Cree, Inc. announced it has agreed to sell its LED business (Cree LED) to SMART Global Holdings for $300 million. The Durham, North Carolina-based firm explained that divesting its pioneering division would enable it to pursue other market opportunities.
Barring any regulatory hang-ups, the transaction is set to close in the first quarter of next year.
Cree LED Sale Details
In a press release, Cree broke down the different steps involved in its deal with SMART.
Once the agreement goes through, the acquiring company will make a $50 million upfront payment. It will also issue a seller note worth $125 million set to reach maturity in the summer of 2023. If Cree LED hits certain post-sale financial targets, the buyer will hand over another $125 million deferred payment.
Cree said the transaction’s proceeds would enable it to further its silicon and silicon carbide research and development. The firm specifically wants to cultivate offerings for the industrial, 5G, and vehicle electrification sectors.
SMART intends to utilize its new subsidiary to bolster its already diverse semiconductor catalog. The conglomerate stated it would license its new subsidiary’s name from Cree to release new products under a familiar name.
Why Cree is Selling Its LED Business
In the late 1980s, Cree established itself by offering the world’s first commercial blue LED. As the decades passed, the chipmaker became one of the industry’s foremost vendors of that component type. But times change, and the semiconductor manufacturer is endeavoring to evolve with them.
As noted by TrendForce, Cree LED is not the earnings powerhouse it once was. The market research firm points out the division brought in over $1 billion in revenue for its parent company earlier this decade. In recent years, however, the brand lost ground to rivals that utilized bold pricing strategies to capture market share.
By 2019, the division’s yearly income fell to $480 million, and it no longer placed among the top three global LED vendors.
So, Cree decided to take action rather than endure even greater declines in the future. With the funding from its new deal, it could become an innovator in next-generation tech. In addition, SMART has the resources to make its new optoelectronics subsidiary a profitable legacy brand.
Though Cree LED changing owners is a big change, it looks to be a positive one for all parties.