1. 1
Date: 18 May 2015
Name students: Jasper Krijnen,
Jeremy van Lierop, Felix Moten
Student numbers: 10068856. ,
13022318, 13103199
Class: Com-3b, ES3-2b, ICM 2d
Assignment: American Business
Supervisor: Johan Veldman
2. 2
Inhoudsopgave
Introduction ................................................................................................................................. 4
About Cree................................................................................................................................ 4
Analysis of the industry and future changes.................................................................................... 5
The Environment....................................................................................................................... 5
Opportunities........................................................................................................................ 5
Constraints............................................................................................................................ 6
Economic conditions.................................................................................................................. 7
Competition.............................................................................................................................. 7
Legislation ................................................................................................................................ 8
Markets.................................................................................................................................... 9
Market growth:..................................................................................................................... 9
LED lighting markets .............................................................................................................10
Industrial / Commercial.........................................................................................................10
Government.........................................................................................................................10
Households ..........................................................................................................................11
Segments .............................................................................................................................11
Supplier availability ..................................................................................................................12
Analysis of the company...............................................................................................................13
Direction..................................................................................................................................13
Scope ......................................................................................................................................13
Resources................................................................................................................................13
Organisation ............................................................................................................................14
Competitors.............................................................................................................................14
Competitive advantage.............................................................................................................15
Environment............................................................................................................................15
Stakeholders............................................................................................................................16
Long term................................................................................................................................16
Most important future trends of the LED lighting industry..............................................................17
Advice future strategy of the company..........................................................................................19
Operational strategic advice .........................................................................................................20
Research and development.......................................................................................................20
Marketing................................................................................................................................21
Production...............................................................................................................................21
4. 4
Introduction
About Cree
Worldwide around20%of all energygeneratedisusedforlighting,makingitanunimaginablelarge
marketto serve.(The economist,2006, para. 6) The vastmajorityof thismarketis still servedwith
traditional lightbulbs, howeverthe LED industryisbestplacedtoserve thismarketinthe future.
Cree Inc.was formedin1987 by researchersfromthe NorthCarolinaState UniversityandhasitsHQ
inDurham North-Carolina.
“The bestwayto predictthe future isto create it”, the sloganonthe coverof the postannual report
2014 describesthe ambitionof Cree tobe a disruptorinthe marketof LED lightning. In2015 Cree
had over3.000 employeesandhadin2014 an operatingincome over100 millionUSD.
The company isa market-leadinginnovatorof lightingproducts,LEDcomponents,and
semiconductorproductsforpowerandradio-frequency(RF) applications.
Cree isa companythat manufacturesLEDlightbulbs.Bymakinga cheaperLED lightbulb,the
newcomertothe industry hopestodominate the marketforenergy-efficientlightingalternatives.
In 1989 Cree firstbroughtthe blue LED to marketand todayCree'sXLamp® LEDs have continually
exceededindustrystandardsforbrightnessandefficiency.
In March 2013, Cree beganofferingLEDlightbulbs(40-W and60-W equivalent) forthe consumer
market.Since thenCree hascontinuedtodrive the adoptionof LED lightingbyexpandingitsproduct
line of LED lightbulbs.(Cree.com,2015, History& milestones)
5. 5
Analysis of the industry and future changes
The Environment
Opportunities
LED's have begun to aquire a strong market position in:
• Consumer lighting
• Commercial lighting
• Industrial lighting (Bhandarkar,2009,para.5)
Huge market potential:
• Worldwide, about 20% of energy is used for lighting (The Economist,
2006,para.6).
• The pressure for energy saving and emission reduction is
increasing worldwide (Bhandarkar,2009,para.5).
• LED market is expected to grow from 10.77 billion USD in 2011 to
69,7 billion USD in 2021. (Veikong Industrial,n.d., para.1)
The best lighting technology available with regard to:
• Energy efficiency; uses 70% -88% less energy than traditional
lightbulbs. (O'Shea, 2012,para.1 ) (The Economist, 2008,para.16)
• Lifetime; lasts 20 times longer than traditional lightbulbs.(O'Shea,
2012,para.1 )
• Flexibility; smart LED bulbs can change color and light intensity.
