Cree Inc Q4 2011 Earnings Conference Call Transcript

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

Question: Chris Blansett - JPMorgan Chase & Co. - Analyst : I had a quick one here. You mentioned that your utilization rates are going to uptick slightly in the first fiscal quarter. I wanted to get a feel for how you think your inventories are going to trend during the quarter. And then the second question was related to the impact of the ramp of 150 mm on your overall gross margin profile for the quarter.

Question: Chris Blansett - JPMorgan Chase & Co. - Analyst : A quick follow-up was -- so your utilizations in the fourth fiscal quarter were relatively sideways with the third fiscal quarter?

Question: Chris Blansett - JPMorgan Chase & Co. - Analyst : Thank you, appreciate it.

Question: Steven Milunovich - BofA Merrill Lynch - Analyst : Hey, Chuck, could you dive a little bit more into the demand side? Last couple quarters, distributors have been the problem, it sounds like that came back a bit. I think you said inventory at distributors is down. So it sounds like there was reasonable sellthrough. Can you talk about what applications you think are improving and specifically talk about what's going on in Asia from what you can tell and particularly in the China streetlamp area, when that is likely to pick up?

Question: Steven Milunovich - BofA Merrill Lynch - Analyst : Can you indicate what percentage of your revenue for the full year was from China?

Question: Dale Pfau - Cantor Fitzgerald - Analyst : If we kind of call last quarter then, your third quarter the bottom and we're starting to see demand pick up, could you talk a little bit about the competitive landscape, anybody new, anybody old dropping away? And also talk about the pricing pressure -- it looks like over the last say 12 months, it's been a little bit stronger than historical norms. Do you think you see that pricing pressure in the next several quarters being in the range of historical norms or continuing pressure? Then I've got a follow-up.

Question: Dale Pfau - Cantor Fitzgerald - Analyst : And then my follow-up has to do with -- out there on the technology improvement side, you've been pushing your luminosity and so on pretty quickly. And are you still leading your competitors? Are your customers saying no they don't really care about that anymore and I don't know, 120 is good enough? Can you talk about that a little bit and any changes you see over the next again 12 months?

Question: Harsh Kumar - Morgan Keegan & Co., Inc. - Analyst : Two questions. Chuck, how would you characterize the inventory and pricing in LED lighting products versus non-LED lighting components? So in other words, general lighting versus the rest.

Question: Harsh Kumar - Morgan Keegan & Co., Inc. - Analyst : Components.

Question: Harsh Kumar - Morgan Keegan & Co., Inc. - Analyst : Got it, got it, helpful. And then if I was to look at your margins, Chuck, of 38 and change and guidance as well, how much do you think is pricing, the step decline, versus yields? And which do you think is a bigger factor here?

Question: Josep Pujal - BNP Paribas - Analyst : Good afternoon, gentlemen, it's nice to see some stability in the market. Do you have a view on liquidity available for energy savings ROI projects, high ROI projects? And given your balance sheet, would Cree consider any such opportunities to finance energy savings projects such as streetlights for instance, just to pick something randomly?

Question: Josep Pujal - BNP Paribas - Analyst : As maybe a follow-up to that, can you give us any color on the traction of the troffer product for instance which was pretty busy at the light fare show, your booth was, that is, how much sales have you had from the product or what kind of distribution have you received thus far?

Question: Andrew Huang - Sterne, Agee & Leach, Inc. - Analyst : Okay, so just a big picture question. Obviously, everyone is concerned about the global economy and the effect that has on spending. So maybe could you share with us what your biggest customers are saying on LED lighting?

Question: Andrew Huang - Sterne, Agee & Leach, Inc. - Analyst : Customers that are buying components.

Question: Andrew Huang - Sterne, Agee & Leach, Inc. - Analyst : Okay, can you give us a sense of how much lower your LED lighting systems margins are relative to the corporate average? So are they more in the 20% to 30% range or more like the 30% to 40% range?

Question: Ahmar Zaman - Piper Jaffray & Co. - Analyst : Just switching topics to backlighting, what are you seeing on that front? And do you need backlighting to return to meet your -- to continue to grow your utilization meaningfully over the next few quarters?

Question: Ahmar Zaman - Piper Jaffray & Co. - Analyst : Thanks, as a follow-up, I guess just your tone sounds remarkably more positive this quarter than last quarter. What has changed in general lighting specifically that it's turned things around -- turned demand around so meaningfully for 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.

