Cree has a "substainable competitive advantage" based on its proven ability to manufacture products based on Silicon Carbide (SiC). This is true even though gallium nitride (GaN) is the preferred material for blue, High Brightness-LEDs, power amplifiers, etc. Manufacturers would like to grow pure crystals of GaN, slice off wafers and fabricate HB-LEDs directly. They can't, because GaN is too difficult to create. They grow GaN on a substrate in a hot chamber by depositing gallium and nitrogen vapor, on atom at a time.
Cree uses SiC as the substrate. Their competitors use sapphire. Although SiC is a difficult material to use for semiconductors, it is cheaper than sapphire. In their conference call in Jul02 (for the Jun02 quarter), they noted that their manufacturing cost is lower than their key competitors (Nichia and Toyoda Goseii), so they lowered their prices to drive higher chip volumes. This process accelerated during the Sep02 quarter.
Note that the Barron's article didn't understand what Cree is doing. They lowered their prices to increase chip volume. Increased chip volume leads to increased yields (along with a few other factors). Thus the "virtuous" cycle is underway. The Barron's article described the "death spiral." Increased competition leads to lower prices and chips volumes. Nichia and TG could be experiencing this cycle.
Cree has stated on several occasions this year that their strategy is to drive down their manufacturing costs (ex: migrating from 2" to 3" wafers) in order to reduce product cost, drive chip volumes and drive the blue HB-LED market.
Cree will also be successful in the rectifier and power amplifier market, but they have little revenue in these markets and I haven't heard them talk about pricing and competitive issues. Maybe they will on 16Jan. I don't think any analyst has ever asked them a question about rectifier market. |
