What changed in this filing

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Item 1. Business

2020-08-19 compared with 2019-08-21 · 54 added, 47 removed, 118 unchanged (46% of the section changed)

(Cree, we, our, or us) is an innovator of wide bandgap semiconductor products for power and radio-frequency (RF) applications and lighting-class light emitting diode (LED) products.

Our products are targeted for applications such as transportation, power supplies, inverters, wireless systems, indoor and outdoor lighting, electronic signs and signals and video displays.

(Cree, we, our, or us) is an innovator of wide bandgap semiconductors, focused on silicon carbide and gallium nitride materials, devices for power and radio-frequency (RF) applications and specialty lighting-class light emitting diode (LED) products.

Our silicon carbide and gallium nitride (GaN) materials and devices are targeted for applications such as transportation, power supplies, inverters and wireless systems.

The Company's LEDs are targeted for use in indoor and outdoor lighting, electronic signs and signals and video displays.

We operate in two reportable segments:

Wolfspeed , which consists of silicon carbide (SiC) and gallium nitride (GaN) materials, power devices and RF devices based on silicon (Si) and wide bandgap semiconductor materials.

• Wolfspeed , which consists of silicon carbide and GaN materials, power devices and RF devices based on wide bandgap semiconductor materials and silicon.

Our materials products and power devices are used in electric vehicles, motor drives, power supplies, solar and transportation applications.

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On May 13, 2019, we sold our Lighting Products business unit to IDEAL Industries, Inc.

(IDEAL) and have classified this business unit as discontinued operations.

(IDEAL) and have classified this business unit as discontinued operations in our consolidated financial statements.

The Lighting Products business unit represented the Lighting Products segment disclosed in our historical financial statements.

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We also use contract manufacturers for certain products and aspects of product fabrication, assembly and packaging.

We operate research and development facilities in North Carolina, Arizona, Arkansas, California and China (including Hong Kong).

Additionally, we are in the process of building a silicon carbide fabrication facility in New York.

We operate research and development facilities in North Carolina, Arizona, Arkansas, New York, California and China (including Hong Kong).

is a North Carolina corporation established in 1987, and our headquarters are in Durham, North Carolina.

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Products by Reportable Segment

Our Wolfspeed segment includes SiC materials, power devices and RF devices.

SiC Materials

Our SiC materials products consist of crystals, bare and epitaxial wafers.

Our SiC materials are targeted for customers who use them to manufacture products for RF, power switching, gemstones and other applications.

Corporate, government and university customers also buy SiC materials for research and development directed at RF and power devices.

Our Wolfspeed segment includes silicon carbide and GaN materials, power devices and RF devices.

Silicon Carbide and GaN Materials

Our silicon carbide materials products consist of silicon carbide bare wafers, epitaxial wafers, and GaN epitaxial on silicon carbide wafers.

Our silicon carbide materials are targeted for customers who use them to manufacture products for RF, power and other applications.

Corporate, government and university customers also buy silicon carbide and GaN materials for research and development directed at RF and power devices.

Power Devices

Our power device products consist of SiC Schottky diodes, metal oxide semiconductor field effect transistors (MOSFETs), power modules and gate driver boards.

Our SiC power products provide increased efficiency, faster switching speeds and reduced system size and weight over comparable silicon-based power devices.

Power products are sold primarily to customers and distributors for use in applications such as electric vehicles, including charging infrastructure, server power supplies, solar inverters, uninterruptible power supplies, industrial power supplies and other applications.

Our RF devices consist of GaN die, high-electron mobility transistors (HEMTs), monolithic microwave integrated circuits (MMICs), and laterally diffused MOSFET (LDMOS) power transistors that are optimized for next generation telecommunications infrastructure, military and other commercial applications.

Our RF devices are made from Si, SiC and GaN and can provide improved efficiency, bandwidths and frequency of operation as compared to silicon or GaAs.

Our power device products consist of silicon carbide Schottky diodes, metal oxide semiconductor field effect transistors (MOSFETs), power modules and gate driver boards.