They can be controlled by smartphones and tablets. (Leung, 2014,
para.4)
• Shockproof due to solid components. (O'Shea, 2012,para.1)
The price of LED's is still declining
• Increasing competition from Chinese manufacturers has driven
down the price. (LEDinside,2015, para.1)
• It is expected that there will be an explosion of growth once the
LED bulbs reach a certain price level. This watershed level might
be at 14$, 10$ or even 5$ (Cangeloso,2012,p.43)
6. 6
Constraints
The main reason consumers are not changing to LED's is price:
• Traditional lightbulb e27 of 60 watt from Philips costs € 4,29. LED
lightbulb e27, 9,5 watt = 60 watt from Philips costs €12,99 (bol.com)
The market for replacement lamps will shrink:
• LED lightbulbs will last for several decades; if more LED lightbulbs
are sold, there will be less demand for replacement lamps. (O'Shea,
2012,para.11)
Overheating of LED components is still a challenge:
• "[The] electrolytic capacitors must endure harsh thermal
conditions because they operate continuously at full load and
typically are placed in tightly enclosed spaces[.]" (O'Shea, 2012,
para. 6)
OLED's might replace LED's:
• "OLED's are based on ultra-thin, lightweight plastic sheets, OLEDs
emit a softer, more distributed light than conventional LEDs and
might eventually be turned into softly glowing wallpaper or
curtains." (The Economist, 2006, para.23)
• OLED's are not as reliable or long-lasting as LED diodes, however,
the market should not underestimate the new technology.(The
Economist, 2006,para.24)
•(economist, 2006,
para. 23)
Rare Earths:
•"Rare-earthelements(REEs) cerium,europium, gadolinium,lanthanum,
terbium, andyttriumare importantmineral materialsusedinLED
semiconductortechnology."(Wilburn,2012,para.2)
•"Most of the rare earthsrequiredforLED productionin2011 came from
China, andmost LED productionfacilitieswere locatedinAsia."(Wilburn,
2012,para.2)
•"Non-Chinese sourcesforrare earthsare beingdeveloped,andsome of
these new sourcesare likely tobe operationalintime tomeetincreasing
demandforrare earthsfromthe LED sector."(Wilburn,2012,para.4)
7. 7
Economic conditions
Accordingto the WorldBank, the worldeconomyisstill strugglingtogainmomentumdue tothe
legaciesof the global financialcrisis.(Worldbank,2015, para. 1) The Worldbankreportsthatactivity
inthe UnitedStatesandthe UnitedKingdomhasgatheredmomentum, howevereconomicrecovery
inthe Euro Areaand Japanstill remainsslow.Chinaisundergoingacarefullymanagedslowdownand
otherdevelopingcountriesshow adisappointinglevelof growth. The followingforcesare drivingthe
global economicoutlook:softcommodityprices;persistentlylow interestratesbutincreasingly
divergentmonetarypoliciesacrossmajoreconomies;andweakworldtrade. Furthermorethe sharp
decline inoil pricessince mid-2014will promote growthinoil importingcountriesandwill dampen
growthprospectsforoil-exportingcountries.Overall,in2015, the worldeconomyisexpectedto
grow witha moderate 3%.(Worldbank,2015, para. 1-5)
Competition
Market leaders
Philips Osram
GE lighting Solutions Toshiba
Maxion Technologies Solid State Lighting Systems
QD Vision Mitsubishi / Verbatim
Lighting Science Group Cree
Market participants
Advantech Lighting Solutions / NaturaLED Litecontrol
Albemarle Verbatim
Acuity Brands Lighting Newport Corporation / ILX
ATG Electronics Lightwave
Avances Lumínicos Plus S.A. de C.V ILX Lightwave
BridgeLux Nichia
Emcore Pluz S.A. de C.V. / NuVue
Epistar Prolighting TCP
Everlight Siemens
GE Sony
IEE Sony HD OLED panels
Intematix Soraa
iWatt TCP
Larson Thorlabs Acquires / Maxion
LED Microsensor NT Technologies
Lightkiwi, LLC. Toyoda Gosei
Source: Wintergreen Research, 2013, n.p.
WintergreenResearchindicates thatthe LED marketfacesboth competitionfromthe traditional
lightbulb marketas well as fromotherLED marketparticipants.(Wintergreen,2013,n.p.) According
8. 8
to Forbes,the keycompetitorsof Cree are Osram, PhilipsandGeneral Electric.Intermsof revenue,
these playersare considerablylargerthanCree.These companieshave the capacitytocreate vast
economiesof scale onLED production. Cree bulbs,however,are still the cheapestavailable inthe
market. General ElectricsellsitsLEDbulbsthroughWal-Mart,whichhas a huge networkof 11,000
storesspreadacross 27 countries.Incomparison,Cree’sretail partnerHome Depothasaround2,300
stores.(Forbes,2015, p.2)
Legislation
Source: (MCKinsey, 2012, p.11)
The Figure above showsthatmany countrieshave andhada timetable of banning traditional
incandescentlampsstartingwiththe mostinefficient.Incandescentlampsproduce more heatthan
light.Moreovertheyare the onlyformof lightingtechnologythatstill incorporatesthe “out-dated”
use of vacuumtubes, technology thathasalreadybeenreplacedbymore efficientalternatives in
radio’sand televisions.Mostcountrieshave implementedaphased timeline forbanning
incandescentlighting,startingwithbanningthe inefficient100W and above lightbulbs.Some
countriesandstatestake a more aggressive approach;Australiaforexamplehasbanned
incandescentlampssince 2010,and Californiaplanstobanout thisold-fashiontechnologyin2018.
