Case Analysis of LED manufacturer CREE inc. Problem Statement External Analysis Internal Analysis Recommendations Implementation Strategy

1. CREE NC.

2. CREE NC.

3. CREE NC.
WHICH BRIGHT FUTURE?.....

4. Problem Statement
Should CREE stay in the LED Backlighting Market
for monitors and TV screens or withdraw from their
current strategy to pursue new opportunities in the
LED General Lighting market? Should they do
both?
How should Cree address the threat of increased
competition from low-cost Asian manufacturers?

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 Lenses
Glass/Copper Wire/
Plastic
General
Lighting

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 Lenses
Glass/Copper Wire/
Plastic
17%
General
Lighting

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 Lenses
Glass/Copper Wire/
Plastic 76%
17%
General
Lighting

8. EXTERNAL

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
!
NICHIA
OSRAM 35%
Philips
Samsung
26% 2000-2005 CELL PHONE
Other
1993-2000 FULL COLOR DISPLAY
5%
9% 15%
1968-1993 INDICATORS AND
NUMERIC DISPLAYS

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
!
NICHIA
OSRAM 35%
Philips
Samsung
26% 2000-2005 CELL PHONE
Other
1993-2000 FULL COLOR DISPLAY
5%
9% 15%
1968-1993 INDICATORS AND
NUMERIC DISPLAYS

11. EXTERNAL
FUTURE 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 INNOVATION
GE
OSRAM
Philips
Private Labels
Other 5%
14%
4%
7%
70%

12. EXTERNAL
Industry KSF’s
Skilled Labor
R&D
Economies of Scale
Willingness to Outsource When Appropriate
Contacts with Customers and Distributers

13. INTERNAL

14. INTERNAL
Intangible 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. INTERNAL
Tangible 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. INTERNAL
Tangible 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. INTERNAL
Core 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. INTERNAL
Core 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
V YES YES YES
R YES YES NO
I YES YES YES
N NO YES/NO YES
= T. CA ST: S. CA LT: T. CA T. CA

19. INTERNAL
Cree’s Strategies
Business-Level Strategies: Integrated Cost-Leadership
Differentiation
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. RECOMMENDATIONS

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. 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. 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. Recommendations
Alternatives
Transfer
Cost Risk Return Rivalry
of CC’s
1) Cutting R&D in
General Lighting MODERATE
Sunk Costs
S.Term=HIGH
and pursuing only from general LOW YES HIGH
L.Term=?
Backlighting lighting
2) Exit
VERY HIGH
Backlighting to Switching S.Term=Low
Pursue General costs, Sunk HIGH YES MODERATE
Costs from L.Term=High
Lighting Market
Backlighting
3)Pursue Both HIGH
S.Term=Mod VERY
Markets
MODERATE YES
R&D L.Term= HIGH HIGH

25. Recommendations
Alternatives
Transfer
Cost Risk Return Rivalry
of CC’s
1) Cutting R&D in
General Lighting MODERATE
Sunk Costs
S.Term=HIGH
and pursuing only from general LOW YES HIGH
L.Term=?
Backlighting lighting
2) Exit
VERY HIGH
Backlighting to Switching S.Term=Low
Pursue General costs, Sunk HIGH YES MODERATE
Costs from L.Term=High
Lighting Market
Backlighting
3)Pursue Both HIGH
S.Term=Mod VERY
Markets
MODERATE YES
R&D L.Term= HIGH HIGH

26. Recommendations
Alternatives
Transfer
Cost Risk Return Rivalry
of CC’s
1) Cutting R&D in
General Lighting MODERATE
Sunk Costs
S.Term=HIGH
and pursuing only from general LOW YES HIGH
L.Term=?
Backlighting lighting
2) Exit
VERY HIGH
Backlighting to Switching S.Term=Low
Pursue General costs, Sunk HIGH YES MODERATE
Costs from L.Term=High
Lighting Market
Backlighting
3)Pursue Both HIGH
S.Term=Mod VERY
Markets
MODERATE YES
R&D L.Term= HIGH HIGH

27. Recommendations
Alternatives
Transfer
Cost Risk Return Rivalry
of CC’s
1) Cutting R&D in
General Lighting MODERATE
Sunk Costs
S.Term=HIGH
and pursuing only from general LOW YES HIGH
L.Term=?
Backlighting lighting
2) Exit
VERY HIGH
Backlighting to Switching S.Term=Low
Pursue General costs, Sunk HIGH YES MODERATE
Costs from L.Term=High
Lighting Market
Backlighting
3)Pursue Both HIGH
S.Term=Mod VERY
Markets
MODERATE YES
R&D L.Term= HIGH HIGH

28. Recommendations
Recommendations
Backlighting: Cost-Leadership Mgmt. Strategy
LED General Lighting: Differentiation Mgmt.
Strategy

29. Recommendations
Recommendations
CREE SHOULD PURSUE BOTH MARKETS
Backlighting: Cost-Leadership Mgmt. Strategy
LED General Lighting: Differentiation Mgmt.
Strategy

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. 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. Allocation of Resources
< 1 Year 1-3 Years
Cost Cost
Activity
(Cash) Activity (Expected
Sales)
Switching
Production 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. 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. THANK YOU
ANY QUESTIONS?