Our silicon carbide power products provide increased efficiency and faster switching speeds and as a result, reduced system size and weight over comparable silicon-based power devices.

Power products are sold to customers and distributors for use in applications such as electric vehicles, including charging infrastructure, server power supplies, solar inverters, uninterruptible power supplies, industrial power supplies and other applications.

Our RF devices consist of GaN-based die, high-electron mobility transistors (HEMTs), monolithic microwave integrated circuits (MMICs), and laterally diffused MOSFET (LDMOS) power transistors that are optimized for next generation telecommunications infrastructure, military and other commercial applications.

Our RF devices are made from silicon, silicon carbide and GaN and can provide improved efficiency, bandwidths and frequency of operation as compared to silicon or gallium arsenide (GaAs).

We also provide custom die manufacturing for GaN HEMTs and MMICs that allow a customer to design its own custom RF circuits to be fabricated by us, or have us design and fabricate products that meet their specific requirements.

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We use our LED chips in the manufacturing of our LED components.

Customers use our blue and green LED chips in a variety of applications including video screens, gaming displays, function indicator lights and automotive backlights, headlamps and directional indicators.

Customers may also combine our blue LED chips with phosphors to create white LEDs, which are used in various applications for indoor and outdoor illumination and backlighting, full-color display screens, liquid crystal display (LCD) backlighting, white keypads and the camera flash function.

Customers use our blue and green LED chips in a variety of applications including video screens, gaming displays and function indicator lights.

LED Components

Our LED components include a range of packaged LED products, from our XLamp ® LED components and LED modules for lighting applications to our high-brightness LED components.

Our LED components include a range of packaged LED products, from our XLamp ® and J Series ® LED components and LED modules for lighting applications to our high-brightness LED components.

Our XLamp LED components and LED modules are designed to meet a broad range of market needs for lighting applications including general illumination (both indoor and outdoor applications), portable, architectural, signal and transportation lighting.

We also sell XLamp LED components externally to customers and distributors for use in a variety of products, primarily for lighting applications.

In fiscal 2018, Cree formed a joint venture, Cree Venture LED Company Limited (Cree Venture LED), with San'an Optoelectronics Co., Ltd.

(San'an) to sell LED components for indoor and outdoor general illumination applications where customers are more price sensitive.

Cree sells the products from Cree Venture LED under the J Series brand.

Our high-brightness LED components consist of surface mount device (SMD) and through-hole packaged LED products.

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Our through-hole packaged LED component products are available in a full range of colors primarily designed for the signage market and provide users with color and brightness consistency across a wide viewing area.

In fiscal 2018, Cree formed a joint venture, Cree Venture LED Company Limited (Cree Venture LED), with San'an Optoelectronics Co., Ltd.

(San'an) to sell mid-power LED components.

These mid-power components are focused on indoor general illumination applications where customers are more price sensitive.

For further information about our reportable segments, please refer to Note 17, “Reportable Segments,” in our consolidated financial statements included in Item 8 of this Annual Report.

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Our research and development activity includes efforts to:

convert existing SiC and GaN fabrication technology to a 200mm platform;

• develop existing silicon carbide materials and fabrication technology for a 200mm platform;

• develop higher power diodes/switches and higher power/linearity RF devices;

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When our customers participate in funding our research and development programs, we recognize the amount funded as a reduction of research and development expenses to the extent that our customers’ funding does not exceed our respective research and development costs.

For further information about our research and development, see “Research and Development” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations."

For further information about our research and development costs, see “Research and Development” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Sales and Marketing

We continue to make investments to expand our sales, marketing, technical applications support, as well as distribution capabilities to further enable new and existing customers to implement our SiC materials, power, RF, and LED technology into their products.

We also continue to make investments to promote and build market awareness of the Cree and Wolfspeed brands.

We have continued to make investments to expand our sales, marketing and technical applications support, as well as distribution capabilities to further enable new and existing customers to implement our silicon carbide and GaN materials, power, RF, and LED technology into their products.

We also have continued to make investments to promote and build market awareness of the Cree and Wolfspeed brands.