(Woodside Capital PartnersInternational,2012, p.5)
It ishighlybeneficial forthe LEDindustry, thatcountriesandstatesbanincandescent lightbulbs.LED
technologyisnotonlysupportedthroughthe banningof traditionallightbulbs,butalsobyprice
rebateson LED lightbulbs.Local municipalitiesinthe UnitedStateshelptoreduce pricesbyoffering
9. 9
rebatesonLED bulbsandLED fixtures.The municipalityof OliviainMinnesotaforexample offersa
rebate of 50% on LED bulbsand LED fixtures.(Cityof Olivia, 2015, para.1)
Markets
Market growth:
Worldwide around20%of all energygeneratedisusedforlighting,makingitanunimaginablelarge
marketto serve. (The economist,2006, para. 6) The vastmajorityof thismarketis still servedwith
traditional lightbulbs,howeverthe LEDindustryisbestplacedtoserve thismarketinthe future.
Lookingat the forecastsof the LED industry,the marketisexpectedtoachieve tremendousgrowth.
In termsof the marketsfuture varioussourcesshow bothpositive andnegativeoutcomes,whichis
understandable,since itishardto make accurate predictions.VeikongIndustrialforexample,
expectsthe LED marketto growwith55% annuallyfrom10.77 billionUSDin2011 to 69,7 billionUSD
in2021. (VeikongIndustrial,n.d., para.1) The researchcompanyBigMarket Researchreleaseda 973-
page reportin 2015 statingthat the LED lightingmarketisanticipatedtogrow 45% peryearfrom
13.6 USD in2014 to 63.1 billionby2020. (Electronicpurchasingstrategies,2015, para.15) Thismarket
forecastisbasedon the indicationthatLED producerswill create large economiesof scale resulting
inthe creationof a newequilibriumarounda low andbalanced price level,whichwillaffect
consumerbehaviorinthe producers’ interest.
10. 10
LED lighting markets
Source: Bhandarkar, Shum and Peters, 2012, para. 9
The figure above showsthe mostimportantlightingmarketsandthe compoundannual growthrate
of the LED lightingmarketsoverthe period2011 to2016. Note that accordingto the figure the
calculatedmarketsize of the LED lightingindustryis2.8billionUSD,whereasthe BigMarketresearch
reportcalculatesa marketsize of 13.6 USD; assuminglybothsourceshave includeddifferentfactors
whencalculatingthe marketsize of the LED lightingmarket.
Givenbeloware examplesof the mostimportantLED lightingmarkets:
Industrial / Commercial
Sheetz,the conveniencestore andgasstationchain,ranked61st on ForbesMagazine’sListof
America’sLargestPrivate Companies,hasinstalledLEDinteriorandexteriorlightingatmore than
130 of its locationsacrosssix states.The energysavings:45percenton interiorlighting,andasmuch
as 55 percenton exteriorlightingthatilluminatesSheetz’sgaspumps.Asexpensesdrop,LEDlighting
ishelpingboosttop-line growth,accordingtoSheetz,whichreportscustomersfindthe brighter
facilitiesmore visuallyappealingandperceivethemassafer. (Swoboda,2013, para.7)
Government
The City of Los Angelesissaving$5.3 millionannuallythankstothe GreenLA initiative thathasthus
far replaced114,000 high-pressure sodiumstreetlightswithLEDlighting,the nation’slargestsuch
project.Once completed,LosAngelesanticipatesLEDlightingwill save taxpayers$10-million-a-year;
nearlytwo-thirdsof whatthe cityhadbeenpayingforlightingitsstreets. (Swoboda,2013,para. 6)
11. 11
Households
Philips, startupLIFXandCree sell
LED lightbulbs thatcan be
controlledremotelyviaa
smartphone app.The LIFXbulb
can change color to musicand
the PhilipsHue canchange its
colorand brightnesstomimica
sunrise.The argument,which
statesthat LED bulbsare too
expensive, isnotvalidanymore,
since Philipshasjustrecently
unveiledaLED lightbulb,which is
soldat the home depotfor 4,97 USD. (Crist,2015, n.p.) Consumers, whodoubtabout cool white light
of LED lightbulbs,shouldknowthatmodernLED lightbulbs come ina varietyof colortemperatures
rangingfromcool light, daylighttowarmlight.The image below showsaconferenceroomlitwith
CREE XPE lightfixtures. (The economist,2013, para. 10)
Segments
Source: Statista, 2015, n.p.
