Cree Sells its LED Business Unit
Cree is selling its LED business unit for $300 million, the latest move in its long-term strategy for SiC and RF growth.
North Carolina-based semiconductor manufacturer Cree recently announced the $300 million sale of its LED (light-emitting diode) business, consisting of LED chips and LED components.
The transaction with California-headquartered SMART Global Holdings will include a $50 million upfront payment upon closing, a $124 million seller note and an earn-out payment of up to $125 million. Pending regulatory approval, the sale is slated to close in early 2021. SMART will bring Cree’s LED brand name into its portfolio of memory, storage and computing solutions.
The divestiture will allow Cree to further accelerate growth for its Wolfspeed business unit, focused on silicon carbide (SiC) and gallium nitride (GaN) materials and radio frequency (RF) devices. Post-sale, Cree aims to expand its SiC power and RF segments, meeting new demand within the automotive, industrial energy and communication infrastructure, aerospace and defense markets.
In a presentation to investors on Oct. 19, Cree set its fiscal year 2024 revenue target at $1.5 billion, anticipating 30% growth from Wolfspeed with wider BEV (battery electric vehicle) and 5G adoption.
The move is the latest chapter in Cree’s $1 billion plan to expand its SiC and GaN segments, a shift it first introduced in 2018 with the €345 million acquisition of Infineon Technologies’ RF power business and a long-term wafer supply agreement with Infineon valued at over $100 million.
The newly announced LED business sale comes nearly two years after the company sold its Cree Lighting business unit for $310 million in March 2019. Cree Lighting consisted of LED lighting fixtures, lamps and corporate lighting products for commercial, industrial and consumer markets. Cree said the transaction would provide resources to help accelerate growth for its SiC and GaN segments at Wolfspeed.
Two months later, in May 2019, Cree announced significant production capacity expansions with a new wafer fab facility in New York and a materials mega-factory at its headquarters in Durham, North Carolina.
In announcing the LED business sale on Oct. 19, Cree CEO Gregg Lowe said the move represents a milestone in the company’s journey to create a “pure-play” semiconductor powerhouse with global reach.
“This transaction uniquely positions us with a sharpened strategic focus to lead the industry transition from silicon to silicon carbide and further strengthens our financial position, which will support continued investments to capitalize on multi-decade growth opportunities across EV, 5G and industrial applications,” Lowe added. “SMART has a strong platform and a solid track record of successfully acquiring and integrating technology businesses.”
After the news was released, Cree (Nasdaq: CREE) stock soared to a one-year high of $73.93 per share on Oct. 19. The price has since increased to around $80 per share as of Nov. 19 after JPMorgan upgraded the stock from neutral to overweight and raised the price target from $85 to $90, as Wolfspeed products fulfill demand in the burgeoning renewables and EV markets.
A three-month view of Cree stock growth from Aug. 18, 2020, to Nov. 19, 2020. (Chart via TradingView)
However, Cree’s latest earnings results show a big loss for the company over the past quarter. For the first quarter of 2021 (ending Sept. 17, 2020), Cree reported $216.6 million in revenue, an 11% decrease from the same period in 2020. Still, revenue increased by 5% from the fourth quarter of 2020.
By market segment, Wolfspeed sales accounted for 53% of Cree’s total revenue for the quarter, while its LED products netted 47% of the company’s revenue.