Cree Announces LED Business Restructuring, $500 Million Stock Buyback Authorization and Fiscal Year 2016 Annual Operating Plan

DURHAM, N.C., June 24, 2015 - Cree, Inc. (Nasdaq: CREE), a market leader in LED lighting, today announced that the board of directors has approved the following:

  • A restructuring of the LED Products business
  • A $500 million stock buyback authorization for fiscal year 2016
  • The fiscal year 2016 annual operating plan that targets:
  • Revenue to increase to $1.8 billion +/-
  • Non-GAAP operating margin increasing to approximately 8%
  • Free cash flow of approximately $75 million

Due to recent LED market trends that have resulted in higher LED average selling price erosion than previously forecast and the continued under-utilization of Cree’s LED factory, the company has decided to restructure the LED Products business to reduce excess capacity and overhead to improve the cost structure moving forward. Additionally, the company is increasing LED reserves to reflect the more aggressive pricing environment experienced in the current quarter, and to factor in a more conservative pricing outlook for fiscal year 2016. The restructuring charges are targeted to be approximately $85 million and the anticipated amounts by category are as follows, including what will be included in GAAP and Non-GAAP results:


(in millions)

Total

GAAP

Non-GAAP

Capacity and overhead cost reductions

$47

$47

$--

Channel revenue reserves

27

27

27

Inventory reserves

11

11

11

Total Restructuring charges

$85

$85

$38

The company anticipates that the majority of the capacity and overhead related charges will be reflected in operating expenses for the fourth quarter of fiscal year 2015 ending on June 28, 2015 (“fiscal Q4”), with the balance in the first half of fiscal year 2016. The company anticipates that the channel revenue reserves will be reflected as a reduction of revenue in fiscal Q4, and the inventory reserves will be reflected as an increase in cost of revenue in fiscal Q4.

For fiscal Q4, the company now targets revenue to be approximately $375 million, which includes the $27 million revenue reserve discussed above.

  • Lighting Products revenue is targeted to increase slightly sequentially, as strong growth in commercial lighting is expected to more than offset a greater-than-targeted seasonal slowdown in consumer bulb sales.
  • Power & RF Products revenue is tracking in-line with the company’s targets for fiscal Q4.
  • LED Products customer unit demand is generally in-line with our targets for the quarter; however, the combination of the revenue reserves and lower pricing in the quarter is forecast to reduce fiscal Q4 revenue by approximately $35 million.
  • Overall gross margin and operating margin are now forecast to be lower than previously targeted due to the restructuring costs, the more aggressive LED pricing environment, and the larger than targeted seasonal slowdown in consumer lighting.
  • During fiscal Q4, the company completed the previously announced $550 million share buyback program by repurchasing 4.8 million shares of its common stock at an average price of $33.37 per share, with an aggregate value of $160 million. For fiscal year 2015, the company repurchased 16.0 million shares of its common stock at an average price of $34.33.

Conference Call:

The company plans to hold a conference call at 5:00 p.m. Eastern time today to discuss the items contained in this press release, including significant factors and assumptions underlying the targets noted above. The dial-in number for the conference call is (877) 468-6360 ((404) 991-2677 international) and the conference ID is 72302378.

The conference call will be available to the public through a live audio web broadcast via the Internet. For webcast details, visit Cree’s website at investor.cree.com/events.cfm.

About Cree, Inc.

Cree is leading the LED lighting revolution and making energy-wasting traditional lighting technologies obsolete through the use of energy-efficient, mercury-free LED lighting. Cree is a market-leading innovator of lighting-class LEDs, lighting products and semiconductor products for power and radio frequency (RF) applications.

Cree's product families include LED lighting systems and bulbs, blue and green LED chips, high-brightness LEDs, lighting-class power LEDs, power-switching devices and RF devices. Cree's products are driving improvements in applications such as general illumination, electronic signs and signals, power supplies and inverters.

For additional product and company information, please refer to www.cree.com.

Forward Looking Statements:

This press release contains forward-looking statements, including but not limited to the revised fiscal Q4 outlook and the fiscal 2016 operating plan targets described above, that involve risks and uncertainties, both known and unknown, that may cause actual results to differ materially from those indicated in the forward-looking statements. Actual results, including with respect to our targets and prospects, could differ materially due to a number of factors, including the risk that we may not obtain sufficient orders to achieve our targeted revenues; price competition in key markets; the risk that we or our channel partners are not able to develop and expand customer bases and accurately anticipate demand from end customers, which can result in increased inventory and reduced orders as we experience wide fluctuations in supply and demand; the risk that we will be unable to realize the benefits of restructuring the LED Products business; the risk that our results will suffer if we are unable to balance fluctuations in customer demand and capacity; product mix; risks associated with the ramp-up of production of our new products, and our entry into new business channels different from those in which we have historically operated; the risk that we may experience production difficulties that preclude us from shipping sufficient quantities to meet customer orders or that result in higher production costs and lower margins; our ability to lower costs; the risk that customers do not maintain their favorable perception of our brand and products, resulting in lower demand for our products; the risk that retail customers may alter promotional pricing, increase promotion of a competitor's products over our products or reduce their inventory levels, all of which could negatively affect product demand; the risk that we have an increasingly complex supply chain and its ability to scale to enable maintaining a sufficient supply of raw materials; ongoing uncertainty in global economic conditions, infrastructure development or customer demand that could negatively affect product demand, collectability of receivables and other related matters as consumers and businesses may defer purchases or payments, or default on payments; the risk we may be required to record a significant charge to earnings if our goodwill or amortizable assets become impaired; our ability to complete development and commercialization of products under development, such as our pipeline of improved LED chips, LED components and LED lighting products; risks resulting from the concentration of our business among few customers, including the risk that customers may reduce or cancel orders or fail to honor purchase commitments; risks related to our multi-year warranty periods for LED lighting products; risks associated with acquisitions, divestitures or investments; the rapid development of new technology and competing products that may impair demand or render our products obsolete; the potential lack of customer acceptance for our products; risks associated with ongoing litigation; and other factors discussed in our filings with the Securities and Exchange Commission (SEC), including our report on Form 10-K for the fiscal year ended June 29, 2014, and subsequent reports filed with the SEC. These forward-looking statements represent Cree's judgment as of the date of this release. Except as required under the U.S. federal securities laws and the rules and regulations of the SEC, Cree disclaims any intent or obligation to update any forward-looking statements after the date of this release, whether as a result of new information, future events, developments, changes in assumptions or otherwise.

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