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To: JH who wrote (6574)	1/3/2003 1:11:21 PM
From: slacker711	Read Replies (2) \| Respond to of 10714

Sapphire substrate LEDs are every bit as good as SiC substrate LEDs, and there is no compelling reason why buyer will not switch to competing products if the requirements of price, availability, and reliability is met. I can think of two advantages that SiC LED's have over comparable Sapphire based products.....they are cheaper and they are more resistant to ESD. Also, Cree seems to have grabbed the brightness lead from Nichia. Considering the huge lead that Nichia initially had this could have something to do with difficulties working with the sapphire substrates. The fact that Nakamura left Nichia might also have contributed to their slowdown in brightness improvements. One characteristic or SiC substrate LEDs which is not well publicized is that they require a higher forward voltage than sapphire equivalents. For low voltage applications, sapphire has the edge. Interesting....never read that before. This would certainly be an advantage in applications like cell-phones. A quick glance at the Toyoda Gosei and Cree websites shows a Cree MegaBright LED with a 3.7V forward voltage and a Toyoda Gosei LED at 3.4V. cree.com toyoda-gosei.co.jp Considering the relative success that Cree has had thus far in the cell-phone industry (especially outside of Japan), I'm not sure how much this difference in forward voltage is affecting sales. Slacker

To: JH who wrote (6574)	1/3/2003 2:22:08 PM
From: jameswallen	Respond to of 10714

I calculate turnover to be only 27% for Fy02. Revenue was $135m while total assets are $504m. Cree's assets are high because they have a strong balance sheet, which includes a lot of investments which generated $1.4m in net interest income in the Oct02 quarter. I think Cree management concluded long ago that it makes sense to put this money to work by buying more manufacturing equipment and expanding production. They can earn more on their money by manufacturing chips than investing in Treasury bonds. When I say that Cree has high operating leverage, I mean that they have high gross profit margins, in the 42-45% range. Almost half of unexpected revenue falls to the bottom line. Although this is typical for semiconductor manufacturers and is significantly less than software companies, it is higher than old economy companies. Cree does derive the majority of their product sales from LEDs. I don't expect this to change much during 2003 and 2004. That doesn't mean that the rectifier, power amp and laser products won't be successful. However, I expect the lasers are still more than two years away from contributing to revenue. Yes, buyers can switch to products from different vendors. That is why Cree is gaining market share. Cree's LEDs are better than those of Nichia/TG, and their manufacturing costs are lower. Hence, Cree can lower their price, gain market share and remain very profitable. /With ROE of 2.6%, and slowing revenue growth, CREE may not exactly be a great investment... We'll get an update on this question 16JAN. Cree gave guidance only for a 5% sequential gain for revenue. Since they haven't pre-announced a revenue shortfall, I think we can assume they made that number. However, for the Oct02 Quarter, Cree guided to a 20% sequential gain and came in at 29%. That doesn't sound like slowing revenue growth to me.