Cree Inc - Management Decisions

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Case Analysis of LED manufacturer CREE inc.

Problem Statement
External Analysis
Internal Analysis
Recommendations
Implementation Strategy

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  • Cree Inc - Management Decisions

    1. 1. CREE NC.
    2. 2. CREE NC.
    3. 3. CREE NC. WHICH BRIGHT FUTURE?.....
    4. 4. Problem StatementShould CREE stay in the LED Backlighting Marketfor monitors and TV screens or withdraw from theircurrent strategy to pursue new opportunities in theLED General Lighting market? Should they doboth?How should Cree address the threat of increasedcompetition from low-cost Asian manufacturers?
    5. 5. Synthetic Sapphire Gallium Nitride Primary LED Chips & LED Lights Blue/White/Green/ Materials Components Yellow/Red Potassium Phosphor Aluminum Thermal Management Silicon Carbide Secondary LensesGlass/Copper Wire/ Plastic General Lighting
    6. 6. Synthetic Sapphire Gallium Nitride LED LIGHTING MARKET Primary LED Chips & LED Lights Blue/White/Green/ Materials Components Yellow/Red 17% 7% Gen Lighting Potassium Phosphor Mobile Appliences Aluminum Signs & Displays Thermal Management Silicon Carbide Auto 15% Other 44% Secondary LensesGlass/Copper Wire/ Plastic 17% General Lighting
    7. 7. Synthetic Sapphire Gallium Nitride LED LIGHTING MARKET Primary LED Chips & LED Lights Blue/White/Green/ Materials Components Yellow/Red 17% 7% Gen Lighting Potassium Phosphor Mobile Appliences Aluminum Signs & Displays Thermal Management Silicon Carbide Auto 15% Other 44% Backlighting: Secondary LensesGlass/Copper Wire/ Plastic 76% 17% General Lighting
    8. 8. EXTERNAL
    9. 9. EXTERNAL FUTURE OUTLOOK: BACK-LIGHTING Driven by Automotive Backlighting, Cellular Phone Backlighting These Markets are now Saturated. Future growth to come from large-format video and display screens LED TVs – Expected Growth from 3.1M in 2009 to 26M in 2010 to 129M by 2013 LED LIGHTING 10%CREE 2005-2013* LED-TV !NICHIAOSRAM 35%PhilipsSamsung 26% 2000-2005 CELL PHONEOther 1993-2000 FULL COLOR DISPLAY 5% 9% 15% 1968-1993 INDICATORS AND NUMERIC DISPLAYS
    10. 10. EXTERNAL FUTURE OUTLOOK: BACK-LIGHTING Driven by Automotive Backlighting, Cellular Phone Backlighting These Markets are now Saturated. Future growth to come from large-format video and display screens LED TVs – Expected Growth from 3.1M in 2009 to 26M in 2010 to 129M by 2013 LED LIGHTING 10%CREE 2005-2013* LED-TV !NICHIAOSRAM 35%PhilipsSamsung 26% 2000-2005 CELL PHONEOther 1993-2000 FULL COLOR DISPLAY 5% 9% 15% 1968-1993 INDICATORS AND NUMERIC DISPLAYS
    11. 11. EXTERNALFUTURE OUTLOOK: GENERAL LIGHTING Total Market Size in 2007: $110Billion LED’s In General Lighting were expected to reach sales of $3Billion in 2013 GENERAL LIGHT BULBS INCREMENTAL INNOVATIONGEOSRAMPhilipsPrivate LabelsOther 5% 14% 4% 7% 70%
    12. 12. EXTERNALIndustry KSF’sSkilled LaborR&DEconomies of ScaleWillingness to Outsource When AppropriateContacts with Customers and Distributers
    13. 13. INTERNAL
    14. 14. INTERNALIntangible Resources Human •  killed Labor S •  pen minded mgmt O resources •  o MBA’s N Innovation •  nstructured U •  reative problem solving C •  urable products D Reputational •  o Brand Equity N •  egitimate supplier L
