Cree sells LED business to Smart Global Holdings led by Mark Adams (UPDATED)

Cree Inc has announced a business deal to divest its LED business unit to Smart Global Holdings for upwards of $300 million. Cree was arguably the most forceful driver of LEDs into general illumination applications over the past decade, but has recently shifted its focus to silicon-carbide (SiC) power semiconductors for applications such electric vehicles and 5G wireless communications. LED manufacturing would not seem to fit with other Smart Global Holdings business units, but Mark Adams, former CEO of Lumileds, is the president of the conglomerate.

The writing has been on the wall for the Cree LED operation since Gregg Lowe took over as CEO back in 2017. Lowe joined with an analog and power semiconductor background and immediately began to increase emphasis on the Cree Wolfspeed semiconductor business unit that Cree at one time had almost sold to Infineon. That deal was only scuttled due to the fact that Wolfspeed technology was seen by the US government to have national-security implications.

“We are pleased to announce the sale of our LED Products business to Smart, which represents another key milestone in our transformational journey to create a pure-play global semiconductor powerhouse,” said Lowe.

Of course, the LED business has matured. And Cree LED has not been able to continue its history of delivering new breakthroughs in packaged LED efficacy that in part were tied to the use of SiC substrates rather than sapphire substrates. For example, at Strategies in Light 2013 in a keynote address, then-senior vice president Norbert Hiller revealed an LED that achieved 276 lm/W in the laboratory.

[Update and editor’s note: When I wrote the previous paragraph, I did not intent to single out Cree in terms of a decline in efficacy gains. Physical limits have resulted in a decline across the packaged LED industry. And Cree pointed out to me that progress does continue. — MW

Claude Demby, senior vice President & general manager of Cree LED said, “From its beginning, Cree LED has been focused on continuous innovation in LED design and efficacy. Whether that is based on silicon carbide or sapphire substrates, we continue to be an innovator with a firm focus on continuing our legacy of breakthrough technologies. Following our achievement of reaching 276 lm/W which you referenced, we subsequently were the first to break the 300 lm/W barrier. Since then, we have continued to push boundaries. Most recently, with the release of our XML3 we showed a 9% lm/W improvement vs XML2 and a 55% increase in total lumen capability (enabled on a sapphire technology base). Other advancements due to our transition to sapphire technology included a 18% improvement in efficacy with our extreme high power series and a 25% improvement in lm/W in XTE with our SC5 products. Moving forward, we are excited to continue Cree LED’s track record of industry-leading efficacy and innovation as part of the Smart Global Holdings family.”]

The companies expect the deal to close in the first calendar quarter of 2021. The deal includes an upfront payment of $50M and a seller note issued by Smart to Cree of $125M due in August 2023. Additional payments to Cree will depend on the performance of the LED business unit under Smart.

The Cree LED name/brand will remain with the business, according to Smart, and become another operating unit of the company. The companies did not address facilities. It’s possible if not probable that Cree LED will continue to share the Cree campus in the Research Triangle area of Durham, NC. Cree had divested its LED lighting business to Ideal Industries back in the spring of 2019 and that business continues to operate as Cree Lighting and to base some of its operations at the North Carolina campus, although the bulk of the operation is in Racine, WI. It will be interesting to see if Cree Inc now becomes Wolfspeed.

From the perspective of Smart, Cree LED will join a diverse set of business units focused on memory and storage (Smart Modular Technologies), Linux computing (Penguin Computing), embedded computing (Smart Embedded Computing), and supply chain (Smart Supply Chain Services). The company’s primary connection to the LED industry is Adams. He replaced Pierre-Yves Lesaicherre as Lumileds’ CEO in early 2017 after Lumileds was acquired by private-equity firm Apollo Global Management. Adams was replaced by Jonathan Rich about two years later.

The announcement from Smart on the acquisition cited a number of strategic and financial benefits it expected to capitalize on with Cree LED. It noted that Cree remains a technology leader in LEDs with a very broad portfolio and customer base. The announcement noted Cree’s R&D legacy and portfolio of more than 2000 patents. Moreover, Smart expects Cree LED to be “immediately accretive” bringing cash flow to Smart.

Adams said, “We see meaningful upside opportunity at Cree LED as we leverage Smart’s proven operating system and believe that with renewed focus, strong operating discipline, transformative manufacturing expertise, and synergistic cost benefits, we will deliver significant shareholder value.”

It’s worth noting that the Smart acquisition could also be a very positive one for the 2000 or so employees of Cree LED. Many Cree Lighting employees have shared privately the feeling that they had been freed to run their business and innovate after the Ideal acquisition. And the Cree LED unit was clearly no longer a primary focus of Cree Inc management.

*Updated Oct. 19, 2020 3:43 PM for name spelling correction.

*Updated Oct. 23, 2020 2:30 PM for additional clarification on Cree LED technology and performance.

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