Cree Inc Q3 2016 Earnings Call Transcript

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

Question: Brian Lee - Goldman Sachs - Analyst : Hey guys, thanks for taking the questions. Just first one quickly, can you quantify the impact on front-end utilization from the lower sell-through in commercial lighting in the quarter? Just trying to get a sense for the interplay between your component's segment and what it feeds into your captive commercial lighting business. And related to that, just curious if you did see some inventory build in chips here recently, given the softness in lighting, and then I had a follow-up.

Question: Brian Lee - Goldman Sachs - Analyst : Okay. Thank you, that's helpful. And the follow-up for you, Chuck, you mentioned during the prepared remarks one of the three drivers of the shortfall this quarter was the weaker-than-expected market conditions. Can you remind us which end-markets or vertical this was concentrated in and then how you are seeing those markets trend near term. Whether there has been just a temporary shift in the business environment or if there's been something more structural going on there.

Question: Vishal Shah - Deutsche Bank - Analyst : Yes, hi. Thanks for taking my question. Can you talk about your consumer lighting business? You mentioned that you were working on some advanced optechnology. What kind of margins do you envision in that segment once you launched the product? And also you've got $350 million of buyback authorization left, can you talk about your plans around share buyback into the balance sheet items? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 26, 2016 / 9:00PM, WOLF.N - Q3 2016 Cree Inc Earnings Call

Question: Harsh Kumar - Stephens Inc. - Analyst : Hey, Chuck, question for you. Now that the ERP issue is resolved and you said you're seeing some positive signs from your customers on the commercial side, I'm curious what your expectation is with regards to getting back to the level that you were at. How long do you think it will take to get all of that business back and then start to be on that 20% CAGR number you guys talked about for commercial lighting?

Question: Harsh Kumar - Stephens Inc. - Analyst : Got it, and as my follow-up, I think I hit upon something that was maybe asked a little bit earlier. You talked about some pressure on the LED side. It is just been four or five months since the reorg was completed there, is it just commentary that you're providing relative to the market and you feel like you're well-positioned, or is it actually hurting you guys on the LED side?

Question: Edwin Mok - Needham & Company - Analyst : Great thanks for taking my question. First question on margin on your guidance of 31.5%. If your LED business has flattened down and I think you said margin is flattish, that implies your lighting margins bounce quite a bit. Does that all come from just no inventory write-down this quarter, or what is driving the lighting margins to rebound? And how much was the inventory side?

Question: Edwin Mok - Needham & Company - Analyst : Sorry. You guys mentioned there were some inventory write-down last quarter. How much was that? Did that impact your 3Q gross margin?

Question: Edwin Mok - Needham & Company - Analyst : Great. If I can squeeze one in there just on OpEx trend. When I go back, I noticed that your OpEx has been bounced around, is, call it high $90 million to low $100 million range, right? Assuming business improves and your new products start to take off on lighting do you think you can maintain this range of growth OpEx even if let's say your revenue is up quite a bit from here?

Question: Andrew Hughes - BofA Merrill Lynch - Analyst : Hi, thanks guys, this is Andrew Hughes on for Krish Sankar. Someone touched earlier on the LED restructuring. Just curious, is there more margin tailwind or upside left on that program, or do you think most of that is baked in with margins in that segment essentially starting to recover a little bit?

Question: Andrew Hughes - BofA Merrill Lynch - Analyst : Great, thanks for that, Chuck. And then just in terms of those market dynamics, can you just give us a little commentary on pricing trends you are

Question: Colin Rusch - Oppenheimer & Co. - Analyst : Thanks so much. Can you talk about your historical experience with cycle time on product uptake, both for the commercial lighting as well as with the new bulbs? How long does it typically take from introduction to really seeing a meaningful ramp on the revenue line? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 26, 2016 / 9:00PM, WOLF.N - Q3 2016 Cree Inc Earnings Call

Question: Colin Rusch - Oppenheimer & Co. - Analyst : And then in terms of incremental operating margin on those lighting products, is there a target margin that you guys are looking for on those things, and how should we think about the incremental growth and how that drops down to the bottom line in the model?

Question: Sven Eenmaa - Stifel Nicolaus - Analyst : Yes, thanks for taking my questions. First question, I wanted to ask about the visibility on the LED products business, how does it compare to the same quarter last year?

Question: Sven Eenmaa - Stifel Nicolaus - Analyst : And a second question I had is in terms of your new product introductions, how do you think using high-power chips packages you produce versus using third-party mid power? Is there a place for mid power in your new product introductions as well, or you remain focused on in-house production?