The figure above showsthe differentsegmentsof the LEDindustry.The figure showsthatthe lighting
segment is by far the largest segment with a market share of 39%, followed by the large display
backlighting with a market share of 18% and the automotive industry with a market share of 13%.
12. 12
Supplier availability
According to LED Inside by TrendForce Corporation, the lighting market demands in 2014 where
polarized;inthe firsthalf of 2014, demandwashigherthan expected which led to supply shortages.
In the secondhalf of 2014 the demandwas lowerthanexpectedwhich led to rising inventory levels
and strong price competition. For 2015, LED manufacturers expansion plans will depend mainly on
the trend of government subsidies. (LEDinside, 2014c, para.1)
Most LED producers manufacture their products in China due to the many cost advantages.
According to LED Inside traditional lighting manufacturers, lighting OEMs, emerging LED lighting
manufacturers, and LED-packaging manufacturers all are expanding their LED lighting businesses.
(LEDinside, 2014b, para.1)
13. 13
Analysis of the company
Direction
The company hasa fullyintegratedvertical businessmodel andisamarket leaderinbothLEDs and
LED lightingproducts.
Cree islookingtoimprove itsbrandpositioninginboththe commercial andconsumermarkets.Itis
targetingthe consumermarketbyaddingnew bulbproductsinthe fall lightingseason.Moreover,
the companyaimsto expanditsworkwiththird-partymanufacturerstoaccelerate growthinLEDs
and lighting.These partnerswillallow Cree’sfactoriestodevelopthe latesttechnologiesthatare
newto the market.The companycloseditsLextarinvestmentinQ22015 and isworkingwiththe
teamto supplyLED chipsas well astestingsome initial lightingproducts.The collaborationwith
Lextarcan helpCree expanditspresence inthe mid-powersegment.(Forbes,2015, p.1)
In the Annual Yearreportof 2014 iswrittenthatCree is focusedonfourkeyareas to grow their
business.
Drive innovationtolowerupfrontcustomercostsandfurtherimprove paybackacrossall
three productsegments.
Continue todrive LED lightinggrowthandbuiltthe Cree brand inboththe consumerand
commercial markets.
Expandthe work withthird-partymanufacturerstoenable growthinLEDsand lighting.
Generate incrementaloperatingmarginthroughrevenue growthandoperatingleverage
across the business.
The missionof Cree isto obsolete energy-inefficientlighting.Cree doesnotwanttoscramble to
adapt any changes;Cree want to be the change in the industryof LED componentsfornearlyevery
lightingapplication.(Annual report2014, 2015, p.2)
Scope
Cree isactive inthe industryof LED lighting.Cree isamarket-leadinginnovatorinthisindustryand
alsoactive increatingsemiconductorsolutionsforradiofrequencyandpowerapplications.
Cree wantsto offerLED lightingof a highquality,whichisenergy-efficient,environmentallyfriendly
and longlasting.BycontinuouslyimprovingtheirproductsCree wantstobe the market-leaderinthe
LED-lightingindustry.(Annual report2014, 2015, p.2)
Resources
Cree offersLED lightingproducts,butCree alsocreatessemiconductorsolutionsforwirelessand
powerapplications. Cree issuperiorbythe knowledge andexperienceaboutLED-technology,which
isavailable withinthe company. Because Cree ownsalotof patentsCree isshieldedfromoutright
duplicationof theirspecificinnovations.
The qualityof the brand Cree makesCree asa companysuccessful.Bylettingconsumersunderstand
the case forLED, Cree isdeterminedtobe the leaderandinnovatorinthe LED lightingmarket.
(Forbes,2015, p.1-3)
14. 14
Organisation
Cree Inc. is formedbythe standardsof the Sabanes-ExleyActof 2002. Thisact describesthe
standardsof accountabilityonboardsof companieslistedonU.S.stockexchanges.Cree islistedon
the NASDAQexchange platform.
Under the Sabanes-ExleyActthe directors of Cree Inc.are responsibleforthe internal control.
