and somewhat to the high end of the range. Given this economy, first of all, I'm somewhat surprised you haven't -- you mentioned that you are seeing strong LED demand still, particularly in XLamp. Can you help us put together all the parts and pieces in what's driving that, and why you haven't seen some of what the rest of the world is seeing?

Question: Harsh Kumar - Morgan Keegan & Co., Inc. - Analyst : Hey, that was very helpful, Chuck. Quick follow up for you. XLamp, great job on the gross margins, by the way, increasing them very nicely. How much room -- could you give us an idea of your XLamps margin? Are they equal to or are they still below corporate average? How much below do you think and long it will take?

Question: Harsh Kumar - Morgan Keegan & Co., Inc. - Analyst : Very helpful. Last question and I'll let somebody else get on. Could you characterize for us if you are seeing revenues already from back lighting for laptops yet? Or how much it was? Any way to break that out?

Question: Harsh Kumar - Morgan Keegan & Co., Inc. - Analyst : I will jump back in. Thank you.

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Good afternoon, gentlemen. Let me add my congratulations. Spectacular performance in these challenging times. My first question has to do with your recent announcement about your new distributors that you've got out here, including Digi-Key and -- ?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Farnell. Maybe you could give us a little overview on your distributor strategy and the overlap or nonoverlap of these various distributors out here.

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Okay. And are you going to use those sales channels for all your products, including the variations on XLamp?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Okay. One more quick question here. As we continue through this worldwide financial crisis, as we call it that, could you maybe talk a little bit about the competitive dynamics and the advantages that maybe your balance sheet and your IP give you as we move through this?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Great. Thanks.

Question: Michael Smith - Oppenheimer & Co. - Analyst : This is Michael [Smith] for Yair Reiner. Can you hear me?

Question: Michael Smith - Oppenheimer & Co. - Analyst : Congratulations on the quarter.

Question: Michael Smith - Oppenheimer & Co. - Analyst : Can you give us a sense of any revenue contribution by product segment or any proportion?

Question: Michael Smith - Oppenheimer & Co. - Analyst : I guess components or XLamp things?

Question: Michael Smith - Oppenheimer & Co. - Analyst : Very helpful. Which parts of those end markets do you have the greatest degree of visibility, whether it's, like you said, China or specialty lighting or consumer?

Question: Michael Smith - Oppenheimer & Co. - Analyst : Okay, great, thank you. One more question. Do you have any 10% customers, or I guess the add-on question is if you can talk about related party contributions?

Question: Michael Smith - Oppenheimer & Co. - Analyst : Do you have any feedback on those guys on visibility or anything like that?

Question: Michael Smith - Oppenheimer & Co. - Analyst : Thank you very much. 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: Daniel Amir - Lazard Capital Markets - Analyst : Thanks a lot and congratulations on the quarter. Couple questions here. First of all, follow-up on the LLS. Can you highlight where the success is now, what's going on beyond the US? It seems like you said your visibility I guess is improving there.

Question: Daniel Amir - Lazard Capital Markets - Analyst : Okay. And on the power RF business, it looks like near term still is a bit choppy. Do you expect it to stabilize in the March quarter with its -- with this new order that you guys have gotten that will impact calendar year '09, or is it something that is going to see still a bit of lack of visibility in the near term?

Question: Daniel Amir - Lazard Capital Markets - Analyst : Okay. And then last question is, where do you stand on the four-inch wafer side? What's the update there in terms of what your plan is? 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: Daniel Amir - Lazard Capital Markets - Analyst : Okay, great, thanks a lot.

Question: Mike Burton - ThinkPanmure, LLC - Analyst : Can you guys talk a little bit more about your progress with your two new distributors? Obviously it takes time to get these channels up. Are these distributors now pretty much online? Are you comfortable with the level of inventory or is there still some more ramp ahead of us?

Question: Mike Burton - ThinkPanmure, LLC - Analyst : Primarily those. If you have more to go on Arrow and World Peace, we'd love an update there too.

Question: Mike Burton - ThinkPanmure, LLC - Analyst : Just to follow up with that -- so what is a comfortable range in terms of days, and then talk a little bit more about maybe by geography -- how is Asia versus Europe right now, and the US?

Question: Mike Burton - ThinkPanmure, LLC - Analyst : Any of these distributors approaching 10% of revenue?

Question: Mike Burton - ThinkPanmure, LLC - Analyst : Could you talk a little bit more about end market applications, automotive versus display and signage for last quarter and then the outlook heading into Q4?

Question: Mike Burton - ThinkPanmure, LLC - Analyst : Last one. A lot of discussion around some of the Asian competitors seeing pretty low utilization rates right now. What have you seen so far as far as pricing? Have you started to see some real pressure there in components or do you expect it to pick up going forward? 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: Hans Mosesmann - Raymond James & Associates - Analyst : Chuck, couple questions on LLS. Can you give us a sense of how large that business is? I know it's a small part of the business, but how big is it, and can you explain to give more granularity on the bottlenecks on the production side of that product group?

Question: Hans Mosesmann - Raymond James & Associates - Analyst : Thank you very much.

Question: Harsh Kumar - Morgan Keegan & Co., Inc. - Analyst : Hey, guys. Quick question. You mentioned that there's a lot of capacity in Taiwan. Are you seeing them start to get really aggressive, perhaps on some of the markets you share on the border with them, and I've got one more.

Question: Harsh Kumar - Morgan Keegan & Co., Inc. - Analyst : Okay. And then how much revenue do you think you left behind on the LR6, or the LLS business?

Question: Harsh Kumar - Morgan Keegan & Co., Inc. - Analyst : Fair enough. That's it for me. Thanks. Great quarter again. Great guidance.

Question: Carter Shoop - Deutsche Bank - Analyst : Good afternoon. I wanted to touch base and try to better understand what investors should be thinking about in regards to normal seasonality for this business. It sounds like for fiscal 3Q you are getting a little bit cautious about the seasonal factors there. Maybe if you could walk us through about what kind of seasonality we'll expect in this business now that the overall mix of business has changed quite a bit over the past couple of years. 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: Carter Shoop - Deutsche Bank - Analyst : Would it be out of the realm of possibility to see a down quarter sequentially, or is it not seasonal?

Question: Carter Shoop - Deutsche Bank - Analyst : That's helpful. In regards to the guidance for the December quarter, wanted to better understand how much prudence you have put into that guidance, given the overall macro environment. It didn't sound like you're seeing a material slowdown at this point. Just curious on how prudent you are being, maybe accounting for some potential slowdowns later this quarter.

Question: Carter Shoop - Deutsche Bank - Analyst : That's helpful. Some companies out there today are looking at their traditional process of how they provide guidance and maybe getting a 5% to 10% haircut just because of the increased uncertainties out there. 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: Carter Shoop - Deutsche Bank - Analyst : Two more quick ones here. On the notebook backlit LCDs, or LEDs rather, how big of an opportunity is this for Cree over the next year? Is this going to become a meaningful driver for the LED chip business, or is it going to be more of a nice benefit but not a huge driver?

Question: Carter Shoop - Deutsche Bank - Analyst : Absolutely. Within the chip business, could this market represent roughly a quarter of the chip business within the year?

Question: Carter Shoop - Deutsche Bank - Analyst : Okay. Last question on the litigation -- the commentary there about how some of the cases are unfolding are helpful. Would you care to comment on the financial impact going into the first half of calendar '09 in regards to the impact of these two cases?

Question: Carter Shoop - Deutsche Bank - Analyst : Okay. Thank you very much. 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: Bennett Notman - Davenport & Company - Analyst : Thank you, and my questions were asked and answered. Thank you.