Cree: "LEDs have changed the lighting market"

08 Aug 2012

But the LED manufacturer and solid-state lighting company says that more innovation is needed before the residential market takes off.

LED lighting pioneer Cree has increased its annual revenues to beyond $1 billion for the very first time, despite fierce competition in the emerging market and a weak macroeconomic background.

Chuck Swoboda, long-time CEO at the North Carolina company, reported total sales of $1.16 billion for Cree’s 2012 financial year, which ended on June 24. That represents an 18% increase on the figure for fiscal 2011, although the jump was largely due to the firm’s $525 million acquisition of Ruud Lighting almost exactly a year ago.

However, tough competition in the sector has eaten into Cree’s profit margins. According to standard accounting principles, the company reported an operating income of $39.3 million for fiscal 2012 – sharply down from $169 million in the previous year.

Despite that, Swoboda told investors that Cree had performed strongly in the latest quarter, and was seeing increased adoption of LED lighting. The company has introduced a raft of new products in the past few months, including the latest version of its “XLamp” LED, which is said to more than double the key lumens-per-dollar metric in comparison with earlier technology.

And just last week, the US firm said it had also developed a prototype 170 lumen-per-watt LED light bulb that would represent the most energy efficient product of its type on the market if it becomes commercially available.

Reducing the cost of solid-state lighting (SSL), through both chip-level innovation and advances in optics, thermal handling and packaging, is seen as critical for the technology to truly break through into the mainstream consumer lighting market.

“The lighting industry has been doing things the same way for a long time,” Swoboda told an investor call. “The lighting industry has been doing things the same way for a long time, but I think it is clear that LEDs have changed the market forever.”

Residential SSL market 'needs more innovation'
At the moment, the vast majority of LED lighting products are sold into industrial and commercial lighting applications, for example municipal installations such as street lighting, and for high-profile events such as the London Olympics.

One recent example is what Cree claims to be the largest municipal street lighting project in China, with 1.9 million of the US company's LEDs used inside 20,000 new street lights for the country’s BeiBei district.

But the huge residential market remains relatively untapped. Although LED-based replacements for standard incandescent light bulbs and halogen lamps are now widely available, they remain far more expensive than the older technology, and Swoboda admits that there is more work to do before the residential market takes off in a meaningful way.

“We’re just not quite there, and I think there is still some innovation that is needed before that becomes ‘mainstream’,” he said. Although Cree’s LED lamps are already sold through the Home Depot store, Swoboda says that this channel is not yet a major business driver for the company.

“One of the reasons why the [residential] market hasn’t moved to that next level is that consumers want a bulb that works pretty much like the one they have today,” the CEO added. “They want the light to come out in all directions, they want it to dim, and do the other things they would expect it to.”

“So our first challenge as an industry is that we’ve got to come up with products that really solve that problem. Second; we have to find ways to hit certain price points,” Swoboda concluded.

Although the CEO believes that the macroeconomic headwinds could hit Cree's sales growth in the near term, he forecast that sales in the current quarter would increase slightly on a sequential basis, to between $305 million and $325 million.