Our sales, marketing and technical applications teams include personnel throughout North America, Asia and Europe.

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(Arrow) has accounted for 15%, 19% and 21% of our total consolidated revenue in fiscal 2020, 2019 and 2018, respectively.

Arrow is a customer of our Wolfspeed and LED Products segments.

Arrow is a customer of both our Wolfspeed and LED Products segments.

For further discussion regarding customer concentration, please see Note 18, “Concentrations of Risk,” in our consolidated financial statements included in Item 8 of this Annual Report.

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Similar to other global semiconductor component suppliers, both our Wolfspeed and LED Products segments have historically experienced, and in the future may experience, seasonally lower sales during our fiscal third quarter due to the Chinese New Year holiday.

Our sales also vary based on other factors such as customer demand and government regulation.

If anticipated sales or shipments do not occur when expected, our results of operations for that quarter, and potentially for future quarters, may be adversely affected.

Our backlog at June 28, 2020 was approximately $687.4 million, compared with a backlog of approximately $644.6 million at June 30, 2019.

Because of the generally short cycle time between order and shipment and occasional customer changes in delivery schedules or cancellation of orders (which at times may be made without significant penalty), we do not believe that our backlog, as of any particular date, is necessarily indicative of actual net revenue for any future period.

Additionally, our June 30, 2019 backlog contained $10.1 million of research contracts signed with the U.S.

Government, for which approximately $2.8 million had not been appropriated as of the last day of fiscal 2019 .

Significant amounts of our backlog relate to agreements that extend past one year.

Our June 28, 2020 backlog contained $18.3 million of research contracts signed with the U.S.

Government, all of which were appropriated as of the last day of fiscal 2020.

Our June 30, 2019 backlog contained $10.1 million of research contracts signed with the U.S.

Government, for which approximately $2.8 million was not appropriated as of the last day of fiscal 2019.

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We depend on a number of suppliers for certain raw materials, components and equipment used in manufacturing our products, including certain key materials and equipment used in critical stages of our manufacturing processes.

We generally purchase these limited source items pursuant to purchase orders and have limited guaranteed supply arrangements with our suppliers.

In select cases, we have purchase contracts with suppliers in place to help insure our supply.

In other cases, we purchase items pursuant to discrete purchase orders.

Our suppliers are located around the world and can be subject to constraints beyond our control that may limit supply.

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However, shortages have occurred from time to time and could occur again.

We are currently experiencing isolated issues with our suppliers related to the novel strain of coronavirus (COVID-19) outbreak.

Most of these issues have related to local government policies that have affected the ability of employees of our suppliers to work.

Additionally, the decrease in commercial airline flights has decreased airline freight capacity, which has affected the timeliness of some deliveries and increased our freight cost.

We have been successful in managing through these issues and we believe our operations are currently not materially impacted by our ability to source raw materials.

Competition by Reportable Segment

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Wolfspeed Segment

SiC Materials

We have continued to maintain our well-established leadership position in the sale of SiC bulk material, SiC wafer and SiC and GaN epitaxy products.

As market adoption of the technology grows with rapidly expanding power and RF device designs, we are experiencing increased competition from companies such as Dow Corning, II-VI Advanced Materials, SiCrystal and Showa Denko.

Silicon Carbide and GaN Materials

We have continued to maintain a well-established leadership position in the sale of silicon carbide wafer and silicon carbide and GaN epitaxy products.

As market adoption of the technology grows with rapidly expanding power and RF device designs, we have experienced increased competition from companies such as II-VI Advanced Materials, SiCrystal, IQE and Showa Denko.

We believe our leading technology and leveraged production scale position us to reliably supply production volumes to the device manufacturers in the market.

Power Devices

Our SiC-based power devices compete with SiC power semiconductor solutions offered by Infineon, Microsemi Corporation (Microsemi), Mitsubishi Electric Corporation (Mitsubishi), ON Semiconductor, Rohm Co.

