Cree Announces Restructuring and Authorizes Stock Buyback Due to Greater Than Expected LED Price Erosion

Cree, Inc. of Durham, North Carolina USA, announced that its board of directors has approved a restructuring. As part of the restructuring, the company has authorized a $500 million stock buyback for the fiscal year 2016. Cree cited the greater than expected price erosion in the LED market and the company’s continued under-utilization of its LED factory. Cree says that it intends to reduce the company’s excess capacity and improve its cost structure through the restructuring. Also, Cree indicated that the company plans to increase LED reserves to compensate for the market’s more aggressive pricing in the current quarter, and to factor in a more conservative pricing outlook for the fiscal year 2016.

The company is targeting restructuring charges of approximately $85 million. Of the $85 million, $47 million is projected to come from capacity and overhead cost reductions, $27 million from Channel revenue reserves and $11 million from inventory reserves. The company expects that operating expenses for the fourth quarter of the fiscal year 2015 ending on June 28, 2015, will reflect the majority of the capacity and overhead related charges. Cree anticipate that the remaining charges will be incurred in the first half of the fiscal year 2016.

The company expects that the channel revenue reserves will be reflected as a reduction of revenue in fiscal Q4, and the inventory reserves will be reflected as an increase in the cost of revenue in fiscal Q4. For fiscal Q4, the company now targets revenue to be about $375 million, which includes the $27 million revenue reserve. Cree is targeting a slight sequential increase in lighting products revenue with strong growth in commercial lighting more than offsetting a greater-than-targeted seasonal slowdown in consumer bulb sales.

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