Cree will sharpen its focus on LEDs and SSL with sale of Wolfspeed, while LEDvance and Sylvania suggest a transition to smart lamps is coming and New York will build the solar-lit Lowline.
Cree has announced that it is selling its Wolfspeed business unit that makes power and RF semiconductors to Infineon, and now will have a sole focus on LEDs and solid-state lighting (SSL). The eighth annual Sylvania socket survey has been released by new parent LEDvance, and reveals that smart, connected LED lamps may find a bigger market in homes than some have predicted. New York City appears set to move forward on the underground Lowline project that will provide new recreational real estate underground for local citizens via an innovative approach to lighting.
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The deal struck between Cree and Infineon was for $850 million in cash. While the sale will surely provide resources for Cree to further invest in LEDs and lighting, the news is probably more important from the perspective that LEDs and SSL will be the total and razor focus of the organization going forward.
"Selling Wolfspeed to Infineon speeds our transition to a more focused LED lighting company while providing significant resources to accelerate our growth," stated Chuck Swoboda, Cree chairman and CEO. “Divesting Wolfspeed is targeted to reduce short-term profits, but increase free cash flow. We believe this is the right decision for the company, as it unlocks value, increases management focus on the core business, and supports our mission to build a more valuable LED lighting technology company. We target using the capital raised, combined with improved free cash flow, to fund select M&A, as well as to support additional stock buybacks."
Cree had restructured its core LED business back in 2015 as the industry dealt with price erosion in packaged LEDs and a transition to mid-power LEDs. Even in the face of that tough economic period, however, Cree had said it would invest in R&D and buying back shares on the market. And Cree had said at that time it would pursue an initial public offering (IPO) for Wolfspeed. But now Cree says a number of companies subsequently approached it about an outright acquisition, and clearly management thought the Infineon deal would generate the most value for shareholders.
Technically, there was some synergy between Cree‘s high-power LED manufacturing technology platform and the technology that underlies power semiconductors made by Wolfspeed. In both cases, silicon carbide (SiC) substrates offer some advantages in terms of current density and performance relative to legacy substrates. And gallium-nitride (GaN) epitaxial layers are used in each instance. But there was little synergy between Cree‘s main business and that of Wolfspeed beyond the manufacturing angle. Infineon, conversely, has a broad line of power and RF semiconductors.
Cree said the Wolfspeed business earned revenue of $173 million in the year that ended March 27,2016. That will be the short-term revenue loss referenced by CEO Swoboda. Cree said it anticipates $585 million in net proceeds after taxes and other costs central to the deal, and that the deal should close before the end of 2016.
Cree also used the announcement to provide a positive update on the LED and lighting businesses. The company said the commercial lighting sector has gained momentum during the ongoing 4th quarter of the Cree fiscal year. Formal results will be announced in mid-August, but Cree said it projects revenue at the upper end of its target range of $388 million. Moreover, in good news for the LED component industry, Cree said component revenue was up more than expected in the quarter
