Cree focuses on high-end LED light bulbs

At a time when some LED bulb makers are cutting back on quality in order to lower their price tags, Cree is going against the grain by upping the bar on performance while holding the line on prices.

Durham-based Cree, the No. 1 producer of LED bulbs, announced on Monday the introduction of “a better LED bulb.” Like their predecessors, the new LED bulbs will be sold in Home Depot stores nationwide and cost $7.97 each for the equivalent of a traditional 40-watt or 60-watt bulb. The bulbs will be available online this week from Home Depot and in the chain’s stores later this month.

Cree’s vice president of product strategy, Mike Watson, said in an interview that the company’s competitors are in a race to the bottom, “lowering the quality to lower the price, lowering the performance to lower the price, lowering the lifetime (of the bulb) to lower the price.”

“We’re saying that’s not right,” Watson said. “We’re taking the current product we have ... on the market and making it better.”

Harsh Kumar, an analyst at the financial services firm Stephens, approves of Cree’s move.

“I think Cree has realized there is no end to competing with the Chinese and the Korean guys on pricing,” Kumar said. “Instead, the better strategy is to focus on the high end. Let the consumer pay for the better bulb.”

“Also remember,” Kumar added, “the whole point of having a bulb was to really provide branding for the commercial side (of the LED lighting business). Now that the commercial business is about a billion dollars, Cree feels – and I’ve talked to Cree about this – that they are big enough now that they don’t need to have the bulb as a focal point.”

Kumar said he’d love to see Cree eliminate the consumer bulb business altogether because it distracts the company from its more important commercial lighting business and isn’t much of a money-maker.

“Whatever Cree makes on the bulb side, it spends that much on advertising and it’s basically a net wash,” he said.

Cree, which has a long-term goal of driving 100 percent adoption of LED lighting, launched its first LED light bulb for consumers in 2013. Until then the company’s LED lighting business was focused on the sale of indoor and outdoor lighting fixtures to commercial customers, as well as selling components that other companies use in their lighting products. Cree also makes LEDs that are used to illuminate car dashboards, TVs and other electronic devices.

Cree initially made a splash with its LED bulbs because they looked more like incandescent bulbs and cost 50 percent less than some competing products. But today Cree’s bulbs aren’t price leaders.

The numerous performance upgrades in Cree’s latest-generation bulbs aren’t game-changers.

They include: boosting life expectancy from 25,000 hours to 30,000 hours, which translates to 27.4 years based on three hours of daily use; switching from a three-year limited warranty to a 5-year “100 percent satisfaction guaranteed” warranty; and improved energy efficiency and color quality.

Cree bulbs also meet federal Energy Star standards, which means they qualify for price discounts offered to consumers by utilities nationwide. Those discounts, said Watson, typically run $3 to $5 per bulb.

Watson said consumers won’t continue to embrace LED bulbs if the products become worse.

“We strongly believe that better ... is what consumers want,” he said.

Cree CEO Chuck Swoboda foreshadowed the company’s LED bulb strategy in recent conference calls discussing the company’s quarterly earnings. He noted during the summer that revenue from the consumer lighting business is expected to be lower in the fiscal year that began at the end of June “as we shift our focus to the high-quality and higher value segment of the consumer LED bulb market.”

Last month, Swoboda noted that although revenue from the consumer lighting business rose only 2 percent last fiscal year, “the Cree LED bulb continues to build the Cree brand and enable awareness across all product lines.”

Cree is projecting that revenue for the current fiscal year will rise about 10 percent, driven by growth in the commercial lighting business.

Cree has nearly 6,400 workers worldwide, including about 2,600 in Durham, after restructuring its LED manufacturing operations in June. The net impact of the restructuring was a 10 percent reduction in workers last fiscal year, but the vast majority of those job cuts occurred overseas.

This story was originally published September 14, 2015 at 4:22 PM with the headline "Cree focuses on high-end LED light bulbs."