Hot and cold: Cree
After 28 years in business, Cree Inc. still has an audacious goal: Change the world of lighting. It’s a bold statement for a company that did little consumer marketing until two years ago. “We are literally out to transform the way people view light worldwide. The LED (light-emitting diode) components, the light fixtures, the bulb,” says Mike Watson, vice president of strategy at the Durham-based company. “We are out to change everything.” For most of its history, the company that was started by a group including brothers Eric and Neal Hunter sold LED products to big consumer-electronics manufacturers, earning a place among North Carolina’s most successful tech companies. Strategy shifted two years ago when it released its own light bulb, winning shelf space at Atlanta-based The Home Depot Inc. Cree became the leading U.S. LED bulb seller by 2014. In February, Fast Company ranked Cree the world’s 19th most innovative company, after Toyota and Tesla. The magazine credited Cree’s “speed and ingenuity in becoming the leading consumer LED brand in the U.S.”
Cree stock hasn’t won as many kudos. Despite quadrupling of sales over the last decade, it hasn’t shown consistent earnings growth demanded by investors. Its stock price chart looks like a roller coaster. At $35 in mid-April, shares remain below peak levels of $99 in 2000 and $82 in 2010, and declined 36% over the last year. Only four of 19 analysts tracking Cree rate the company as a buy, according to Thomson Reuters Corp. A key concern is that Cree competes for LED bulb sales with Fairfield, Conn.-based General Electric Co., and may face profit-punishing competition from Samsung Electronics Co., Philips N.V. and others. LED products could make up 70% of global lighting sales by 2020, compared with 20% in 2012, according to a McKinsey & Co. report.“Cree remains in limbo as it transitions from more profitable components to less profitable lighting products,” Jed Dorsheimer, an analyst at Canaccord Genuity Group Inc. in Boston, wrote in a March report.
But Cree has shown itself to be a survivor, led by a stable management team — CEO Chuck Swoboda succeeded Neal Hunter in 2001. In the late 1980s, it developed the first commercially viable LED chip, made from silicon-carbide wafers produced at temperatures above 3,500 degrees. In the mid-2000s, the company introduced the first LED products bright enough to be used in ceiling fixtures, streetlights and other applications. Customers included retailers, auto dealers and governments. It also grew by purchasing Morrisville-based LED Lighting Fixtures Inc. in 2008 for about $100 million, and Racine, Wis.-based Ruud Lighting Inc. for $525 million in 2011.
Three years ago, Cree produced an energy-efficient bulb that looks more like its incandescent counterpart, making it an easier sell to consumers. Early LED bulbs had come in an array of shapes, some resembling mushroom tops or whiffle balls, and they cost more than traditional bulbs. Before rolling out its own brand, Cree tried to convince traditional lighting manufacturers that LEDs could be used to make a better bulb. None listened, Watson says. “We’d been telling them what we think they should do and none of them did it. We hit a moment where we said, ‘We’ll do it ourselves.’” It helped that Cree’s board includes former Lowe’s Cos. CEO Robert Tillman, a veteran retailer. A recent TV and social-media ad campaign featured bulbs that can be controlled remotely, so consumers can turn lights on or off while away from home. With lighting products making up more than half of sales, Cree will keep innovating as competition mounts, Watson says. “That’s what Cree is about — we’re doggedly determined.”