Cree Inc. Q1 2010 Earnings Conference Call Transcript

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

Question: Yair Reiner - Oppenheimer & Co. - Analyst : Thank you. Congrats first of all on the nice quarter.

Question: Yair Reiner - Oppenheimer & Co. - Analyst : My first question. Can you give us a sense, directionally of how the mix was in the quarter in terms of components, chips, and so forth?

Question: Yair Reiner - Oppenheimer & Co. - Analyst : In terms of your design centers that you are building out, how should we measure the success of those moving forward and how do you think that will impact your geographical mix in the quarters and years ahead?

Question: Yair Reiner - Oppenheimer & Co. - Analyst : One more quick question and then I'll free the floor. In terms of your capital investments moving ahead, clearly there's quite a bit of a bottleneck in terms of the major tool makers. How do you intend to deal with that and how might your capital investments be different than a lot of the other players in the field?

Question: Yair Reiner - Oppenheimer & Co. - Analyst : Thank you very much and good luck moving forward.

Question: Chris Lanfig - JPMorgan - Analyst : Based on your comments earlier about the mix of the CapEx, is it fair to say that a lot more of your own chips will go into your own packages and that's a planned progression over the next twelve months?

Question: Chris Lanfig - JPMorgan - Analyst : Okay. And then on your latest XLamp product, how do you describe the response from your customers and in general I guess demand trends for components versus chips of that same generation?

Question: Chris Lanfig - JPMorgan - Analyst : One last one from me. When do we see the XPG LEDs in your own lighting systems products?

Question: Chris Lanfig - JPMorgan - Analyst : Thank you very much.

Question: Jesse Pichel - Piper Jaffray - Analyst : Good afternoon, Chuck, John, Ray. Congratulations on the stronger results on the guidance. 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: Jesse Pichel - Piper Jaffray - Analyst : Your utilization now, where is it and what type of quarterly revenue would a CapEx target of $150 million to $160 million support?

Question: Jesse Pichel - Piper Jaffray - Analyst : But, it's certainly up more than 100% year-over-year. Could you think of somewhat doubling your quarterly revenue over the next couple of years?

Question: Jesse Pichel - Piper Jaffray - Analyst : Understood. Regarding the growth of the lighting business, is the sequential growth you are seeing enough to offset potential seasonality in your third quarter?

Question: Jesse Pichel - Piper Jaffray - Analyst : In your answer to a previous question you said that component sales would be an indicator there of design success and that would probably be in the dosti channel and I'm wondering how do you characterize the growth from the distributor channel because I noticed that Arrow was quite big for you over the last quarter? Are you seeing growth in that channel? Is that a good indicator of design success?

Question: Jesse Pichel - Piper Jaffray - Analyst : Do you think there's much legs left in the LED back lighting story? You never hinged your growth or marketing effort toward the back lighting story. We've all seen that Samsung is ramping its own LED lines internally.

Question: Jesse Pichel - Piper Jaffray - Analyst : Thank you very much and congratulations.

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Good afternoon gentlemen. My congratulations also. Great quarter, great outlook. 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: Dale Pfau - Cantor Fitzgerald - Analyst : Chuck, my question is about your transition to the 4-inch wafers. Clearly, you are saying yields are better. How far along are we on the transition to 4 and how much better were your yields than you were expecting in the quarter there?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Would you say you are 70% through right now.

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Great. Could you maybe give me a little of indication here how much ASPs are being helped by the demand in the back lighting? We typically have seen ASPs dropping about 20% per year for the same lumin output and you always shove higher lumin devices into the top end, but are we seeing some mitigation of those ASP pressures?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Okay. And one other question. Can you give me a little bit of -- well actually two more -- indication of your kind of mix. How much are you shipping of your XP products relative to some of your older style products? 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: Dale Pfau - Cantor Fitzgerald - Analyst : Then my favorite topic here, power and RF. What is driving the demand there? Is it just socket wins, the market moving in some of the servers, can you give us indication where you are picking up share and what do you see?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : How much revenue do you get out of the solar inverters?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Great. Congratulations. Keep up the good work Chuck.

