Chuck Swoboda addressed our investment club in Cary yesterday. He gave the current analyst talk followed by 20 minutes of questions and answers. Unfortunately we didn't have enough time to ask about two thirds of our questions. Become a Complete Fool
In the next three years Cree's most important business is to make white light. We will continue to invest in areas like Cree Microwave as long as it looks like we are making progress because we want to be more than just a LED company in the future and because we believe our technology has advantages in other areas.
1) Where do you see sources of future growth in LEDs?
Lighting outside buildings, neon tubes, landscape lighting, areas where energy efficiency and reliability justify the expense. Less than 20% of the US traffic lights are LEDs and the US is ahead of the rest of the world. Only one domestic car has LEDs and that is the Navigator. Cree's LED revenues are up 50% in the last 6 months and the automotive area has kept pace with this growth.
Once 70 to 80% of the cell phones have color displays that market will slow down but currently less than 20% have color displays and next year only 40% will have color displays so we still have a couple years of growth left here.
2) What is your market share in handsets and automotive?
We don't know but we are one of the top producers of blue LEDs for handset keypads, Nichia is top in white LEDs for backlighting the color displays. This year our ability to penetrate white LEDs in handsets goes up because of our packagers. We do as good as anyone at blue, green and white LEDs in the automotive area but there isn't any good market research done in this area.
3) Will competition increase due to the Nichia settlement?
Nichia settled with all the top competitors. We are all competing head-to-head so competition won't increase. This settlement allowed everyone to keep and strengthen their IP. In patent litigation you always risk losing your patent. Cross-licensing makes the patents stronger. Expect to see more litigation in the area with the second tier competitors from Taiwan who don't have much IP.
4) To what extent do you see Cree Microwave as a source of future growth?
I believe in wireless and, although there is not much of a market today, I think that market will come back again. Generally we like wireless. We believe SiC and GaN based transistors can disrupt that market and do things better than we can do them today. So long term, I still believe that we have the ability to do what we set out to do. We are doing some pretty innovative things and we are learning how to add a lot more value and it is taking longer to get momentum there. We are still investing in it. We will continue to ask ourselves if we are investing in the right part of it. Should we invest heavier in the silicon side to get it going there faster or should we limit our investment there and move to SiC? I still think Cree will have a play one way or another. As long as Cree Microwave continues having incremental progress we are going to keep going down this road. If we are not having this progress you may see us focus more on just the SiC and GaN.
5) So you don't have a timeframe for when you are going to switch over to the SiC?
You will see us this quarter our target is to release a new SiC Mosfet. It will be the first one out there. The design cycles are about 18 months, so it takes a year and a half before you know if you really got something. But you will see more of the newer technology being released here in the next 6 to 9 months, hopefully, as we get some of the SiC products out and that will really help validate whether our strategy is working or not.
6) What have you learned in the last year and a half since becoming Cree's CEO?
I have learned to trust out strategy more because it works. We really made a bet by taking all those resources and saying we're just going to do more R&D. So I feel very good about that part of the strategy. I think we need to focus even more. I think there are some fundamentals that got us here and I think one of the things we are asking ourselves everyday is the Cree Microwave question or things like that. Is it better to invest here or here? So we aren't looking to add any more lines to that tree but saying should we even invest heavier lets say in LEDs. Not that we don't want to invest in the other ones but change the ratio and really go after the one that can grow.
So probably what I learned more is stick to what got us here. And the other thing is that we are over 1000 employees, we're 1078 as of last week, and I think there are times when you are growing and you wonder if you have to do things differently because you've become a bigger company and I think my feeling now that I am a year and half into it is absolutely not. Everyone is going to tell you that you have to fix it because you're getting bigger. But the same values that got you there ---I believe in the opposite of what is happening at HP, the current CEO of HP was hired to throw away the old culture and create a new one.
We are not going to throw out the old culture at Cree. There are reasons those things were put in place; not that you shouldn't challenge it and try to make it better. We are going to grow with what got us here. One of the challenges is that, when you have over 1000 employees, our culture is obvious to the people who have been here a while but it is not obvious to the person who has been here for 3 weeks and use to work for Motorola. We have to invest a lot more time and energy in teaching who we are because Cree is a very unique place. I tell people on the interview don't come unless you really want to be here bad because it will never be worth the money. Because its so focused on trying to build this really great company and really driving the technology we still work like a startup and we ask people to go all out and that can put some stress on people.
I also learned to ignore outside expectations. Living through the stock market of the last 18 months has been a humbling and sometimes a unique experience. We certify our financials, we do all those great things now and they probably do have some benefit at the end of the day. If next quarter is not good I won't feel bad about telling you its not good. I'll feel bad if it's not good because that's not what we want to do. Reality is reality we're not paid to optimize it; were just going to go do it.
There is no way Cree can release all the information to counter all the rumors. The institutional community is working off a whole different set of information that is not coming from the companies (like Cree). You'll never have access to the information they are seeing. Off Wallstreet owns a hedge fund, sells Cree short, and writes an 18 page report on ---this is why Cree will fail.
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Chuck Swoboda addressed our investment club in Cary yesterday. He gave the current analyst talk followed by 20 minutes of questions and answers. Unfortunately we didn't have enough time to ask about two thirds of our questions.
Become a Complete Fool