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To: 100cfm who wrote (13999)	1/3/2000 5:44:00 PM
From: StockHawk	Read Replies (2) \| Respond to of 54805

>>20% of revenue was from C3. C3's purchase obligation expires in june. This is particularly disconcerting because C3's product is not faring well in the market place. Do you see Cree picking up the slack elsewhere?<< This is a few months old, but i do not think it has been posted here and it is germain to your question: By Herb Greenberg Senior Columnist 7/30/99 6:30 AM ET So, an item here yesterday questioned whether Cree Research (CREE:Nasdaq) would be able to continue to get 20% of its revs from C3 (CTHR:Nasdaq), which makes fake diamonds made of moissanite. Cree sells silicon carbide crystals to C3, which uses them to make the fake gems, and C3's sales growth lately has paled compared with its own estimates. A Cree spokeswoman wasn't available at the time, but she called yesterday with what seems, on the surface, to be a simple answer: Cree will get 20% of its revs from C3 because C3 has a sales agreement with Cree that requires C3 to buy all of Cree's silicon carbide crystal production through next June. Say again? A sales agreement requiring C3 to buy everything moissanite-related Cree makes? Yup. You thinkin' what I'm thinkin'? Doesn't that sound a little like one company (C3) handing a blank check over to another company (Cree) with the unspoken understanding that one company (C3) will buy whatever the other company (Cree) needs to make its quarter? You might think, though Cree CFO Cynthia Merrell doesn't see it quite that way. Among other things, fake gems are not a big part of its future plans, she says. But she adds that it has been "nice" to get the kind of profit margins that biz generates as well as the cash it has helped provide for research and development. Still, there's no getting around that Cree and C3 have an agreement that insures that Cree, with a million-dollar market cap (make that $900 million; it lost 10% of its value Thursday), will have a ready buyer for all the silicon carbide crystal product it makes. The agreement is disclosed, in detail, in C3's 10-K and proxy. (You would never know the coziness of the deal -- the "buy-all aspect" -- if you just read the "certain relationships" disclosure in Cree's SEC filings. Cree felt that was C3's responsibility. According to C3's SEC filings, in fact, the agreement actually ended at the end of June. But it was extended for another year, Merrell says.) So, why should anybody have a problem with such an arrangement? On the surface, at least, this agreement looks too close for comfort. Never mind that the CEOs of the companies are brothers, or that a third brother helped start C3. And forget that until very recently Cree and its officers and directors owned around 5% of C3. (They sold it, Merrell says, for just the reasons nosy reporters seem to keep asking about.) The real issue is what happens if demand for moissanite diamonds, which are only made by C3, aren't what C3 expects? As yesterday's column showed, C3's sales growth is slowing and its inventories are ballooning. C3 says the inventory will be worked off over the next half of the year as it more than doubles the number of stores that sell moissanite. That raises another issue: C3 only sells moissanite to independent jewelry stores. It says it doesn't sell to the chains, like Impostors, the national fake-gem chain, because it doesn't want to cheapen the fake-gem's image. However, my assistant, Mark Martinez, got a different story from Impostors' marketing director Kathleen Jordan, who said, "We actually looked into moissanite, but declined ... The prices were just too high for moissanite." She added that diamonds made from cubic zirconia are "more accepted in the marketplace." Merrell, from Cree, says that even if moissanite doesn't do as well as expected, her company figures that in a few years it'll be a tiny part of its overall business. Maybe, but as this column pointed out yesterday, right now is all that counts. Either way, you gotta agree: This is a gem of a story.

To: 100cfm who wrote (13999)	1/3/2000 7:21:00 PM
From: unclewest	Read Replies (1) \| Respond to of 54805

1. 10% of revenue in 99 was from research grants. Do you see that continuing? short term...yes long term...i don't know 2. 20% of revenue was from C3. C3's purchase obligation expires in june. This is particularly disconcerting because C3's product is not faring well in the market place. Do you see Cree picking up the slack elsewhere?(ie:with increased LED demand). ceo has stated twice that cree has lots of places to put cthr's SiC, if cthr backs up. i am not certain that i agree quite yet with your assessment of cthr...you may be right...i do not think it will matter to cree. in fact cree may be able to funnel the production to higher margin products. i believe cthr was 15% last quarter, may be less now. 3. Since Sic is so difficult to produce(which is why cree is so interesting) what is Sic's scalability, do you see the yields increasing to the point that it can be produced in mass Quantities to meet a mass market adoption. I realise that more growers producing bigger wafers increase quantities but if the market were to utilize Sic's full potential the demand could be incredible to the point that i wonder if the number of growers needed would be ridiculous. cree has said that they believe they can increase yield from current wafers by 400%. also cree has recently switched from 2" to 3" crystals and demonstrated 4", and stated they believe 10-12" are quite feasible. figure the square area and you will find the progression is geometric. 4. The three Sic growers that Cree is presently using are owned by C3. Will Cree be able to purchase or lease them if C3 does not extend the purchase agreement. I ask this in case there is a gap between the time their new plants are online and the end of the C3 agreement. Revenues could take a temporary hit(which could be a great buying opp.) cthr has paid for a few growers...i believe the contracts are such that cree can sell production anywhere if cthr does not buy. remember cree is a production constrained company. the two new factories due in june and october will help. cree still owns quite a bit of land suitable for greater expansion...we should get details tomorrow at the conference call. oh damn...i lost the shift key!