Figure 1: Board of Directors.Source:Cree.com, Corportate governance, Boardof Directors.
Committee Composition
Figure 2: Committee Composition.Source:Cree.com, Corportate governance,committee
compostion.
The directorsof Cree take part inaudit- andcompensation-committees.The auditcommittee is
formedbyfourdirectorswhoare bondby auditorindependence.Theyare alsoresponsible forthe
corporate governance,internal control assessmentandenhancedfinancialdisclosure.
BesidesCree’sLEDtechnology,the companyisalsoanimportantmanufacturerof semiconductors
usedinpowerconversionandwirelesscommunications.(Cree.com, 2015, -)
Competitors
TrefisTeamdidsome researchaboutthe industrywere Cree isoperatinginwiththeirLED lightbulb
technology.InMarch 2015 TrefisTeamcame witha reportinwhichtheystate that the rising
competitionmaybe able todecrease Cree’smarket-share.Osram, PhilipsandGEare some of Cree’s
keycompetitorsinthe LED marketCree isoperatingin.All these playersare,intermsof revenue,
considerablylargerthanCree.
The Dutch competitorPhilipsannounceditsplantospin-off itsLumiledsLEDlightingunitand
automotive lightingsegmentintoa separate companybyearly2015. Philipsplanstospin-off the
Charles M. Swoboda
President, ChiefExecutive Officer
and Chairman
Clyde R.
Hosein
Director
Robert A.
Ingram
Director
Franco
Plastina
Director
John B.
Replogle
Director
Alan J. Ruud
Director
Robert L.
Tillman
Director
Thomas H
Werner
Director
Anne C.
Whitaker
Director
15. 15
manufacturingside of the LED business,andwillkeepthe highermarginintegratedsystemsand
servicesaspart of its business.The move intensifiescompetitioninthe LED market.
The American companyGE has introducedanumberof innovativeproductsintothe marketatvery
lowprices.Inthe marketthe lightbulbs of Cree are still one of the cheapestavailable.The sheersize
of GE can helpthe companyachieve economiesof scale if itchooses tocreate LED’s on a vast scale in
the future.GE sellsitsLED bulbsthroughWal-Mart,whichhas a huge networkof 11,000 stores
spreadacross 27 countries.Incomparison,Cree’sretailpartnerHome Depothasaround2,300
stores.
The market share of Cree is currentlyaround10%. Duringthe lastquartersthe growthof Cree has
sloweddownandwithrisingcompetitionfromcompanieslike Philips,GEandSamsungthere isa
possibilitythatthe companylosessome marketshare gainedinthe lastfew years.The grossmargins
of Cree mayrise from35% to 40%, if there wouldbe an improvingdemandsupplysituationinthe
market.(Forbes,2015, p.1-3)
Competitive advantage
The lightingproductsegmentof Cree currentlyfacescompetitionfromthe traditionallighting fixture
companies.The LED lightingproductscompete againsttraditionallightingproducts.Cree believes
LED lightingisthe future andCree will be successful bythe superiorityof theirproductamongstthe
traditional lightingproductsasthe traditional lightingbulb.(Annual report2014, 2015, p.8)
The abilitytokeeppace withthe evolvingtechnologystandardsof the industry Cree isoperatinginis
necessarytostay successful. The LEDmarketis a market,which isrelativelyyoung.The factmajor
countriesare promotingLED lightingthe pricesforLED lightingare estimatedtodropby 30-35%
everyyear.Forthe largerLED lightingproducingcompaniesthiswillresultinahigherunitshare
because of the expectationthatLED lightingwill be anaffordable optionforeveryone.Thismay
resultina shiftonthe lightingmarketfromtraditionalsourcesof lighttoLEDs.Cree has good
prospectsinthe LED industryasit has beengrantedover940 US patentsandmore than1800 foreign
patents.Cree’sLEDproductsare knownfortheirefficiencyandColourRenderingIndex “CRImetrics.
