Cree Inc. Q4 2009 Earnings Conference Call Transcript

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

Question: Yair Reiner - Oppenheimer & Company - Analyst : Congrats first of all on the nice quarter and good guidance. So first on the LED lighting components, sounds like business is very strong there. Is this largely a reflection of the growing demand for street lighting in China and if so, how large a portion of your business does that represent today?

Question: Yair Reiner - Oppenheimer & Company - Analyst : A quick follow-up to that, we've heard recently some of your traditional competitors in Asia competed with you on the low end are trying now to get in to some of the outdoor lighting applications how do you see the competitive landscape shaping up now versus maybe few months ago? 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: Yair Reiner - Oppenheimer & Company - Analyst : One last questions then I ill cede the floor. On back lighting for notebooks and TVs, I think you've traditionally or over last couple of years have talked about the EC market as being opportunistic, obviously the opportunity today is very large, how long do you think there is going to be a role for you to be able to get the type of margins you want from that market? When you do think the supply constraint is going to be over? And how long do you think this is going to be an opportunity that's worth pursuing for Cree?

Question: Harsh Kumar - Morgan Keegan - Analyst : Couple of questions, sounds like you left revenue behind in this current quarter, John. Could you tell us if you want to tell us how much it was and if you are -- if it comes down to it, would you be leaving revenues behind in your opinion in the September quarter?

Question: Harsh Kumar - Morgan Keegan - Analyst : Great. Question for -- actually, that's a good lead into what I was going to ask next, growth in September as you look in to your backlog which is the market that is growing the fastest for you for your September business in September revenues.

Question: Harsh Kumar - Morgan Keegan - Analyst : I meant within lighting, Chuck, is there a subset within lighting that's better than the others?

Question: Harsh Kumar - Morgan Keegan - Analyst : And my last question before I leave the floor, I think I heard you correctly, you said you're taking backlog for fiscal Q2 which would be the December quarter?

Question: Harsh Kumar - Morgan Keegan - Analyst : Is this typical for you guys or is this something new, in other words is the lead time stretching out or what's going on there?

Question: Harsh Kumar - Morgan Keegan - Analyst : Great, thanks, Chuck, congratulations, guys.

Question: Jesse Pichel - Piper Jaffray - Analyst : Good evening, gentlemen, thank you for taking my questions. Also congratulations on a great quarter in margins. We recently met with the efficiency leaders at the DOE and confirmed allocations for state level efficiency programs how specifically may this translate to orders for Cree and what would the timing be for be potential orders? It doesn't seem like you are benefiting from any spending yet. Perhaps you could just tell us when do you think that will hit and what's the size of that potential pipeline?

Question: Jesse Pichel - Piper Jaffray - Analyst : Could you size that opportunity up for us I mean, I heard some numbers thrown around there for the total efficiency spend and I can't really pin down how much of that would be for lighting efficiency.

Question: Jesse Pichel - Piper Jaffray - Analyst : Margins, obviously margins are fantastic and should we assume then we are seeing already the full benefit of both full utilization and transition to 4-inch and thus the margins have really peaked? Maybe if you could give us some color there in relation to that, what are your CapEx targets there for 2010 and where are you going to spend it?

Question: Jesse Pichel - Piper Jaffray - Analyst : You did with the CapEx spending would be for 2010.

Question: Jesse Pichel - Piper Jaffray - Analyst : Thank you.

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Good afternoon, gentlemen, good quarter. Couple of questions here. First of all, you just said that you're more than halfway through on your 4-inch conversion, when do you expect to be finished with your 4-inch conversion?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Okay, can we talk a little bit about pricing, Chuck. You mentioned that you didn't see too much in components you saw a little bit of pressure on the chips. So can you give us a little bit more color. How much you are out of the normal we are expecting 20% a year, are we on those two, and do you think that's going to change over the next couple of quarters?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Okay. And can we talk a little bit about fixtures, how much sequential growth can you see in fixtures and how is the demand profile and are you able to meet the demand out there for your current fixture products?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : One last question, your distribution revenues for the year were pretty good. How is that channel looking right now for you?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : Thanks 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: Bill Ong - Merriman Curhan Ford - Analyst : Good afternoon, gentlemen. Nice execution on the quarter. Meeting with President Obama, where there any specific discussions that can accelerate LED adoption further either through additional government funding or federal buildings making LED conversions maybe color on your discussion with him?

Question: Bill Ong - Merriman Curhan Ford - Analyst : Thanks very much.

Question: Hans Mosesmann - Raymond James - Analyst : Good quarter, guys. Just a question on Light Engine. You mentioned, Chuck, that that agreement was redone. What did they end up purchasing over the past couple of years just to get a frame work, and what's the new agreement if you can give us any detail 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: Hans Mosesmann - Raymond James - Analyst : Is there an earnout mechanism like the previous arrangement?

Question: Hans Mosesmann - Raymond James - Analyst : When would the supply situation in the industry get better? A lot of people are adding capacity, you guys are adding capacity, is it a one quarter thing or two quarters based on what you can tell?

Question: Hans Mosesmann - Raymond James - Analyst : Thank you.

Question: Lauren Silver - Lazard Capital Markets - Analyst : This is [Lauren Silver] in for Daniel. Thank you for taking my call.