    15. 15. INTERNALTangible Resources • High Borrowing capacity Financial • Lots of Cash on Hand • State of the art R&D facilities. • Expertise in SiC and wafer Technological production. • Trade Secrets. • Flexible Functional Structure with Organizational concentration in R&D • Bi-annual strategic planning • Plants in China, Malaysia and North Physical Carolina • Primary materials are abundant.
    16. 16. INTERNALTangible Resources • High Borrowing capacity Financial • Lots of Cash on Hand 2005 2006 2007 • State of the art R&D facilities. • Expertise in SiC and wafer Technological ROA 12.96% 9.14% 5.69%production. • Trade Secrets. • Flexible Functional Structure with Organizational ROE 14.10% 9.96% 6.22%concentration in R&D • Bi-annual strategic planning • Plants in China, Malaysia and North Physical Carolina • Primary materials are abundant.
    17. 17. INTERNALCore Competencies Adaptability to Flexible R&D Expertise in SiC Market Demands ✦ World leader in ✦ Cree’s Law ✦ Setting the Standard Silicon Carbide ✦ Get it Done ★ Blue LED’s ✦ Maximizes Efficiency Philosophy ★ XLamp ✦ Supplies World ✦ HRM Strategies ✦ Market Creaters Markets
    18. 18. INTERNALCore Competencies Adaptability to Flexible R&D Expertise in SiC Market Demands ✦ World leader in ✦ Cree’s Law ✦ Setting the Standard Silicon Carbide ✦ Get it Done ★ Blue LED’s ✦ Maximizes Efficiency Philosophy ★ XLamp ✦ Supplies World ✦ HRM Strategies ✦ Market Creaters MarketsV YES YES YESR YES YES NOI YES YES YESN NO YES/NO YES= T. CA ST: S. CA LT: T. CA T. CA
    19. 19. INTERNALCree’s StrategiesBusiness-Level Strategies: Integrated Cost-LeadershipDifferentiation Why? Cree seeks to provide a superior quality good at competitive prices. How? By taking advantage of E.O.Scale in input logistics and centralizing R&D; continuos innovation.
    20. 20. RECOMMENDATIONS
    21. 21. Alternative 1: Backlighting Only PRO’s CON’s✦ Already have the experience ✦ Already invested in General✦ Distribution Channels Lighting✦ Reputation ✦ Limited Growth Opportunity✦ LED-TV market growth
    22. 22. Alternative 2: General Lighting Only PRO’s CON’s ✦ Has to Create the Market✦ Focus R&D and Resources ✦ Competition with Large✦ Huge Market✦ Has the Technology Players ✦ Loss of Revenue from LED- TV’s ✦ Doesn’t Fit with current BLS
    23. 23. Alternative 3: Pursue Both Markets PRO’s CON’s✦ Economies Of Scale✦ Increased Market Share ✦ Different Distribution✦ Avoids Market Saturation Channels✦ Long Term Growth ✦ Different BLS’s Opportunities
    24. 24. Recommendations Alternatives Transfer Cost Risk Return Rivalry of CC’s1) Cutting R&D in General Lighting MODERATE Sunk Costs S.Term=HIGHand pursuing only from general LOW YES HIGH L.Term=? Backlighting lighting 2) Exit VERY HIGH Backlighting to Switching S.Term=LowPursue General costs, Sunk HIGH YES MODERATE Costs from L.Term=HighLighting Market Backlighting 3)Pursue Both HIGH S.Term=Mod VERY Markets MODERATE YES R&D L.Term= HIGH HIGH
    25. 25. Recommendations Alternatives Transfer Cost Risk Return Rivalry of CC’s1) Cutting R&D in General Lighting MODERATE Sunk Costs S.Term=HIGHand pursuing only from general LOW YES HIGH L.Term=? Backlighting lighting 2) Exit VERY HIGH Backlighting to Switching S.Term=LowPursue General costs, Sunk HIGH YES MODERATE Costs from L.Term=HighLighting Market Backlighting 3)Pursue Both HIGH S.Term=Mod VERY Markets MODERATE YES R&D L.Term= HIGH HIGH