(SeekingAlpha,2014, par.3)
Environment
In theirbusinessCree cannotforgetaboutfactorswhichmayaffecttheirstrategicoptionsanddefine
itscompetitive situation.Onmacrolevel itmeansthe political,economic,sociocultural and
technological factors.Cree isamultinational companywithover3000 patentsworldwide,becauseof
these patentsCree hasa competitiveadvantage above othercompanieswhoare operatinginthe
same market. (Annual report2014, 2015, p.11)
Cree dependsonanumberof supplierswhichprovideCree of the necessaryraw materials,
componentsandequipmentnecessaryforthe manufacturingof the products.The suppliersof Cree
are locatedall aroundthe worldcan be subjectto manyconstraintswhichare beyondthe control of
Cree. (Annual report2014, 2015, p.7)
Because Cree islistedonthe NASDAQexchange platform, Cree hastodeal withshareholders.Which
meansthe domesticandthe worldwide economyinfluencesthe successof Cree.Cree isoperatingin
an industry,which isfastevolvingbytechnological innovations. (SeekingAlpha2014, par 3)
16. 16
Stakeholders
The most importantstakeholdersforCree are the managementitself,theirshareholders,employees,
customers,suppliers,governmentsandfinancialinstitutes.Toinformall of the stakeholdersCree
offersonitswebsite the annual reportsof all the pastyears.These reportsshow the wayCree is
makingprogress. (Annual report2014, 2015, p.11)
Long term
For the longterm Cree expectsthatthey canrealize growthbyinnovationandrereleasing
breakthroughsinlightingsolutions.Inthe introductionof the Annual reportof 2014 Charlie
Swoboda,the directorof Cree,statesthathe believesthatbecause of the factCree is a company
withinnovation andtechnologyatitscore,the companycan remainsteadfastinthe goal to make
energy-wastingtraditional lightingobsolete.Cree wantstocontinue andleadthe global movement
to LED lightingbyintroducingproductsthatreduce upfrontcostsandimprove the paybackover
conventional technologies.(Annual report2014, 2015, p.2)
17. 17
Most important future trends of the LED lighting industry.
Growth
The LED industry is expected to grow very rapidly in the coming 10 years. Veikong Industrial for
example, expects the LED market to grow with 55% annually from 10.77 billion USD in 2011 to 69,7
billion USD in 2021. (Veikong Industrial, n.d., para. 1) The research company Big Market Research
released a report in 2015 of 973 pages, which states that the LED lighting market is anticipated to
grow 45% per year from 13.6 USD in 2014 to 63.1 billion by 2020. (Electronicpurchasingstrategies,
2015, para. 2015).
Pricedecline
“The pricesof LED’s are expected to keep on declining. Manufacturers like Philips, U.S.-based Cree
and Germany's Osram have been cutting retail prices of LED light bulbs as they compete for the
residential market.” (Sheahan, 2014, para. 11)
Consumerwatershed
“A commonly held belief among people in the industry is that the explosion in growth will come
whenLED bulbsreacha certainprice point.Some insidersputthisatabout $14, while otheraccounts
predict $10, or even $5. Still, others regard this watershed level as a closely guarded secret and
refuse to talk about it. (Cangeloso, 2012, p.43) Philips has just recently unveiled a LED light bulb
which is sold at the home depot for 4,97 USD.” (Crist, 2015, n.p.)
Remotely controlled light bulbs
“Manufacturershope theycan lure more customerswithsystemsthatallow them to customize light
intensity, color and composition. Smart lighting allows users to remotely control lamps from a
smartphone or tablet computer. They can, for instance, add orange hues to their lights when they
want to relax in the evening, have colorful lighting schemes for kids or have their lights blink
whenever they receive an e-mail on their smartphone.” (Sheahan, 2014, para. 8-9)
OLED
LEDs made of organicmaterials,calledOLEDs,promise evenmore revolutionarydesign possibilities.
Since theywere first commercialized a few years ago, they have mostly appeared in small portable
devices, such as mobile phones and digital music-players. Based on ultra-thin, lightweight plastic
sheets,OLEDsemita softer;more distributed light than conventional LEDs and might eventually be
turned into softly glowing wallpaper or curtains. (The economist, 2006, para. 22)
Rare earths – LED’s will be manufacturedwith otherraw materials
“Non-Chinese sourcesforrare earthsare beingdeveloped,andsome of these new sources are likely
to be operational intime tomeetincreasingdemand for rare earths from the LED sector.” (Wilburn,
2012, para. 4)
A phased banning-outoftraditionallightbulbs
“Most countries have a phased timeline for banning incandescent lighting which started with
banningthe inefficient100W and above lightbulbs.”(WoodsideCapital PartnersInternational, 2012,
p.5)
18. 18
Light emittingcarbonnanotubes
“Laser lighting,field-emission lighting and lighting based on carbon nanotubes promise even more
energy-efficientlightingthanLEDs.But while theymayeventuallyprovide newanddifferent lighting
capabilities,formpartof a larger smartlightingsolution,orpave the wayfor smart micro-luminaires,
they remain too early in development for speculation to take place on where the technology will
lead, or what future products and applications could look like.” (HIS Technology, 2014, p.4)
Global movementfor energy efficientproducts
“Due to concerns aboutscarce resourcesandclimate change, demand for energy-efficient products
has now become a global movement that is bringing about a gradual shift to higher prices in the
lighting market.” (MCKinsey, 2012, p.14)
Gross marginwillstay the same– more competition,butalsomore demand
“LED productsgross margin:We forecastthe LED productsgross margins to remain around 35% over
our reviewperiod.Withbigelectronic manufacturers like Samsung entering the market, there is an
increase incompetition.Thismightresultinlower selling prices for products and hence lower gross
margins. However, with an improving demand supply situation in the market, the gross margins
couldincrease to40%, in whichscenariothere wouldbe aan approximate 15% upside in our current
price estimate.” (Trefis, 2015, n.p.)
