With Cree (NASDAQ:CREE) establishing its foothold in the LED light market, one should not forget that 58% of its revenue as per last quarter’s results were from the LED chips division. The LED chips market has an enormous growth potential that enables companies like CREE to stay focused with innovative and advanced LED chips that make it a leader in the LED chip segments. The growth in LED chips is mainly attributed to the rising demand of LED lights and a deeper penetration of the LED light market globally.LED chips are used as the base component for any LED lighting devices that enables it to grow fast mainly due to increased demand in the LED lighting industry.
As the LED light industry is estimated to be an $80 billion industry, this provides a driving force to epitaxial wafer (epi-wafers) market that is used for LED and is projected to be worth $4 billion by 2020. The majority of epi-wafers as on date are Gallium nitride (GaN) on sapphire. But with technology enhancements, this is being replaced by GaN on silicon which is more cost effective, almost 1/8th the cost of sapphire substrate. This is where companies like CREE are gaining the most as it pioneers with GaN on silicon (SiC) technology. The GaN on silicon is anticipated to grow by 18% by 2020. GaN on Silicon is most cost effective and is best suited for home applications. Over the years the cost of LED light has reduced drastically courtesy GaN-on-Si technology by CREE.
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- CREE 15-Year Financial Data
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LED chip patents
CREE has numerous patents registered under its names for LED chips. This again generates a revenue stream for CREE as license cost from various LED manufacturers using chips technology patented by CREE. Various global LED light manufacturers like Philips, Bridgelux Inc, Kingbright Electronic Co. Ltd, Rohm co, Stanley Electric Co. Ltd, etc are under the license contract with CREE for using the LED chip technology that is patented by CREE.
LED chips together with led components and SiC material, constitute the LED product segment for CREE. This segment contributed 58% of the total revenue generated by CREE. It recorded total revenue of $217 million, recording a 17.5% growth from the year ago quarter. LED Lights and RF products are the other two segments of CREE that generated revenue of $136 million and $24 million respectively.
China is supposed to be one of the biggest markets for LED chips. Total LED chip revenue in China was $992 million in 2013 and is projected to reach $1,182 million in 2014. Cree made a strategic move by establishing a LED Chip manufacturing unit in China to acquire a bigger bite of Chinese LED chip market. The company initiated production activity in china with a 592,000 sq ft feet facility in Huiahou, China, as its first overseas chip manufacturing facility outside North America. This facility also has future expansion plans to manufacture LED components.
CREE provides total LED solutions and is also increasing its market share for LED lights. As it’s a company with vertical integration, it helps it to churn out low cost LED lights which boost its revenue. LED chips are important components in LED lights. The company has a rich product portfolio pertaining to LED solutions, which includes a wide range of LED lights home and commercial application.