Question: Lauren Silver - Lazard Capital Markets - Analyst : Congratulations on the quarter.

Question: Lauren Silver - Lazard Capital Markets - Analyst : What are the main growth drives that we should focus on for the next 12 months.

Question: Lauren Silver - Lazard Capital Markets - Analyst : If you could break it down little bit further. I know that you are saying they are both taking off at somewhat the same rate. It seems that you guys have greater concentration in say outdoor lighting.

Question: Lauren Silver - Lazard Capital Markets - Analyst : Sorry go on.

Question: Lauren Silver - Lazard Capital Markets - Analyst : Okay. And when we look at your capacity expansion, is this -- like what percentage of your current capacity is expansion or is is there any way that you can quantify the expansion so that we know approximately what your maximum revenue potential could be per quarter?

Question: Lauren Silver - Lazard Capital Markets - Analyst : Okay. So the expansion then, the chip expansion is basically just to feed the internal business, it's not really to sell externally in to the notebook and TV market?

Question: Lauren Silver - Lazard Capital Markets - Analyst :

Question: Lauren Silver - Lazard Capital Markets - Analyst : Thank you very much, that's all for now.

Question: Steve Plinovic - Merrill Lynch - Analyst : How much of your business is from China? 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: Steve Plinovic - Merrill Lynch - Analyst : Do you have a rough sense of how fast that's growing relative to the rest of the business?

Question: Steve Plinovic - Merrill Lynch - Analyst : Okay. You indicated that your business is not so much export driven it's domestic economy, can you talk about how that is playing out right now?

Question: Steve Plinovic - Merrill Lynch - Analyst : In the past you've said that despite the economic recessions and so forth that China is less exposed to that because it's driven by domestic demand for the most part and I'm just curious given the kind of ups and downs of the Chinese economy how that is working?

Question: Steve Plinovic - Merrill Lynch - Analyst : Okay. Finally could you comment about some of these start up companies like Luminous and others who are targeting your marketing or trying to leapfrog or whatever I guess how seriously do you take some of those companies and did you see them at all in the market at this point?

Question: Steve Plinovic - Merrill Lynch - Analyst : Thank you.

Question: Carter Shoop - Deutsche Bank - Analyst : Good afternoon guys and congratulations also on a good quarter. First a clarification you talked about doubling capacity for components on a year-over-year basis are you talking about 4Q 2010 versus 4Q '09? Are you talking about full year-over-year?

Question: Carter Shoop - Deutsche Bank - Analyst : In regards to the amount of revenue you generated in fiscal quarter from the notebook and LCD TV back light unit, could you verify that as a percentage of sales or a percentage of the LED chip business?

Question: Carter Shoop - Deutsche Bank - Analyst : That's helpful. In the chip business can you comment on how long lead times got in fiscal Q4 compared to fiscal 3Q? 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 : Maybe a quarter ago those were closer to one month. Is that a correct--?

Question: Carter Shoop - Deutsche Bank - Analyst : That's helpful. Can you help us what your distribution and technology license strategy is in Europe and how aggressive you can be on those two fronts over the next year?

Question: Carter Shoop - Deutsche Bank - Analyst : One last question for you. When you think about the LED lighting revolution and your place in that market over the next couple of years, where do you see the biggest risk to the Company and to that theme, and is more risk from some of the incumbents on the (inaudible) and other technology side show some modest improvements, is it weak efficiency mandates by the federal government -- similar to wat we saw for fuel efficiency mandates associated with the Cash for Clunkers in the auto industry. Possibly large (inaudible) companies like Samsung, getting involved in the market or is it something else that keeps you up at night?

Question: Carter Shoop - Deutsche Bank - Analyst : That's very helpful. Just a quick follow up in regards to making it easier for your customers to use your technology, is there any acquisitions that you are looking at to accelerate the easy to use therapy, driver company or someone else that would accelerate that development?

Question: Carter Shoop - Deutsche Bank - Analyst : Thanks again.

Question: Ilya Grozovsky - Morgan Joseph - Analyst : Just a question on the linearity in the quarter. Can you just talk about that a little bit?

Question: Ilya Grozovsky - Morgan Joseph - Analyst : Yes. 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: Ilya Grozovsky - Morgan Joseph - Analyst : Do you expect that trend to continue in Q1?

Question: Ilya Grozovsky - Morgan Joseph - Analyst : Thanks.

Question: Ramesh Misra - Brigantine Advisors - Analyst : Good job on the quarter. First question related to your CapEx modulation, is there a target level utilization level that you plan on running the business at as you add up CapEx through the year?

Question: Ramesh Misra - Brigantine Advisors - Analyst : That's helpful. Any updates on your work with LG at this point? 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: Ramesh Misra - Brigantine Advisors - Analyst : May I have one other one since that was so short? I'm just trying to understand the relative slowness in the European market. I would have thought that since them being more aggressive in relation to mercury contamination and stuff like that, I would have thought they would be more rapidly adopting LED back lighting. I just wanted to get to your thoughts in the adoption process over there?

Question: Ramesh Misra - Brigantine Advisors - Analyst : That's very helpful, guys, thanks very much.