Oligopolisticindustrywillarriveearly
“Followingasurge in LED lighting demand last year, the LED industry welcomed development peak
that was never seen before. Every segment of the industry, from upstream to downstream
manufacturersbegantoexpandproductionandstrategize channeldistribution to gain larger market
share.[Mergers and Acquisition] were one of the fastest and most convenient methods to achieve
this, which produced the fastest route to receive attention from LED market listed manufacturers.
After the second half of last year, almost all LED market listed companies experienced mergers or
entered strategic cooperation agreements.” (LEDinside, 2014, para. 7)
Asia willlead the LED general lightingmarket
“Perspectives on the global lighting market Europe and North America are likely to lead going
forward,butAsiais expectedtocontinue buildingonitsnumber1positionin terms of revenues due
to the vast size of its general lighting market.” (MCKinsey, 2011, p.9)
“Asiais alreadyestimatedtobe the largestgeneral lightingmarketwithapproximately 35 percent of
the total market and is strengthening its position due to strong economic growth driven mainly by
China. Asia’s lighting market share is expected to be more than 45 percent by 2020. Europe and
NorthAmericaare likelytofollow with a market share of approximately 25 percent and 20 percent,
respectively, while the rest of the world will lag far behind these regions.” (MCKinsey, 2011, p.33)
19. 19
Advice future strategy of the company
Prepareforpricewar.
The company hasto make real progressin creatinganeconomyof scale in orderto be preparedfor
the price war that has justbegun.LED’s are a relativelyhomogenous product,itisexpectedthat
companieswill mainlydifferentiatethemselvesbyprice onthe fastgrowingconsumermarket.Since
Cree’skeycompetitorsOsram,PhilipsandGeneral Electricare considerablylargerintermsof
revenue andmarketshare andalreadyhave the capacityto create vasteconomiesof scale,the
future advise toCree isto make investmentsinthe fixedcapacityinorderto bringdownthe price
perunit.
Improvesmartbulbs.
Continue withsmartbulbsinordertoattract consumersintobuyingLEDlighting.Cree hastokeep
improvingitsconnectedbulbsandshouldinvestinaddingnew featuresinordertokeepitsmarket
share highin thisfastgrowingconsumersegment.Cree’snew 60-wattreplacementLEDBulbis
compatible withWinkandZigBee certifiedhubsandissoldforonly$14,97 at The Home Depot,
makingitthe cheapestsmartbulbonthe market.Lookingat itsprice,Cree’snew replacementlamp
ispoisedtodrive adoptionbyconsumers,however,itdoesnotofferthe expandedfeatures of the
PhilipsHue.
Develop cheap LEDbulb.
Cree has to developacheapLED bulbthat can compete price-wise withthe Philipslightbulb,which
onlycosts$4,97.
Distribution.
As alreadymentioned,the wayLEDproducersare expectedtodifferentiate themselvesonthe
consumermarketisby price and bydistributionchannel.The advice forCree istoincrease the
numberof distributors;atthe momentGeneral ElectricsellsitsbulbstoWall Mart whichhas11.000
stores.Cree sellsitsbulbstoThe Home Depot whichhasonly2300 stores.
20. 20
Be the firstLED producerthatsells a designOLEDlamp forconsumers.
AlthoughOLED’sare not yetas reliable asgeneral LEDbulbs,itwouldbe wise forCree todevelop
attractive LED lightingforhouseholds.Thisadvice isgiven,notonlysince itwill make Cree amarket
leaderinthe newandattractive OLED residential market,butalsosince attractive OLEDpanelscan
increase the brandawareness.
Carbonnanotubes
Don’tinvesttooheavilyoncarbonnanotubes,the moneycanbe betterspentonincreasingthe
company’smarketshare.Itis uncertainwhere thistechnologywill leadto,andalthoughisa
promisingtechnology,itwillbe astrategicchoice forthe companyto acquire thisnew technologyby
mergingor takingovera companywithcarbon nanotube patents.
