“CREE, INC.: Which Bright Future?

”
(Written Analysis of the Case)

I. SUMMARY/BACKGROUND OF THE CASE

Cree, Inc. (Cree) is one of the market-leading innovators of lighting class LED's, LED

lighting, and semiconductor solutions for wireless and power applications. It develops and

manufactures semiconductor materials and devices principally based on silicon carbide (SiC),

gallium nitride (GaN), and other related compounds. Cree’s product portfolio comprises LED

chips, LED components and LED lighting solutions and SiC and GaN materials and products. In

addition, Cree offers power and radio frequency (RF) products such as power switching and RF

devices. The company also sponsors and participates in several initiatives to enable and further

support the adoption of LED lighting. These include LED City, LED Workplace, and LED

University programs. The principal manufacturing facilities of the company are located in

Durham and Research Triangle Park, North Carolina (US), while its research and development

(R&D) centers are located in California (US) and Hong Kong. The company is headquartered in

Durham, North Carolina, US.

Cree operates in an industry undergoing a paradigm shift – moving 100 year old

traditional lighting to LED lighting that offers tremendous energy and maintenance savings. LED

lighting is primarily used as spare parts for lighting indicators and other appliances using LEDs.

Cree wishes to develop the usage of LEDs and make it to the general lighting market because it is

the largest market in the lighting industry other than commercial and industrial lighting. However,

using LED lights in the households is not a popular and trusted practice because LED can’t

compete with the brightness of CFLs. Cree dedicated their R&D in the development of LEDs so

it can produce brighter lights able to accommodate a wide space. Their planning to launch this

new improvement to the market hopefully with the help of other companies in the industry to

introduce LEDs to the general lighting market.

II. STATEMENT OF THE PROBLEM

Taking advantage of the strong demand for LED backlighting and the promising market
in general lighting segment, what should Cree’s management do to exploit the fast growing
demand of LED lighting?

III. OBJECTIVES
1. Determine the projected market size and sales of the general lighting industries.
2. Convince the market that LED technology was ready and sufficient for general lighting.
3. Introduce more efficient and environmental-friendly ways to the lighting industry.

III. Areas of Consideration:

 SWOT ANALYSIS

Strength:
1. A major player in the developing LED market.

2. Diversity of revenue streams, RF emitter, lighting, semiconductors

3. Active and strong R&D

Weaknesses:
1. Exposed to fluctuations in raw material prices

Opportunities:
1. Forecasted 2B in revenues in two years, 35% gross

2. LED lighting is 1% of U.S. market

Threats:
1. Extreme competition, Samsung, Phillips, GE providing similar LEDs
 INDUSTRY ANALYSIS

Upward trend

Projected Sales (2015)

$3.64 billion
$2.1 billion
$1.4 billion
$1.26 billion
$750 million

$4.9 billion

$14 billion

Note: Estimated sales increase

of +30% annually.
 30% increase
92% decrease
78% decrease

 Porter’s analysis reveals the following:

Porter’s analysis 5-forces Implication

Bargaining power of buyers: Customers have medium bargaining power
Medium level of threat because there are substitutes for LEDs
however, it will prevail in the darkness because
of it is more efficient and cost saving than its
counterparts. Also, the market is not as
saturated so standardization might not happen
yet in the near future.
Bargaining power of suppliers: This is because all the materials and spare parts
needed to manufacture LEDs are created by the
Low level of threat company and due to the industry being R&D
intensive, higher secrecy is required to protect
the companies’ researches and patents.
Threat of new entrants: There is a low threat of new entrants into the
Low level of Threat General Lighting industry. One reason is that
there is a relatively high barrier of entry which
is the investment cost mainly in the equipment
and R&D expenses. There are already a lot of
big players in the market and new entrants may
be intimidated to compete with companies with
strong loyal customer base.
Threats from Substitutes: There is a high level of threat in terms of
substitutes because Incandescent and CFLs are
High level of Threat the more common widely used lighting. Aside
from a lot of continuous researches and
innovation can that can surpass the
competitiveness of LEDs to attract consumers.
Rivalry Threat There is a very high rivalry in this industry.
Competing companies are active in launching
High threat new products usually better than its previous
models.
IV. ALTERNATIVE COURSES OF ACTION

1. Establish a strategic plan to promote LED lights and capture the general lighting market.

The proposed strategies include a combination of generic and grand strategies to include
backwards vertical integrations, acquisitions, partnerships, increased marketing,
concentric diversification, increased R&D, increased channels for distribution, and
overall appeal to the 'green' consumer and a creation of brand recognition. The
management, employees and the organization as a whole will realize the success of the
company in a new perspective.

STRATEGY ACTIVITIES
Product
Increase Research and Development
Leadership

Customer intimacy through loyalty programs

Differentiation Appeal to one or more groups of consumers

Marketing campaigns to high energy usage cities street lighting

Create trend following with energy conscious consumers

Operational
Outsourcing, increase channels for distribution: (ex. Lowes, Target)
excellence
Backwards
vertical Acquire supplies
integration

Indirect sales engagements with many levels such as lighting designers, architects, end
Market
users (facilities managers, plant managers, etc), lighting agents, contractors (general
dynamics
and electrical), utilities, energy services companies (ESCO’s), and distributors

Concentric
Enter LED general lighting market
diversification

Advantages:

 Increase employee loyalty

 Maintain product leadership
 Expand the reach of Cree's market leading technologies..
 Establishing strong linkages will be very beneficial to the entire organization’s
process and performance.
 Disadvantages:
 Potential partnerships may not be possible.
 Won’t be able to capture the general market.

V. CONCLUSION / RECOMMENDATION

Establish a five year strategic plan that addresses weaknesses and opportunities to turn
around the company performance. This strategic plan identifies the risks, opportunities, and presents an
implementation plan to address them. For the next five years, the objectives to increase revenue and
capture the general lighting market will be achieved given the presented master schedule with milestones
of achievement. Contingency planning will help whether the outcome when the performance measures
waiver off the desired outcomes. The implementation and success of this plan will depend on how well
the organization communicates with its employees and how well they organize functional tactics. In
conclusion, this strategic plan keep Cree Inc. ahead of the competition and positions them to maximize
resources while maintaining their focus on the company overall vision and mission.

VI. POTENTIAL PROBLEMS ARISING

Cree, Inc, might not able to maintain the trend of using LED lighting the households and its
popularity may die sooner.