    26. 26. Recommendations Alternatives Transfer Cost Risk Return Rivalry of CC’s1) Cutting R&D in General Lighting MODERATE Sunk Costs S.Term=HIGHand pursuing only from general LOW YES HIGH L.Term=? Backlighting lighting 2) Exit VERY HIGH Backlighting to Switching S.Term=LowPursue General costs, Sunk HIGH YES MODERATE Costs from L.Term=HighLighting Market Backlighting 3)Pursue Both HIGH S.Term=Mod VERY Markets MODERATE YES R&D L.Term= HIGH HIGH
    27. 27. Recommendations Alternatives Transfer Cost Risk Return Rivalry of CC’s1) Cutting R&D in General Lighting MODERATE Sunk Costs S.Term=HIGHand pursuing only from general LOW YES HIGH L.Term=? Backlighting lighting 2) Exit VERY HIGH Backlighting to Switching S.Term=LowPursue General costs, Sunk HIGH YES MODERATE Costs from L.Term=HighLighting Market Backlighting 3)Pursue Both HIGH S.Term=Mod VERY Markets MODERATE YES R&D L.Term= HIGH HIGH
    28. 28. RecommendationsRecommendationsBacklighting: Cost-Leadership Mgmt. StrategyLED General Lighting: Differentiation Mgmt.Strategy
    29. 29. RecommendationsRecommendations CREE SHOULD PURSUE BOTH MARKETSBacklighting: Cost-Leadership Mgmt. StrategyLED General Lighting: Differentiation Mgmt.Strategy
    30. 30. Recommendations Implementation Strategy <1 Year 1 - 3 Years >3 Years ✦ Target individual ✦ Create a cost-efficient consumers LED light that can✦ Start shifting ✦ Use online compete with big backlighting production distribution channels players to China & Malaysia ✦ Increase awareness & Move towards Integrated✦ B2B Marketing ✦ Brand Equity CL-DIFF strategy✦ Separation R&D ✦ Aiming at receiving Energy Star accreditation
    31. 31. Recommendations Implementation Strategy Continuously Scan the Backlighting Market for Potential Opportunities <1 Year 1 - 3 Years >3 Years ✦ Target individual ✦ Create a cost-efficient consumers LED light that can✦ Start shifting ✦ Use online compete with big backlighting production distribution channels players to China & Malaysia ✦ Increase awareness & Move towards Integrated✦ B2B Marketing ✦ Brand Equity CL-DIFF strategy✦ Separation R&D ✦ Aiming at receiving Energy Star accreditation
    32. 32. Allocation of Resources < 1 Year 1-3 Years Cost CostActivity (Cash) Activity (Expected Sales)SwitchingProduction 20% CASH - $242M (2007) to China/ ($48.4M) Malaysia 5% Marketing ($25M) B2B 10%Marketing ($24.2M) LONG-TERM DEBT - $0 (2007) Online 2%Separating 23% Distribution ($9.5M) R&D ($55.7M)
    33. 33. CREE INC. FINANCIALS, IN MILLIONS CAGR 2003 2004 2005 2006 2007 2008e 2009e 2010e ’04-’07 Net Sales 229.8 307.4 384.5 423.0 394.1 413.81 455.19 523.46 20.46% YoY Growth 48% 34% 25% 10% -7% 5% 10% 15% COGS 87.3 105.9 103.3 147.7 179.7 186.21 195.73 209.39 27% % of Sales 34.5% 27% 35% 46% 45% 43% 40% Gross Profit 100.5 145.9 211.4 200.9 129.8 227.59 259.46 314.08 YoY Growth 45% 45% -5% -35% 75% 14% 21% Marketing Exp. 20.69 22.76 26.17 (5% of Sales)Online Distribution 8.28 9.10 10.47 (2% of Sales)
    34. 34. THANK YOUANY QUESTIONS?

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