Cree Sells Wolfspeed to Infineon for $850M

In a move to focus on its LED business, Cree, Inc., a leading manufacturer of LED lighting, will sell its Wolfspeed Power and RF division, which includes the silicon carbide substrate business for power, RF and gemstone applications, to Infineon Technologies AG for $850 million in cash. For Infineon, the acquisition puts the company on a path to become the number one supplier of RF power.

In 2015, Cree announced “Cree 3.0” - its strategy to become a more focused LED lighting company - and the proposed IPO of Wolfspeed to create a more focused power and RF management team and to raise capital to fuel the division’s growth, which opened the door to potential suiters. Cree spun out the wide bandgap semiconductor technology team as a standalone company under the Wolfspeed name in September 2015.

"Selling Wolfspeed to Infineon speeds our transition to a more focused LED lighting company while providing significant resources to accelerate our growth," said Chuck Swoboda, Cree chairman and CEO, in a statement.

The combination of Wolfspeed and Infineon “will provide a clear path to accelerate the widespread adoption of Wolfspeed’s unique technologies,” Swoboda said during a webcast.

Frank Plastina, Wolfspeed CEO, commented that the acquisition will enable the company to leverage Infineon's global reach and infrastructure, and with its "complementary culture and additional investment" be better positioned to take advantage of its portfolio and employees.

"Divesting Wolfspeed is targeted to reduce short-term profits, but increase free cash flow. We believe this is the right decision for the company, as it unlocks value, increases management focus on the core business and supports our mission to build a more valuable LED lighting technology company. We target using the capital raised, combined with improved free cash flow, to fund select M&A, as well as to support additional stock buybacks,” said Swoboda.

Commenting on potential M&As, Swoboda said: “We’re looking at bolt-in and tuck-in acquisitions and we’re looking for complementary products to fill out our lighting portfolio that let us either access new channels or better serve existing channels, as well as we’re always looking for technology that help us get to where the industry is going. Today, it’s about LEDs and lighting. As we go forward, it’s not only that but things like smart lighting, connected lighting, and how to make it part of the IoT.”

The acquisition is expected to help Infineon meet its goal to become the number one supplier of RF power by 2020. It certainly strengthens its leadership as a supplier of power and RF power solutions in emerging markets such as electro-mobility, renewables and next-generation cellular infrastructure that are relevant for the Internet of Things (IoT), which was bolstered by its acquisition of International Rectified in January 2015.

The Cree acquisition gives Infineon a broad offering in compound semiconductors including silicon carbide (SiC), gallium nitride on silicon (GaN-on-Si), and gallium nitride on silicon carbide (GaN-on-SiC). The combined portfolio also is expected to advance Infineon's strategic "Product to System" approach.

"Joining forces with Wolfspeed represents a unique growth opportunity. Wolfspeed's and Infineon's businesses and expertise are highly complementary, bringing together industry leading experts for compound semiconductors. This will enable us to create additional value for our customers with the broadest and deepest portfolio of innovative technologies and products in compound semiconductors available in the market,” said Dr. Reinhard Ploss, CEO of Infineon Technologies AG, in a statement.

“With Wolfspeed we will become number one in SiC-based power semiconductors. We also want to become number one in RF power. This will accelerate the market introduction of these innovative technologies, addressing the needs of modern society – such as energy efficiency, connectivity and mobility,” Ploss continued.

Despite a market slowdown in power electronics, Infineon managed “impressive growth” in 2015, according to Yole Développement. Power electronics revenues for the first complete year of corporate activities since its acquisition of International Rectifier went up 20 percent year-on-year, said Yole. “The group now firmly leads the power electronics industry, when taking into account power transistors, diodes and modules.”

In 2015, the global market for GaN semiconductor devices was estimated at about $10 million in 2015, according to IHS Inc. The more mature market for SiC was estimated at nearly $200 million. Last year, Cree said it was “the only player in the industry with a fully commercialized, broad portfolio of the most field-tested SiC and GaN power and wireless technologies and products on the market.”

Fast forward to 2016, the GaN market is forecast to reach $600 million by 2025, growing at an average annual revenue growth rate of about 50 percent per year from 2016 to 2025, according to IHS. The annual growth rate for the SiC market is pegged at more than 30 percent over the same time period. Together, global revenues of SiC and GaN power semiconductors is forecast to reach $3.7 billion in 2025, up from $210 million in 2015, driven by demand from hybrid and electric vehicles, power supplies and photovoltaic (PV) inverters.

“Wideband gap materials, namely silicon carbide (SiC) and GaN, have been commonly used in the semiconductor industry for many years, but market adoption has not reached the levels the industry has been hoping for,” said Michael Markides, director, power and utilities, IHS Technology, in a previous statement.

“While these new materials offer the promise of better performance than silicon (Si), numerous issues have held back their adoption. First, price is always at the core of the argument – but to date only in a few niche applications, and only with a few products, does the increase in performance justify the higher price,” he continued. “For example SiC has made inroads into the market for Schottky diodes, because the increased cost is justified by better performance of forward voltage, higher operating temperature, decreased leakage current, and lower reverse recovery charge (Qrr). The second main reason for poor adoption of wideband gap materials is the difficulties in supplying the material, manufacturing, packing and engineering, which has been a major reason GaN has not yet made major inroads in the market.”

Based in Research Triangle Park, North Carolina, Wolfspeed has more than 550 employees and an IP portfolio of about 2,000 patents and patent applications. Initially, Cree and Infineon will share a facility, including assets and employees, in North America under a service agreement. The plan is for the Wolfspeed materials business to move to a separate dedicated facility for power and RF-related activities.

Wolfspeed revenue was in line with expectations in Cree’s previously announced revenue targets at about $31 million. The closing of the transaction is expected by the end of 2016. The transaction will be financed by incremental debt of $720 million and $130 million cash-on-hand.