More on the Siemens contract from the News and Observer (local paper)
DURHAM -- Cree Research is expected to realize more than $17 million
under a new supply contract with German industrial giant Siemens AG.
The contract is the company's largest ever, making it "the best news we've
ever had," said Neal Hunter, the Durham-based company's chief executive
officer.
The contract is an expansion of Cree's existing deal to supply blue
light-emitting diodes to Siemens. That contract reaped "a little bit north of" $12
million for the fiscal year that ended in June, Hunter said.
The good news couldn't help Cree's stock, however, on a day when the
Dow Jones industrial average dropped 249.48 points. Cree shares fell 50 cents
to $12.375.
"The stock market stinks," Hunter said.
Herbert Jackson, an analyst with Renaissance Ventures in Richmond, said
that failing to win a new contract with Siemens would have been terrible news
because Siemens is Cree's biggest customer by far.
Siemens' primary use for Cree's blue LEDs is a system for illuminating
automobile dashboards used by Volkswagen in its increasingly popular cars,
including the Beetle, Golf and Jetta.
Cree said it expects the Siemens contract to account for one-third of its
product revenue this fiscal year. Analysts project product revenue of $53 million
to $55 million this year, and total revenue -- including government contracts and
other development contracts -- of up to $60 million. For the fiscal year that
ended June 28, Cree posted a profit of $6.3 million on total revenue of $42.5
million.
In addition to using the blue LEDs for Volkswagen dashboards, Siemens also
is developing new uses for them, said Hunter. That includes other automotive
applications as well as illuminating LCDs, or liquid crystal displays, used in
consumer electronics.
"We haven't heard the end of this," Hunter said. "This is the base contract.
This could be extended."
Cree's manufacturing efficiency has made it the market leader in blue LED
production. The company's closest competitor, Japan-based Nichia, sells
brighter blue LEDs but they cost twice as much. Nichia's blue LEDs consist of
gallium nitride on sapphire; Cree's are made from silicon carbide wafers.
Cree has reduced the price of its blue LEDs by about 50 percent over the
past 12 months by manufacturing larger wafers -- 2 inches in diameter rather
than 1 5/8 inches.
"We are expanding our margins while lowering the price," Hunter said.
Jackson said that the Siemens contract is especially gratifying because
Cree's greatest potential lies in semiconductors, not blue LEDs.
Giant companies such as Motorola, Westinghouse and Philips Electronics are
experimenting with silicon-carbide transistors and chips. Cree is believed to be
the only company capable of producing commercial quantities of silicon-carbide
wafers, which can operate at higher temperatures and higher voltages than the
silicon wafers commonly used for transistors and computer chips.
Cree also supplies clear silicon carbide to C3 Inc., a Morrisville company
that produces diamond substitutes. C3 was founded by Cree co-founder Eric
Hunter and is headed by Jeff Hunter, both of whom are Neal Hunter's brothers.
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