Question: Andrew Wong - GC Research - Analyst : Hi. I was hoping you could give us a little more color on three things. First, can you say which performed better on a sequential basis, LED components or LED chips? 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: Andrew Wong - GC Research - Analyst : Second, on general lighting, between the US and China, which is the bigger opportunity and where do you expect to see faster growth over the next 12 months?

Question: Andrew Wong - GC Research - Analyst : Got it. Lastly, it seems like your new high efficient fixture has the highest efficacy out there by about 2 1/2 times. I was wondering have you looked at anyway to get that up to market more quickly?

Question: Andrew Wong - GC Research - Analyst : Got it. Thanks.

Question: Vijay Rakesh - Thinkequity LLC. - Analyst : A couple of questions here. I was wondering what are (inaudible) running at now? You probably have answered it.

Question: Vijay Rakesh - Thinkequity LLC. - Analyst : On that, how do you -- how do you allocate to that?

Question: Vijay Rakesh - Thinkequity LLC. - Analyst : By this capacity, does that -- is that beneficial to you? Versus your in-house capacity?

Question: Vijay Rakesh - Thinkequity LLC. - Analyst : Got it. And just wondering on the customer concentration side, as you see the TV side pick up, the (inaudible) side pick up and the lighting side, do you have any customer concentration as you go out and do next year?

Question: Vijay Rakesh - Thinkequity LLC. - Analyst : Got it. Last question. On your gross margin outlook longer term, wondering what you are looking at and how that could change as this mix most in lighting and consumer? 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: Vijay Rakesh - Thinkequity LLC. - Analyst : Got it. Thanks.

Question: Steve Milunovich - Merril Lynch - Analyst : Great. Thank you very much. Chuck, just to clarify that for me so, you said in the past 40% was probably as good as it gets on gross margin. You are now higher. You are expecting that it would be higher in the near term. Is this the new baseline or do you think over time as maybe supply comes up a bit more and competition hits up we hit back to 40%?

Question: Steve Milunovich - Merril Lynch - Analyst : What kind of decline are you seeing on your costs on a annualize basis?

Question: Steve Milunovich - Merril Lynch - Analyst : Okay. What's the headcount of the Company and where do you see that going over the next 6 to 12 months?

Question: Steve Milunovich - Merril Lynch - Analyst : Okay. And finally any update in terms of stimulus spending and sort of you get that indirectly, but are you seeing any change in the flow there?

Question: Steve Milunovich - Merril Lynch - Analyst : Thank you.

Question: Lauren Silver - Lazard Capital Markets - Analyst : Thanks for taking my question. My question might have just been answered, but I was going to ask about the Government stimulus and whether or not you've seen an effect from the stimulus plan and how that affected your revenue in the quarter.

Question: Lauren Silver - Lazard Capital Markets - Analyst : Okay. Interesting. So, that's a little bit of a change from what you guys were saying before, I believe.

Question: Lauren Silver - Lazard Capital Markets - Analyst : Right. Okay. Then if you had to put a number on it, what would you say what would the percentage growth be for the industry in terms of supply over the next year? How about we'll go for calendar year 2009 and calendar year 2010.

Question: Lauren Silver - Lazard Capital Markets - Analyst : Interesting. Okay. Thank you very much.

Question: Carter Shoop - Deutsche Bank - Analyst : Good afternoon. First question on the lighting market. Can you discuss where you see the largest opportunity for Cree over the next six months? Is it more on the architectural lighting market, street lights or somewhere else?

Question: Carter Shoop - Deutsche Bank - Analyst : That's helpful. Shifting gears to gross margins, can you help us understand which LED segments in the quarter were above or below the corporate average gross margin?

Question: Carter Shoop - Deutsche Bank - Analyst : That's helpful. Thanks. In regards to lead times for LED chips, I think last quarter we were talking about or in the last earnings call we were talking about them being about three months for chips. Have they come in a little bit or holding out for three months?