Military purposes
Due to the shockproof characteristicsof lightemittingdiodes,itisadvisedforthe companyto
developlightingproductsthatare targetedon militaryuses.Atthe moment,the companyEnergy
Focusis the sole supplierof LED productscommercial shippingindustryandU.S.militaryfleets;due
to Cree’scompetitive advantage,the USmilitary,withanannual spendingof 786 billiondollarwill be
an interestingmarkettoenter.Supplierof the US military>image
Operational strategic advice
Research and development
The company shouldcontinue touse itsstrengthsefficientlyandfocusonitsalreadypresentassets.
Researchanddevelopmentisonof the keyfactors inthe company’s successwiththe LED lightbulb.
Thus expandingineitherthissector,enteringanew one orevencreatingthe company’sownniche,
will prove tobe valuable if the consumerorientedstrategyispursued. InAdditionthe productionof
LED lightbulbscallsforthe use of rare elements,Creecouldtake the nextstepandfocuson
developingnewtechnologiestobecome evenmore efficientandenvironmentallyfriendly.
21. 21
Marketing
Againconsumerinsightiskeyintodaysbusinessworld.WithCree’sLEDlightbulbthe company
createda product that isnot a niche product,yetone that consumerwantto purchase. Furthermore
competitorsLEDlightbulbsdidnotlookappealingand were confusingtoconsumers.ThusCree
decidedtotake a consumerorientedapproachintheirproductdesign.(Babej,2014) Thisapproach
was alsousedinthe marketingof the LED lightbulb. The company’sfuture marketingdependson
the directionandmarkettheirproductsare presentin.Neverthelessif the future productstarget
audience doesnotgreatlydifferorvaryfrom the LED lightbulb’sthe companyshouldaimtotake the
same approach, as the consumerbase will alreadybe presentalongwithacertainamountof brand
loyalty.
Production
The company aimedatprovidinghighqualityproductsata relativelylow price.A potential problem
withthisarisesas the productionof LED light bulbscallsforthe use of rare earths.Asthe name
alreadysuggeststhese elementsare scare thuspotentiallyincreasingthe average price of the
productioninthe longrun.Thus if possible the companycouldstartinitiativessuchasrecycling
broken/wornLEDlightbulbstocounteractthisissue fromoccurring.
22. 22
Conclusion
Cree has successfullymanagedtobecome onof the marketleadersinthe LED industry.The company
has Osram,PhilipsandGE as itsmaincompetitorsinthe LED market.In comparisontoCree,these
competitorsare considerablylargerintermsof revenue.NeverthelessCree managedtoquickly
become one of the most if notthe mostsuccessful companiesinthe industry.
Cree’ssuccesshasbeenbasedarounddesigningaproductthat is consumeroriented.The company
was able tosurpassits competitorsbyofferingahighqualityproductat a considerable ‘low’price.
InnovationwaskeytoCree’ssuccessasit incorporatedthe developmentof new consumertargeted
LED lightbulbsdesignedto,simplyput,replace the outdatedtraditional lightbulbs.Neverthelessitis
imperative tonote the difference ininnovationandimprovement.Cree diduse anexistingproduct
and improved itsperformancetothroughalreadyexistingsystems.Thusnotfundamentallychanging
the way the desiredresultisaccomplished.Cree focusedlargelyaroundthe researchand
developmentof a newproductby comingupwithan entirelynew aproduct,whichmeantbuildinga
brand.Alteringconsumerperceptionsof (their) LEDlightbulbstobeingthe new norm.
The company needstocontinue toinvestheavilyintheirresearchanddevelopmentsectorasthe
LED marketcouldpotentiallylooseitsoligopolystate.Throughthe 21st
Centuriesfastadvancesin
technologyalongwiththe ever-increasingflow of information,marketsinthe technologysector
couldpossiblyface higherlevelsof competitioninthe future. NeverthelessCree hasone of the most
valuable assets inthe market.Havingprovenitself withinthe marketthe companyearnedthe trust
and loyaltyof itsconsumers.Thususingthiskeyfactorto theiradvantage andexpandingitsproduct
range couldperhapsbe worthwhile.Addingtobeingconsumerorientedthe companyhastofocuson
longrun developmentsinthe marketitself.Similartothe change incomputerscreens,the same
change has takenplace inthe lightingindustry. Cree canpotentiallyuse itsunderstandingof
consumerexpectationof advancingnew areasof the technological sectortoitsadvance and
continue itsfocusonupdates.
23. 23
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