Cree Inc. has entered into an agreement with Lextar Electronics Corp. whereas Cree will take an approximate 13 percent stake in Lextar to ensure a supply of sapphire-based, mid-power light emitting diode (LED) chips.
Cree will invest $83 million in order to purchase 83 million Lextar shares and enter into a long-term LED chip supply agreement as well as a royalty-bearing license agreement for certain Cree LED chip and component intellectual property.
“The deal shows the success of mid-power LEDs in the market,” said Jamie Fox, principal analyst for LEDs and lighting at IHS Technology. “When even a company that has been the leader in high power LEDs for a long time, heavily focused on it, feels a needs to expand its mid-power footprint, it just shows how successful mid power has been.”
IHS forecasts that 48 percent of lighting revenue will come from the mid-power LED market in 2014, representing 81 percent of all units shipped.
Fox said the agreement makes sense for Cree because its technological strengths are in high power LEDs, which it perceives as higher quality. Due to the low selling price for mid-power LEDs, it is difficult for Cree to expand its capacity to produce these chips and retain high margins Cree investors are accustomed to in its LED division.
“Cree’s profit can expect to continue to be driven by high power LEDs, but Cree obviously understands that the reality right now is that the market demand, at least in some applications, is for the lower pricing which is more easily achieved with mid power,” Fox said. While both companies may benefit from the deal, he said, Lexar in particular may be able to drive growth and awareness in the company.
Fox believes the deal won’t have a huge impact on the market as a whole and this isn’t the first time a Tier 1 supplier has made such agreements with lower tier players in China, Taiwan or elsewhere. Most companies just don’t publicize it.