Cree, Inc. (NASDAQ:CREE)
October 25, 2011 10:00 am ET
Unknown Speaker -
Charles M. Swoboda - Chairman of the Board, Chief Executive Officer and President
Charles M. Swoboda
Good morning. For all of those who are in the back, I'd really encourage you if you could, to find your way to your seat in the next minute or 2, and we're going to get started.
All right, we're going to the started. First of all, I'd like to wish you all good morning, and welcome you to Cree, I am Chuck Swoboda, Cree's Chairman and CEO. We appreciate your attendance today and we welcome you to the 2011 Annual Meeting. Before we begin, I would like to take a few minutes to introduce our board members and ask that each of them stand as I call their names.
First of all, Dolph von Arx, Retired Chairman and CEO, Planters Lifesavers; Clyde Hosein, CFO of Marvell Technology Group; Bob Ingram, General Partner, Hatteras Ventures and Former Vice Chairman of Pharmaceuticals for GlaxoSmithKline; Frank Plastina; Former President and CEO of Tekelec; Bob Tillman, Retired Chairman and CEO of Lowe's; Harvey Wagner, Managing Principal of the H.A. Wagner Group; Tom Warner, CEO SunPower Corporation; and our newest board member, Alan Ruud, Cree's Vice Chairman for Lighting and founder and former Chairman and CEO of Ruud Lighting. Alana's role is a Founder Executive officer and Director of Ruud Lighting and his nationally-recognized expertise in the lighting industry will be very helpful as we continue to work to lead the market and drive LED lighting adoption. Finally, I would like introduce John Kurtzweil, our CFO; Norbert Hiller, our newest Executive Vice President for LEDs and Ty Mitchell, our newest Executive Vice President for Lighting. Please join in a round of applause for our board members and officers.
Before I turn to the business of the meeting, I'd like to take this opportunity to specially recognize Dolph von Arx who has decided not to stand for reelection this year. Dolph, please you stand up again please. Dolph has served on the board for 20 years since Cree was a private company. He has been our lead independent Director and Chairman of our Governance Denominations Committee since those positions were created. And at various times, he has served as the Chairman of executive committee, the audit committee and the compensation committee. Dolph has brought a tremendous amount of leadership experience to the board, having himself served as Chairman and Chief Executive Officer of 2 public companies. We greatly appreciate Dolph's contribution over these many years and his invaluable service to Cree and our shareholders. And I would just like to personally say that I really appreciate his guidance over the last 10 years as the new CEO. While I got great advice from all of my board members, Dolph has been there to guide not only myself, but actually all the CEOs in Cree's history. So Dolph, thank you for myself and from all of us, and with that, another round of applause for Dolph. Just as a reminder, Dolph has been a very a large shareholder during that time, so it was always clear his interest were aligned with the rest of you as shareholders.
So now, the meeting will, please, come to order. The chair notes of the Corporate Secretary was delivered to me, the Notice of Meeting, note to shareholders, and an affidavit sufficient to evidence that the meeting was duly called and accordance with the company's bylaws. At the Inspector of Elections' table to my right is a list of the shareholders of record on the record date for the meeting, which was August 29, 2011. The list will remain open for inspection during the meeting by any record shareholder or the shareholder's representative.
Mike McDevitt, the company's Director of Sales Operations has been appointed Inspector of Elections for this meeting. If there's anyone holding proxies that have not yet been submitted or intended to vote shares in person, please report to the Inspector of Elections at this time. To establish that we have a quorum to conduct business, the holders of a majority of the shares outstanding on the record date must be present today in person or by proxy. The Inspector has the [indiscernible] report, which he has determined based upon account of the proxies previously submitted that the holders of shares representing a majority of the shares outstanding on the record date are present today in person or by proxy.
Based on the Inspector's report, I find that a quorum is present for all purposes. The meeting has been called to consider the following items of business. First, the election of 8 Directors; second, approval of an amendment to the 2004 long-term Incentive Compensation Plan; third, approval of an amendment to the 2005 Employee Stock Purchase Plan; fourth, a ratification of the appointment of Ernst & Young LLP as an independent auditors for the current fiscal year; an advisory vote on Executive compensation; and an advisory vote on the frequency of future advisory votes on Executive compensation.
All are described in the notice of annual meeting and proxy statement previously made available to shareholders. I note that Kim Verode of Ernst & Young, the company's independent auditors, is present today to respond to appropriate questions and is welcome to make a statement if she wishes. Kim, are you here? Do you want to make a Statement, Kim? Great not that it wouldn't have been great. The company's bylaws require that shareholders give prior notice of any nomination or proposal the shareholders may wish to present. The company has received no shareholder nominations or proposals, and therefore, only the items described in the notice of annual meeting may be considered today. Does any shareholder wish to discuss the matters to be voted on?
All right. If you intend to vote by ballot, and have not already delivered your ballot to the Inspector of Elections, please do so at this time. You do not need to vote by ballot, if you previously voted using the proxy card or the instructions accompanying the proxy statement. While the votes are being collected and tabulated, I would like to take this opportunity to give you an update on our business.
