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To: Nate G who wrote (891)	10/16/1998 5:00:00 PM
From: Toby	Read Replies (1) \| Respond to of 10714

Think Siemens counts as wafer sales

To: Nate G who wrote (891)	10/16/1998 5:06:00 PM
From: w2j2	Read Replies (1) \| Respond to of 10714

Nate, You are correct, as I understood Hunter, the led product has been shipping to Japan but the deals will be finalized soon. Crystal sales to C3 have been a big, big boost to Cree. wj

To: Nate G who wrote (891)	10/16/1998 5:20:00 PM
From: Charger	Respond to of 10714

Nate - have just listened to cc and heard that led sales were 55% and wafers the balance - just the reverse of what you had and as you, in fact, expected. Maybe I wrote it down wrong, U might want to listen again, if it matters.

To: Nate G who wrote (891)	10/16/1998 10:36:00 PM
From: Nate G	Read Replies (1) \| Respond to of 10714

(Warning: long) I listened to the conference call again and took detailed notes.... (of course no guarantee I wrote everything down correctly, but I think I got just about everything -- I noted the specifics I wasn't sure about): CFO COMMENTS (excluding details in the earnings report): -- LED volumes increased 25% sequentially -- LED margins more than doubled -- New high brightness LEDs -- costs higher since new product, but margins comparable, and expecting increased volume -- C3 -- helped increase wafer sales -- C3 -- 2/3 complete installed new machines to grow crystals -- Government sponsored research - 20 percent less next quarter -- Gov't sponsored research expected about 10 percent of total revenue in future -- Operating expense 19 percent -- up from 15 percent (due to additional R and D expense and 200K writedown of assets) -- Future expect more R and D -- $3.2 million share repurchase, $3 million generated income, $5.8 capital expenditures -- $10 million credit line used up, looking for more (Note: my words, they used others with same meaning, I think) NEAL HUNTER (CEO) COMMENTS: -- Expect to sell every LED they can make in fiscal 1999 -- Future - less reliance on Siemens contract -- Goal in future quarters -- 10 percent increase (Note: in revenue?) sequentially -- Proprientary technology keeps insulated from current industry problems -- Wafers: 90 percent wafer output used for LEDs (???) -- Wafers: 3 inch due in 1999 -- Wafers: wafer costs declining -- Microwave: Current 80 Watts at 3 GigaHertz -- Microwave: Target for production 100 Watts -- Microwave: Production line being built ahead of firm orders -- Microwave: Expect revenue this year -- Gems: Grow to 15 to 20 percent of revenues next quarter -- Gems: Cree has been buying C3 stock -- Lasers: Competetive Sapphire technology has hit technical wall, feel silicon carbide is better solution -- Facility: 1999 cleanroom planned -- $10 million cost. Meets needs through fiscal 2001 -- Shares: 200,000 shares bought by insiders (I assume at market and not via stock options), plus company has been buying own stock. Result in both these: 3 to 4 percent of stock off market -- Don't see need for "quite some time" to raise equity capital, but this can always change -- 9 straight quarters of beating earnings expectations QUESTIONS AND ANSWERS: -- (Q) Breakdown 10.7 million product revenues (A) 45 percent LED (or maybe a little higher), 55 percent wafers -- (Q) Can high margins be maintained (A) Yes -- (Q) R and D expense future (A) government contracts not being renewed, now will be out of earnings -- 300 - 500,000 dollars internally funded (Note: This will decrease "Contract Revenues", and increase "Operating Expenses") -- (Q) Microwave revenues this year (A) Cautiosly optimistic -- still some things to nail down -- currently "on schedule", not ahead -- (Q) Competition sapphire (laser) problems (A) Japan - April: different substrate, problems with conducting (and something else) -- SiC solves these problem, so Cree feels SiC better platform -- (Q) Blue LED beyond Siemens (A) Ready to sign significant Pacific Rim customers. Across product areas: Indoor/Outdoor displays, LCD backlighting, (one or two others). Indicated Siemens would be around 3rd largest customer then. -- (Q) 3 inch wafer and quality (A) Focussed today on quality (reducing micropipes) of 2 inch wafer. Most customers aren't on 2 inch yet. 3 inch is being developed so it will be ready when customers are. 2 inch power devices in europe and japan in R and D now at companies, expect production this year. -- (Q) FG&A vs R&D (A) About 800,000 dollars R and D -- (Q) Capital expeditures and amortization (A) 5.8 million CapEx, ? 1.0 million ? amortization (call faded out and couldn't hear) -- (Q) Blue laser status (A) Not yet at 100 hours, will announce status then -- (Q) High brightness LEDs (A) Nichia, H, etc. competition based on Sapphire substrate. Cree margins better. Traffic signals, cell phones, etc. Cree not going for top end brightness, going for lowest cost. -- (Q) More info on Green vs Blue LED (A) Cost the same. Currently 10 percent sales SuperBright (just introduced), and increasing. Thinks there will always be a market for "regular" LEDs -- (Q) Buyback (A) 237,000 shares this quarter at $13-14 a share. $3.2 million cost. Total now purchased 357,000 out of 500,000 announced buyback allowed. -- (Q) Status on new "Epi" machines (A) 2 machines received have contributed this quarter. Other 2 will start contributing next quarter. -- (Q) Growth (A) Cree can grow faster now than in recent quarters. Sees in one year 60 percent revenues "advanced devices" 40 percent LEDs (with total being higher than current) -- (Q) C3 stock - why? (A) $5 cash value, stock at $4.75 -- undervalued, high potential, good customer of Cree -- (Q) Cash (A) $13 million cash, $1 million marketable securities -- (Q) Green LEDs (A) Green hardly in numbers at all yet. -- (Q) Green bright enough for traffic lights? (A) See Cree 1998 annual report -- traffic light pictured is entirely Cree green LEDs -- (Q) What would stop company from achieving 100 million revenue in 1999 (A) Product development work and capacity will hold that down -- more development needed on microwave. Thought this was good question for fiscal year 2000... -- (Q) Traffic light LEDs (A) 166 LEDs in 8 inch light, 360 in 12 inch. Plan to sell LEDs, not build -- leverage materials expertise -- (Q) When expect revenue new contracts LED (A) Next (current) quarter. "Both" customers did business (Note: samples, I guess?) last quarter. -- (Q) Capital spending 1999 (A) About $5 million per quarter, outside of C3 funded capital expense -- (Q) Far east concerns (A) Cutting edge, low cost -- reduces threat -- (Q) Real color signs (A) Deemphasized, not contributing to revenue or expense. Cree better at materials and devices. Evaluating what to do with the business, look for announcement (next quarter?). -- (Q) Stock trading (A) 30 PE looks better now, small caps recovering. Stock not dropping in downtrends anymore. Getting more institutional interest. I probably missed a few comments, but that is most everything. All questions were fielded by Neal Hunter, and I was impressed with how quickly he had an answer for all of these -- no hesitation. He either knew all the figures off the top of his head or he had real good notes right in front of him. Hope the notes help ... - Nate