Question: Carter Shoop - Deutsche Bank - Analyst : Okay. That's helpful. In regards to the distribution channel, you have World Peace and Arrow right now, I think in the past you suggested that that is enough of a distribution partnership both in Asia and North America. Is that still the case and can you remind us what is the strategy in Europe? Do you plan on continuing to use manufacturing reps or is there opportunity for a more involved relationship with a partner?

Question: Carter Shoop - Deutsche Bank - Analyst : Okay. Are the DigiKey and Farnel, were those established in the past year or have they been around for a while?

Question: Carter Shoop - Deutsche Bank - Analyst : Okay. Last question for you guys. Obviously the cash balance on the balance sheet is pretty attractive at this point. Can you talk a little bit about what type of acquisitions the Company might be looking for without showing your hand too much?

Question: Carter Shoop - Deutsche Bank - Analyst : Do you think there's an opportunity for possibly integrating into more of the fixture side, something similar to what you did LES or do you feel that the fixture opportunity as a company is sufficient?

Question: Carter Shoop - Deutsche Bank - Analyst : Great. That's very helpful. Thank you.

Question: Hans Mosesmann - Raymond James - Analyst : Congrats on the quarter guys. A few questions. You mentioned Chuck or John that litigation expense will come up a little bit. What is driving that? Are those existing cases or is there an update there? Thanks.

Question: Hans Mosesmann - Raymond James - Analyst : Okay. The issue, the greater issue here in terms of how the street is trying to understand demand and tightness, is this issue called double ordering and it's something that everybody is talking about. What is your opinion just if you can put your industry hat on with the degree of tightness or shortage certain type of components or chips, what is going on and how are you guys dealing with it, if at all? Thanks.

Question: Hans Mosesmann - Raymond James - Analyst : Okay. And then a follow-up on the gross margin question. Top line is going to grow let's say high single digits. Why wouldn't gross margin pick up just a little bit? What's keeping that from going up a little higher?

Question: Hans Mosesmann - Raymond James - Analyst : Fair enough. Thanks a lot.

Question: Jed Dorsheimer - Canaccord Adams - Analyst : Congratulations on a solid quarter.

Question: Jed Dorsheimer - Canaccord Adams - Analyst : A couple of quick questions for you. The 350 lumin, how many amps is that?

Question: Jed Dorsheimer - Canaccord Adams - Analyst : It's a one amp and how many watts?

Question: Jed Dorsheimer - Canaccord Adams - Analyst : And any idea, do you have that product now or and then any -- I doubt you are going to comment on any pricing but do you have the product now? 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: Jed Dorsheimer - Canaccord Adams - Analyst : Alright. Scott and Richard have done a great job with the COTCO integration. I'm curious. Two questions actually. One, what are your thoughts of, since COTCO has been so successful for you, do you look for another COTCO out there in terms of that level of the supply chain in terms of strategic investments and then secondly, I was wondering if you can comment on what your exposure is geographically speaking to China?

Question: Jed Dorsheimer - Canaccord Adams - Analyst : And then lastly video screens, you noted that still hanging in there. Curious is that mostly in Asia?

Question: Jed Dorsheimer - Canaccord Adams - Analyst : Great. Thanks.

Question: Ramesh Misra - Brigantine Advisors - Analyst : Good afternoon folks. Thanks for squeezing me in. First question was where were lead times at the end of the last quarter?

Question: Ramesh Misra - Brigantine Advisors - Analyst : Got it, Chuck. In regards to asking the question of your expected capacity expansion, I wanted to ask it in another way, how did you arrive at your revised CapEx target?

Question: Ramesh Misra - Brigantine Advisors - Analyst : So, basically with the $150 million to $165 million you expect to maintain the kind of low double digit growth rate sequentially through the year?

Question: Ramesh Misra - Brigantine Advisors - Analyst : Okay. Thanks.