Cree Inc Q4 2015 Earnings Call Transcript

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

Question: Paul Coster - JPMorgan - Analyst : Thanks for taking the question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 11, 2015 / 9:00PM, WOLF.N - Q4 2015 Cree Inc Earnings Call So, you're looking for 10% revenue growth I think it was in next fiscal year, Chuck. And is it reasonable to assume that we should see operating leverage given the restructuring actions that you've taken like with a 15% EPS growth is a reasonable expectation or thereabouts?

Question: Paul Coster - JPMorgan - Analyst : 8%, sorry I don't understand.

Question: Paul Coster - JPMorgan - Analyst : I see. My bad. Got it. And in the 10% revenue growth forecast that you've laid out there, can you just give us some sense of what your assumptions are about high-power, low-power mix, and whether there's any sort of heroics really around the sort of Cree sweet spot or whether you can see that the market may go against you and yet still can post those kinds of numbers?

Question: Brian Lee - Goldman Sachs - Analyst : Thanks for taking the questions. I have two of them. First, and forgive me, I think you did cover this but I missed it. The capacity utilization that you're running at on the LED front end currently and then how that compares to last quarter? And then the follow-up was around your gross margin guidance, Mike. It's the same as what you had originally targeted for fiscal Q4 before the restructuring was announced, and I believe that at that time you cited lower-than-expected ASP's accounting for about an $8 million impact to REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 11, 2015 / 9:00PM, WOLF.N - Q4 2015 Cree Inc Earnings Call top line. So wondering how you're getting back to this similar margin level? Has pricing actually improved or is this all about cost now being down or reduced enough to completely offset the ASP environment which is unchanged? Thanks, guys.

Question: Jed Dorsheimer - Canaccord Genuity - Analyst : Thanks, Chuck. Just a follow up to your last answer. Based on the calculations, if I assume pricing is relatively static quarter to quarter it would look as if the restructuring resulted in a reduction of about 40% of the available capacity. Is that the right way to look at the bounce back in, I guess sort of asking Brian's question a different way, the bounce back in margins quarter over quarter?

Question: Jed Dorsheimer - Canaccord Genuity - Analyst : Okay. And then just as my follow-on, as I look at the 10% revenue guidance for the 10% growth in revenue for the year. Given it's out there that you'll be spinning out the power and RF, that's roughly about $150 million of business, is that included in the 10% or are you netting out that $150 million coming out -- or are you netting out the power and RF coming out to get to that 10%?

Question: Mike Ritzenthaler - Piper Jaffray & Co. - Analyst : Good afternoon. By how much does the devaluation overnight of the Yuan affect your view on pricing and competitiveness in LED products in 2016?

Question: Mike Ritzenthaler - Piper Jaffray & Co. - Analyst : Okay. All right. Fair enough. I guess my followup I was curious about -- on the call in June you kind of laid out a bit of a different retail strategy around going after more premium light bulbs. I'm just wondering how that channel has embraced that shift toward more premium light bulbs?

Question: Harsh Kumar - Stephens Inc. - Analyst : Hey, Chuck. Let me ask you an interesting question. When you get to your 85% stated goal by December, what can margins be at that point in time for -- you can answer it either as part of your chip business margins what they could be or even for the whole company? Just any color would be great.

Question: Harsh Kumar - Stephens Inc. - Analyst : Okay, so let me ask you another question. For as long as I've covered Cree, I've noticed that most of your fluctuations in business and vibrations around your business come from the chip side. It seems like your commercial business is on pretty steady growth pattern. So why be in an outside sales LED business, chip business, at all? Why not just completely think about making that [captive]?

Question: Vishal Shah - Deutsche Bank - Analyst : Thanks for taking my question. Chuck, you mentioned reduction in spending on the Consumer segment in order to improve your margins next year. Can you provide some color on what you're spending run rate has been in that business over the last couple quarters and where you think it's going to go down to?

Question: Vishal Shah - Deutsche Bank - Analyst : Okay. And just somewhat longer term question around the profitability of the lighting business. I know it's a function of the mix, but how do you think longer term margins, operating margins, in the lighting business look like given the new pricing environment?

Question: Edwin Mok - Needham & Company - Analyst : Thanks for taking my question. So, first question on the full-year target I know you laid out in terms of LED business being flat and lighting from commercial. I am also wondering how much of that is baked into your guidance based on new product that you guys plan to launch this year or is it based on product you have launched (inaudible) customer base?

Question: Edwin Mok - Needham & Company - Analyst : Okay, great. That's helpful. And then I have a question about capital structure. I know that your debt has gone up partially because you had to buy back stock at this juncture and you plan to spend $150 million of CapEx this coming year. Any way you can kind of think about capital structure and what -- where you think the capital structure goal or how much debt you guys can take on your balance sheet and kind of just [conduct] some guidance on that?

Question: Sven Eenmaa - Stifel Nicolaus - Analyst : Thanks for taking my question. My first question is on the commercial lighting side. Could you discuss where do you see the pricing currently year over year change wise? And what are your expectations for the year? And the second question is, what are your expectations for the royalty and license revenues for the year?

Question: Steven Chin - UBS - Analyst : Thanks for taking the question. Just trying to get an idea on the amount of ASP erosion in LEDs. So if I assume units were flat and add back some of the channel in inventory reserve, I'm calculating ASPs were down about 15%. So is that the right way to think about it?

Question: Steven Chin - UBS - Analyst : Got it. Thanks. And then just given where prices are, how have you thought about going out and buying chips, especially mid-power chips and high-power chips instead of making them? And then how do you think that will impact your gross margin going forward?

Question: Jeff Osborne - Cowen and Company - Analyst : Good afternoon. Most of the questions were answered. Chuck, I just had a question on the premium bulb strategy. Is that going to be using internal chips or would you be buying outside chips? And then I also might have missed this on the call, but did you break out what consumer was for the quarter? You had indicated that it would be running at a consistent run rate to the current quarter, but I missed the actual number for the quarter.

Question: Andrew Hughes - BofA Merrill Lynch - Analyst : Good afternoon. This is Andrew Hughes on for Krish. Back to China really quickly. Just curious, have you seen the macro situation significantly impact demand for LEDs there? And then on the flip side, is the weakening there from a macro perspective, as well as some credit tightening, have you seen that impact your Chinese competitors ability to scale up or expand at all?

Question: Melissa Fairbanks - Raymond James - Analyst : Sorry about that. It's Melissa for [Hans]. I was wondering if you guys could give us a little bit more detail into the dynamics of the LED product segment for FY16? We saw a pretty dramatic decrease in FY15 and then to expect kind of flattish trends next year. Just kind of wondering what's shaping that expectation? Thanks.

Question: Melissa Fairbanks - Raymond James - Analyst : Okay. At what point could we expect to see year-over-year growth in that business? Is the contribution from the higher-end new products going to offset -- pretty much balance out competitive issues going forward?