With Cree’s parent going all in on the AI business, how does Cree fit? (UPDATED)

LEDs Magazine has been wondering for a while whether the owner of Cree LED might consider selling the company, as the LED business looks ever more tangential to the parent’s intensifying commercial focus on high-performance computing and artificial intelligence.

Two notable moves in the space of 24 hours this week have piqued our curiosity. On Monday the owner, SGH Corp., announced that South Korea’s SK Telecom is making a $200 million equity investment in publicly held SGH, which more than ever has been staking its identity on the largest of its three divisions, Intelligent Platform Solutions — and that division’s Penguin Solutions line of computing and AI hardware, software, and services.

Like SGH, SK has also been emphasizing AI, “placing [it] at the core of its business” and “rapidly transforming into an AI company,” SGH noted in its press release announcing the investment, which gives SK 200,000 preferred shares in Milpitas, Calif.–based SGH.

“SKT and SGH…intend to leverage their complementary capabilities to enhance customer offerings in the development of differentiated global end-to-end AI factory and data center solutions and services, advanced memory market products and services, and NPU-based AI edge servers,” SGH said in announcing the infusion.

It was the hardly the language of an LED company such as Cree, which, as the smallest of three SGH divisions and the only one that is not computing-related (SGH also has a memory division, called Memory Solutions), looked on from the sidelines.

By the next day, Cree’s place on the corporate landscape slid to even more of an outpost, as SGH went all-in on its identify remolding, announcing it would rename itself as Penguin Solutions Inc. — after its computing/AI company — by the end of this year, subject to shareholder approval.

“This rebranding is a continuation of the company’s transformation over the past several years and reflects its focus on delivering leading-edge solutions that solve the complexity of AI,” SGH said in a press release. “The new Penguin Solutions is uniquely positioned as an expert in end-to-end AI infrastructure solutions.”

The one-two punch came less than a week after SGH CEO Mark Adams told analysts that the LED chip industry will likely consolidate, and described Cree as “well-positioned” for the consolidation, given its “outsourced manufacturing capital-light model”.

As LEDs Magazine noted last week, Adams’ remarks could have been interpreted as a sign that SGH might divest Cree, to which a spokesperson replied, “We do not speculate on any potential future acquisitions or divestitures.”

SGH might have every intention of holding on to Cree, but given this week’s developments, we asked SGH again whether Cree might be on the block now or in the near future.

A spokesperson did not directly answer the question.

“Cree LED will keep its name and remain unchanged; they are a leader in innovative LED lighting and are a very well recognized brand,” she said. “There is no synergistic benefit for Cree LED to be renamed or folded in under the Penguin Solutions umbrella. It is more advantageous to retain the Cree LED brand recognition and status in the LED space.”

Keeping the Cree LED brand makes perfect sense. Whether or not it will continue as part of SGH, soon to be called Penguin, is another question. We pointed that out to the spokesperson, and again asked her whether Cree might soon be up for sale.

“SGH, now Penguin Solutions, does not speculate on potential future acquisitions or divestitures,” she said, echoing the company’s response to LEDs on the same matter last week.

Cree joined the SGH fold when SGH acquired it in October 2020.

It has since then occupied third place out of three in revenue contributions to the parent. It is currently at 21% of revenue, compared to 48% for Intelligent Platform and 30% for Memory Solutions.

For a period of five quarters through Sept. 2023 (the company’s fiscal year end), Cree had been a drag on corporate sales, when LEDs pointed out that SGH CEO Adams was hopeful of a recovery that then looked likely.

By the first fiscal quarter of 2024, Cree revenue did indeed rise although as LEDs pointed out, the identity reshaping into an AI company was picking up. Cree sales also rose in the second quarter. They were flat in the third quarter ending May 31, as Adams reported on the analysts’ call in which he said the LED industry will likely consolidate.

Cree uses an outsourcer which Adams has described as “one of the largest manufacturers of LED products in the world”. That company is believed to be in China or Southeast Asia. LED manufacturers in southeast Asia include ams Osram, among others.