Question: Joshua Paradise - Morgan Stanley - Analyst : Congratulations on the traction in the LED lighting in the systems business. Can you give some more detail on how big that business is today as a percent of sales and how big -- what percent of the business you think it could become?

Question: Mark Heller - Credit Agricole Securities - Analyst : Had a quick question. John, can you say -- I know you said utilization was maybe as low as [60]% but is there an average utilization yet for the quarter? And I was wondering if you could estimate what the gross margin impact was from the low utilization. So say if you were running at 95% utilization, whatever normal is, what would the normalized gross margin be in the fiscal fourth quarter?

Question: Mark Heller - Credit Agricole Securities - Analyst : Okay and on ASPs, I know you talked about it a little bit, but sequentially can you talk about how they've trended in fiscal Q4 and what they're looking liking Q1? Was it like a double-digit decline in Q4 and sort of single-digit decline in Q1? Could you just talk about that?

Question: Carter Shoop - Deutsche Bank - Analyst : Could you help us better understand how your visibility has improved over the past three months? Maybe try to provide a few numbers on lead times or kind of the bookings growth you have seen? I noticed that you narrowed your revenue range for the upcoming quarter but it's not clear to me how much of that is due to the fact you guys have an extra month of visibility this quarter versus last quarter.

Question: Carter Shoop - Deutsche Bank - Analyst : That's helpful, thanks. And a follow-up question, maybe a little bit longer-term question here. How do you see the geographical mix changing over the next two to three years for the Company? Do you expect to see China continue to decrease as a percentage of sales going forward?

Question: Carter Shoop - Deutsche Bank - Analyst : That's helpful, thank you.

Question: Jed Dorsheimer - Canaccord Genuity - Analyst : So thanks for taking my question. I have two today. I guess the first one -- you know with China sort of falling off with -- the fact that you've successfully gotten the L Prize before the specs are out, have you changed your tune -- and you've partnered with a nice large traditional bulb guy -- have you changed your tune and become more bullish on the replacement bulb market?

Question: Jed Dorsheimer - Canaccord Genuity - Analyst : Sure, I guess what I was trying to get at is did you see that a bit more as a growth driver whereas before I think you were -- and maybe you still are -- but I think the growth driver that you talked about was some of the street lighting market. And then as my follow-up question, in terms of carrying your inventory levels, typically going into a transition, you want to carry higher inventory. So if we just took a scenario analysis and looked at hypothetically keeping sales flat post the transition, where do you think inventories would come out in terms of day sales as you go through that six-inch transition?

Question: Olga Levinson - Barclays Capital - Analyst : I was hoping you could talk a little bit more on the implications for your gross margins from the move or the increasing mix in the actual LED modules and the lighting systems themselves. Specifically, I guess outside of the fact that it's a little lower than the components business, how do you think about the actual transfer pricing between components and systems and whether this move will actually pull down the component gross margins as you go forward?

Question: Olga Levinson - Barclays Capital - Analyst : Got it. And then in terms of your comments on the potential CapEx into fiscal 2012 of $160 million, can you talk about what percentage of that is targeted at incremental capacity rather than just converting to 150 mm?

Question: Olga Levinson - Barclays Capital - Analyst : Got it and just a final question --.

Question: Satya Kumar - Credit Suisse - Analyst : I know you guys mentioned that your lead times are lower. I was wondering if you could quantify where is that in terms of weeks?

Question: Satya Kumar - Credit Suisse - Analyst : Do you break out sales -- what portion of sales was to distributors versus others and how that portion might have grown in fiscal Q4?

Question: Hans Mosesmann - Raymond James & Associates - Analyst : Can you guys confirm what was your long-term gross margin model? I think you said mid-40s. I thought it was in the mid to high 40s?

Question: Hans Mosesmann - Raymond James & Associates - Analyst : Yes, I understand that. I just wanted you to confirm that it's mid to high 40s and I have a follow-up just on the use of sapphire versus silicone carbide. Thanks.

Question: Hans Mosesmann - Raymond James & Associates - Analyst : Fair enough. And then can you parse out if you can if you're using sapphire wafers or substrates versus silicone carbide and what's the mix if that matters?