On March 15, 2019, Cree announced that it would sell its LED lighting unit to Ideal Industries for $310 million. Cree sells business including commercial LED lighting fixtures and enterprise lighting solutions. (Click on "Kerui sells lighting business, focusing on semiconductor technology" for news content!) Through this divestiture, Cree continues to focus on the RF and power applications of compound semiconductors to meet the market demand of 5G communications and new energy vehicles.
It's not hard to understand Kerui's action. First, LED lighting is no longer a high-tech threshold industry. In the traditional lighting era, due to frequent energy crisis, a new light source is urgently needed to replace the energy-consuming incandescent lamp and energy-saving lamp. The breakthrough of GaN material makes LED a revolution to change the way of human lighting.
With the continuous progress of technology, the performance-price ratio of LED lighting products is constantly improving. At present, the cost of LED lighting has been reduced by more than 90% and the luminous efficiency has been increased by 30 times, which makes the performance and cost of LED fully meet the lighting demand, and the penetration rate in the market of alternative light sources is close to 50%. It is no exaggeration to say that LED lighting has changed from a high technology competition to a mature commodity.
Secondly, cost control and market development have gradually become the core competitiveness of LED lighting enterprises. As the restrictive power of technology threshold decreases, the competition in the market has changed from the original technology dispute to the manufacturing dispute. Under this background, LED manufacturing is developing towards standardization and generalization, and the added value of products is declining. This is not the advantage of Philips, Osram, Corey, GE and other international giants.
Throughout the world, China has become the world's largest LED industry base. The emergence of a large number of Chinese enterprises, such as Sanan Photoelectric, Huacan Photoelectric, Mulinsen, Hongli Zhihui, Guoxing Photoelectric, Opel Lighting, Foshan Lighting and Sanxiong Aurora, is gradually eroding the market share of international LED enterprises.
In the field of LED lighting, Kerui has been declining. Prior to this, Corey relying on its unique SiC technology line, has repeatedly broken the record of LED lighting luminous efficiency. Just for ordinary lighting, blindly improving the luminous efficiency has not been of great significance. Consumers are no longer crazy about the pursuit of light efficiency, but more to pursue the added value of LED lighting products.
In view of this, Kerui's competitive advantage in the LED lighting market has been gradually diluted. From the data of fiscal year 2016-2018, we can see that the revenue of Kerui LED lighting business has declined year by year in the past three years, and the proportion of total revenue is also declining. Data show that the proportion of LED lighting business in total revenue in fiscal year 2016 is as high as 55%, but in fiscal year 2018 this figure fell to 38%. It is enough to see the decline of LED lighting business status.
At the same time, the total profit contribution of LED lighting business is also declining significantly. In fiscal year 2017, its total profit of LED lighting business declined 19% year on year, and in fiscal year 2018, it declined 44% year on year. In fact, Corey's overall business is profitable Wolfspeed and LED, lighting business is not up to expectations, can not better contribute to the company's revenue and profits.
More noteworthy is that in recent years, Corey has focused more on the field of compound semiconductors. In September 2015, Corey split its Power & RF division into an independent company, Wolfspeed. Wolfspeed is a reliable GaN RF device supplier for US military radar and the world's top three SiC power device companies.
Currently, Corey is the world's largest supplier of SiC substrate materials. After acquiring Infineon RF business, Corey doubled SiC material production capacity and nearly 60% market share, and signed multi-year supply agreements with Infineon and ST, two major automotive electronic semiconductor suppliers. In the market of high purity semi-insulating SiC substrates for GaN-on-SiC RF devices, Kerui has a market share of up to 90%.
From Kerry's financial statements, we can see that Wolfspeed has shown a high growth momentum in recent three years, both in terms of revenue and profit. It is not difficult to understand why Corey regards the sale of lighting products as a "healthy and positive move".
The market has different interpretations of Kerui's lighting business. Chen Kaixuan, director of photoelectric technology of Qianzhao, said that the application of LED lighting has penetrated thousands of households, and Cree Lighting has already fulfilled its mission satisfactorily. As a recruit in lighting industry, Cree Lighting's life is not easy. With SiC power and RF devices in the spotlight, it's not hard to understand that the new CEO has tilted his resources towards SiC business and sold Cree Lighting.
"Lighting industry competition intensifies, especially the impact of China's lighting industry on foreign brands intensified." Ko Jianjun, chairman of Bilda, said, "After the sale of lighting business, Kerui's share price has risen sharply, which also shows that the market is worried about the future of Kerui's lighting business!"
Igor Marketing Director Li Weixiong said that LED lighting makes the replacement cycle three to five times longer, and the downstream capacity of LED will soon be seriously surplus, so international giants are clearing the downstream assets of LED.
Indeed, before that, Philips and Osram had sold their general lighting business to focus on more technological areas; after that, GE had completely withdrawn from the lighting market, focusing its future on the three core businesses of electricity, aviation and medicine. Quan Jinsong, vice chairman of Zhaochi Stock Co., Ltd., believes that Corey's move is absolutely correct and that if it is dealt with later, the price will only be lower.
From Kerui's sales of lighting business, we can see the company's determination to transform to semiconductor. In the future, Kerui should also tilt more resources to SiC business and make its traditional advantages bigger and stronger.