October 5, 2022
How is Cree LED Performing Under New Ownership?
Sales decline for four straight quarters. Recent quarter dips well below $100M.
In March 2021, Smart Global Holdings (SGH) completed the acquisition of the LED business of Cree, Inc., a corporation now known as Wolfspeed, Inc. The acquisition involved the components portion of the Cree product line, mainly LED chips and other LED components.
SGH is a publicly traded semiconductor company headquartered in Silicon Valley, California. Having worked at Lumileds, Micron Technology and NCR Corporation, Harvard-educated CEO Mark Adams has a diverse background that fits well with SGH's business which offers semiconductor solutions in the areas of memory, IoT, AI and LEDs, among others.
SGH’s recently published fiscal year 2022 results reveal that Cree LED comprises 22% of the company’s total revenues. Intelligent Platform products contribute 24%, while memory products deliver 54% of sales.
At the time it was announced, SGH described the acquisition of Cree LED as a way to further enhance its growth and diversification strategy while fitting well with the company's other specialty businesses in computing and memory. The purchase price for the LED Business consisted of cash payments of $72.4 million, the issuance of an unsecured promissory note issued in the amount of $125 million and the potential for Cree to receive an earn-out payment of up to $125 million based on the revenue and gross profit performance of Cree LED in the twelve-month period ended in March 2022.
Based on the revenue and gross profit performance of Cree LED under SGH's ownership during the first four full fiscal quarters following the closing, the final calculated value of the contingent consideration was $101.8 million and, subsequent to the end of the third quarter of 2022, the company issued the earnout note to Wolfspeed for that amount.
SGH has now owned the Cree LED brand for over 18 months and just completed its first full fiscal year of Cree LED ownership having closed out fiscal year 2022 on August 26. Breaking out the Cree LED sales performance, the trend line has been moving in a negative direction for four consecutive quarters – and with an $83.1 million fourth quarter, the LED business just dipped below $100 million for the first time under SGH ownership.
With long design-in sales cycles for automotive and LED luminaire applications that often exceed two years, it still may be too early to judge Cree LED's performance under newish SGH ownership, but at some point, if SGH wants to realize a favorable return on investment, Cree LED’s quarterly numbers would likely need to start trending up by the midpoint of fiscal year 2023.