Our silicon carbide based power devices compete with silicon carbide power semiconductor solutions offered by Infineon, Mitsubishi Electric Corporation (Mitsubishi), ON Semiconductor, Rohm Co.

Ltd., and STMicroelectronics, Inc.

Our SiC products also compete with other Si semiconductor devices offered by a variety of manufacturers.

Our silicon carbide products also compete with silicon semiconductor devices offered by a variety of manufacturers.

Our power products compete in the power semiconductor market on the basis of performance, reliability and overall system price.

Our RF devices compete with Ampleon, M/A-COM Technology Solutions Inc., Microsemi, Mitsubishi, NXP Semiconductor, Qorvo, Inc., and Sumitomo Electric Device Innovations, Inc., which all offer competing RF products and solutions.

Our RF devices compete with Ampleon, M/A-COM Technology Solutions Inc., Bowei, Mitsubishi, NXP Semiconductor, RFHIC, Qorvo, Inc.

and Sumitomo Electric Device Innovations, Inc., which all offer competing RF products and solutions.

Our products also compete with a variety of companies offering silicon and GaAs-based products.

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We believe, based on industry information, that Nichia currently has the largest market share for nitride-based LEDs.

There are many other LED chip producers who sell blue, green and white LED chip products, including OSRAM, Epistar Corporation and San'an.

There are many other LED chip producers who sell blue and green LED chip products, including OSRAM, EPISTAR Corporation (EPISTAR) and San'an.

These competitors make products for a variety of applications in a range of performance levels that compete directly with our LED products.

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however, there is significant pricing pressure from a number of competitors, including new companies based in China.

We continually strive to improve our competitive position by developing brighter and higher performing LED chips while focusing on lowering costs.

We strive to improve our competitive position by developing brighter and higher performing LED chips while focusing on lowering costs.

LED Components

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and transportation.

Nichia, OSRAM, Lumileds, MLS, Everlight, SSC and Samsung are the main competitors in these markets.

These companies sell LED components that compete indirectly with our target customers for LED chips and compete directly with our XLamp LED components and LED modules.

Nichia, OSRAM, Lumileds, SSC and Samsung are the main competitors in these markets.

These companies sell LED components that compete indirectly with our target customers for LED chips and compete directly with our LED components and LED modules.

There are a large number of other companies, primarily based in Asia, that offer products designed to compete both directly and indirectly with our LED components in lighting and other applications.

We are positioning our XLamp LED components and LED modules to compete in this market based on performance, price and usability.

Our high-brightness LED components compete with a larger number of companies around the world in a variety of applications including signage, video, transportation, gaming and specialty lighting.

We are positioning our high-brightness LED components to compete in this market based on performance, price, availability and usability.

We are positioning our LED components and LED modules to compete in this market based on performance, reliability, price and usability.

Our high-brightness LED components compete against primarily Asia-based companies, including Mulinsen Co.

Ltd., Nationstar, and Nichia, in a variety of applications including signage, video, transportation, gaming and specialty lighting.

We have positioned our high-brightness LED components to compete in this market based on performance, reliability, availability and binning support.

Patents and Other Intellectual Property Rights

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We attempt to create strong brands for our products and promote our products through trademarks that distinguish them in the market.

We may license our customers to use our trademarks in connection with the sale of our products, and we monitor for the proper and authorized use of our marks.

We may license our customers to use our trademarks in connection with the sale of our products, and we monitor for the proper and authorized use of our trademarks.

Licensing activities and lawsuits to enforce intellectual property rights, particularly patent rights, are a common aspect of the semiconductor and LED industries, and we attempt to ensure respect for our intellectual property rights through appropriate actions.

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Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, statements of changes in beneficial ownership and amendments to those reports are available for free on our investor relations website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.

The contents of our website is not incorporated by reference into this filing or any other report we file with or furnish to the SEC.

The contents of our website, including our investor relations website, is not incorporated by reference into this filing or any other report we file with or furnish to the SEC.

We have no duty to update or revise any forward-looking statements in this Annual Report or in other reports filed with the SEC, whether as a result of new information, future events or otherwise, unless we are required to do so by law.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business