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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: mtnlady who wrote (17037)	2/3/2000 8:48:00 AM
From: FLSTF97	Read Replies (5) \| Respond to of 54805

CREE: Competitive position and Tornado Warning long post on CREE: part 1 of 2 First let me begin by saying that with the current database on CREE that I am very bullish on CREE so all of the following needs to be taken with a grain of salt. Competitors: There are competitors, links to which exist on the CREE thread. I tend to believe that CREE does indeed enjoy a lead on the competition, but don't have any independent information that suggests that lead is 6 years. I think that if CREE came up with the 6 year number by comparing where they were 6 years in the past to the current capabilities of the competitors, then they have over estimated their lead. A lot more information is available (including CREE's patents)today that help those competitors to better understand how to make SiC which compresses the development time. It remains to be tested how much of a hurdle CREE's patents introduce in stretching that leadtime out or raising the competitor's costs of production. I've read many of CREE's patents and it is my belief that for growing commercially usable bulk SiC single crystals they have an effective barrier if it withstands a test in the court system. I also think that they have patented the most cost effective processes fundamental to building devices in SiC. If these also withstand legal challenges, I think competitors will be forced to pay royalties for virtually all devices built in SiC or adopt a more expensive process technique. In no way do I think that CREE's patent positions give them a lock on Blue LED's. This is CREE's predominant $ machine at the moment, so this is not trivial. OTOH it is comforting somewhat that CREE's hegemony in this market is the result of excellent execution leading to delivering what I believe to be the lowest cost/performance ratio product. I think their market leading position is likely to be secure for the next two years. Relative to the blue LED's it is important to realize that CREE's products are composed of two materials: SiC and GaN (or GaInN). The biggest advantage SiC has is that it allows a good electrical contact to be made to the GaN that fits better to industry standard mounting techniques as detail by unclewest and others. This may turn out to be the Achilles heel. There is a lot of work taking place to find a way to use buffering layers to permit mounting GaN onto Si. The hurdles to doing this are huge, but IMO not insurmountable. If a method were to be found, the shift for blue LEDs to Si substrates would be extremely quick(maybe 1-2 quarters) since the wafers are readily available in 8 inches and undoubtedly much less expensive than SiC. I think the above scenario is highly unlikely in the next two years but I'm not active in this area so don't take my word for it. In the Blue LED arena I've also seen longer term threats coming from techniques to pattern Si or using something called porous silicon. I think these would be potentially cheaper than putting GaN on Si substrates. I don't understand the mechanism yet so I don't know if it is applicable to the blue end of the spectrum, but there are references to them "emitting light across the visible spectrum". For these reasons I don't think that CREE becoming (if it were to do so)the Gorilla in the Blue LED space would offer the security that we expect to have with a gorilla. In short for this specific application (Blue LEDs) other discontinuous inventions may be too close for comfort. Blue LEDS do appear to be the door to the bowling alley for all the other "pure" SiC device applications. Cree is gaining tremendous know-how in manufacturing and subsequently processing SiC. The combination of the other physical properties of SiC make it unlikely to be replaced(SiC is not yet established) in the high temperature, high power and to some extent high frequency applications.Indeed I think the only possible replacement material within the next 10 years would be AlN, further out maybe BN comes into play. Both materials are very difficult to make (far more so than SiC, I know this from personal experience.) The knowledge base on both materials is extremely limited and I am unaware of a semiconductor device ever having been made(I mean laboratory not commercial) out of BN. I don't see diamond competing because of the poor oxidation resistance. It could fulfill some application, but lower volume will likely relegate it to higher costs than if SiC could universally supply those applications. I should point out that even if devices were today available in AlN and BN, it is not clear that they would have compelling advantages over SiC other than very high temperature oxidizing environments. It is my belief that CREE has a very good chance to have their devices be qualified for some of these applications within the next two years (before threats hit on the LED front). A power/high frequency device was released last year that offers a discontinuous innovation that fits well in the burgeoning telecommunications market. Other devices are being sampled for design qualification. Whether CREE is able to secure the beach in these areas will be shown in the next 18-24 months. Tornado Status: I think that relative to Blue Leds it is safe to assume CREE is in the tornado. They can not fulfill the demand for products that are consumer related (cell phones, games, vehicle lighting). Unfortunately, for me anyway, it is not a forgone conclusion that this will make CREE the gorilla of blue leds or white leds since displacing technologies may be on the horizon. Don't forget that the commercialization of blue LEDs is in its infancy with alternative technologies in place. Because of the above, I judge the current growth to be welcome, but not proof positive that it is breeding the type of gorilla for which we are searching. Never the less, I am struggling to convince myself not to invest more $ until I see them solidifying a base in the non-LED device business. I doubt I will ever be brave enough to make a Lindysque 100% commitment or even an unclewest 51%, but if CREE can demonstrate the beginnings of a tornado for the high power/ high frequency devices, I would feel comfortable to at least 3x my allotment. Part two has a few details about the actual competitors. FATBOY