A Win-Win Situation: Cree Announces Investment in Lextar through Private Placement

Cree recently announced plans to invest US $83M in Lextar Electronics, one of Taiwan’s major LED manufacturers, in order to acquire 13% of Lextar shares and to enter a supply/royalty agreement. Cree will become Lextar’s second largest shareholder (AUO, Lextar’s parent company, is the biggest shareholder) and obtain one member of BOD. This deal is expected to be done at the end of 2014 and the lock-up period is 3 years, which means Lextar will reserve its capacity for Cree for 3 years.

Martin Shih
Martin Shih

Cree recently announced plans to invest US $83M in Lextar Electronics, one of Taiwan’s major LED manufacturers, in order to acquire 13% of Lextar shares and to enter a supply/royalty agreement. Cree will become Lextar’s second largest shareholder (AUO, Lextar’s parent company, is the biggest shareholder) and obtain one member of BOD. This deal is expected to be done at the end of 2014 and the lock-up period is 3 years, which means Lextar will reserve its capacity for Cree for 3 years.

Cree specializes in Silicon-carbide LEDs, especially high-power LEDs. Its cost of mid-power LED chips is higher than other sapphire-based LED chips. In addition, Cree will need to expand its capacity of mid-power LED chips to meet the demand of LED lighting. Cree currently outsources to Epistar for its mid-power LED chips. Cree’s business accounts for high single digit percent of Epistar’s total revenue.

Lextar provides all solutions of LED manufacture, from chips and package to lighting products. Its major product is TV backlighting, which accounts for 70% of its total sales. Lextar’s lighting products account for 30% of its total sales, and its major lighting business is OEM for Philips and Osram. Lextar expects to expand its LED chip capacity for Cree’s upcoming orders.

In the short term, we think Cree will continue to outsource to Epistar. Once Lextar’s LED chip capacity has been expanded and the yield is tuned up through Cree’s cooperation, Lextar will become the main supplier. In the long term, Lextar can also provide package and lighting product services to Cree due mainly to lower costs. While Cree produces its mid-power LED chips, it can now focus its R&D on expanding proprietary high-power LEDs for higher value-added since Lextar supplies mid-power LED chips.

Therefore, we believe this deal is a win-win situation for both Lextar and Cree. In addition, we anticipate that more and more US/EU LED lighting brands will outsource their components manufacturing to Taiwan or China.

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