Cree Agrees to Sell Lighting Products Business to Power Management Company
Cree, an early flag-waver for LED technology during the government-mandated transition to energy-efficient lighting (see 1405090068), agreed to sell its lighting products business unit to Ideal Industries for about $310 million, it said Friday. Cree expects to receive an initial cash payment of $225 million, subject to purchase price adjustments, and could receive a targeted earn-out payment of $85 million based on accounting metrics over a 12-month period two years after the transaction closes, expected in fiscal Q3.
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Cree made progress over the past 18 months shifting focus to its semiconductor business, said CEO Gregg Lowe in a statement. Cree is again positioning its technology toward industry shifts, now to the auto industry’s transition to electric vehicles and the telecom industry’s move to 5G networks. It also plans a continued ramp up of LEDs for specialty applications, it said, touting its silicon carbide and gallium nitride products.
Ideal, a family-owned company in electric power control and management products, sees Cree’s lighting portfolio and SmartCast technology as complementary to its control business and its channel of suppliers, distributors, agents and customer relationships, said CEO Jim James.
Cree took an especially hard hit from the Trump administration's Section 301 tariffs on Chinese goods. It predicted on an August earnings call that the 25 percent List 1 duties that took effect July 6 would reduce profit by 2 cents a share in the September quarter and 3 cents a share each quarter to follow (see 1808150009).
The LED maker fought unsuccessfully in the first round to defeat tariffs on LEDs it reimports from China under the Harmonized Tariff Schedule’s 8541.40.20 subheading, based on wafers it produces in the U.S. (see 1806150030). Cree was slapped with another round when the second tranche of tariffs that took effect Aug. 23 included duties on the silicon carbide power semiconductors it shipped to China for final packaging before reimporting them to the U.S. The company argued unsuccessfully that tariffs on those components would hurt its “competitiveness” in the U.S.
Five years ago, a Cree goal was to drive 100 percent market adoption of LED light bulbs, leading the charge via single-channel distribution through Home Depot stores, while building a consumer brand for the first time. Friday, a two-pack of 60-watt-equivalent Cree-branded bulbs was selling for $4.36 at the home improvement retailer; a single 60-watt Cree bulb sold for $6.97 five years ago.
Price was key to Cree’s early strategy, coming at the expense of gross margin. In Q1 2014, its lighting products unit revenue grew from $130 million to $176 million year over year. In its most recent quarter ending Dec. 30, lighting products revenue fell 8 percent to $132 million, for nearly a third of the company’s total revenue.
During a 2014 news-media swing in New York, Mike Watson, then vice president-product strategy, trumpeted Cree’s SmartCast system, launched for the commercial market and planned for residential. Watson noted its single-button operation for control of up to 240 lights at once and so simple that “anyone can do it.” SmartCast senses how much light is coming into a room and uses its motion- and ambient-light-sensing technology to determine when lights need to be on, he said. The Cree website Friday positioned it solely as a technology for businesses.