So now the fun part for me. This is actually my 11th chance to present to you as a CEO of Cree, although it's been a little over 10 years, I had this to do for many years and I've had the chance to actually go back and look at some of the things we've talked about, and hopefully today, I can give you a perspective of how far we've come, but the incredible opportunity that still remains in front of us.
Where I want to start with is really the same picture you saw in our Annual Report this year. And what it was about was how we are doing things in leading the LED lighting revolution that really just a few years ago, nobody even thought was possible. And so we showed you this really interesting lamp, and what I wanted today is show you what it looks like in person. So this is a prototype lamp that was designed to meet the requirements of the 21st century lamp specifications, and what's amazing about it is that it delivers over 1,300 lumens of light, more than a 75-watt light bulb, at less than 9 watts of electricity. And while this is an amazing technical accomplishment, especially because we demonstrated these results before the Department of Energy had ever finished even defining what they were supposed to be, but more important than the technology is what it means to energy efficiency. So some of you heard me say in the past that the cleanest, the cheapest and the most abundant energy is the energy we never use. And the point of that is that, while there are so much talk in the world today about alternative energy, the opportunity right in front of us is there is to use less energy than we do now, and what this product means, not just from a technology standpoint, is what it could mean in terms of energy efficiency. If we took this technology and we were able to widely deploy it, so what we've already demonstrated here today and we've converted the lighting that exist now in the United States to this technology, we would save 15% of the electricity.
Now, I want to make sure you understand, that's not 15% of electricity for lighting. That's 15% of all the electricity we use in this country today. That's the kind of impact we can make to give you a perspective, that will take us back to the amount of electricity we used in 1987, which by the way, happens to be the year Cree was founded.
I'm going to turn that off not because I couldn't leave it on, but because I've noticed that a few people get a little bit blinded by it after a while. And no, it's not hot. So let's get in to the discussion. First, before I go any further, I am going to make forward-looking statements, which some would appear if I didn't. But more important to that is, we make a lot of effort to make our SEC filings and talk about all the risks and uncertainties in our business and as investors, I would encourage you to be familiar with those.
So let's start with our mission. And despite all of the amazing changes at Cree, our mission remains the same. About 5 years ago, we decided to focus the company on leading an LED lighting revolution to replace energy wasting, or energy inefficient lighting, and what's important to us is not just to make a better light bulb, not just to make an alternative lighting product, but we're committed to getting rid of all the energy wasting lighting that's out there today. So we'd like to talk about the market opportunity as when you buy new lighting, but we're interested in finding ways to take out your current lighting and upgrade it to LEDs and get those benefits of saving energy.
Before I get in to the future, let's talk about the past a little bit. So maybe, I'm reminiscing a little bit after 10 years. But if you go back in 2001, we did about $178 million in revenue and it was interesting, we are heading into a time with a lot of uncertainty in the market. For those of you who remember, the tech bubble had burst just slightly before Neil gave me the opportunity to be CEO, and thank you Neil. And we were faced with challenges. Our main product was a new LED chip called the MegaBright chip, and we are very excited that it was going to help us further penetrate backlighting the dashboards of cars. And what this chart really shows us is, not just that Cree has been good at inventing technology, but we've been good at innovating our business to take advantage of new opportunities to respond to new threats, to continue to find ways, to invent technology that solves new problems, and continue to grow the company. And despite the success of building a company that today is over $1 billion in revenue, I think we've really only scratched the surface of what's possible.
So let's talk about some highlights. So I know that last year, there's mixed results and people had expectations we could grow at a really high rate. We personally had those same expectation. But we actually did quite well on many of our objectives despite a tough market environment. So our first goal was to lead in lightning. Our lighting systems business grew 92% year-over-year. We've proven great products drive adoption, and we did it with some really innovative new ideas. So if you look at the first product, our CR6, this is the downlight that we designed because people said it wasn't possible to build a $50 downlight and sell it through retail. This is a product that today is selling at Home Depot in levels you never thought, and we did it by solving problems and doing things, that were not just unexpected, but truly deliver the payback to the customer.
And next thing you saw is we continue to innovate with PAR lamps for different applications, going beyond just the first success we had with Walmart. We demonstrated a 60-watt ENERGY STAR lightbulb. And everyone asked, Cree's going to make this lightbulb? But we didn't because the point of leading in lighting is sometimes to build systems and sell them, but sometimes simply to get the market to move. So did it work? When we came out with this light bulb, there were no other 60-watt ENERGY STAR light bulbs on the market. Today, Philips is selling one, and GE and OSRAM have both announced plans to. So the opportunity continues to grow to change that market, which whether we sell systems or we sell components to the systems company, it continues to get larger.
Our CR troffer, this is a product you saw back there today, and if you didn't get the chance to see it, I encourage you to take a look at it. So when Cree had first made an LED product to compete with fluorescent, it was a $400 product, and while there were a few customers, it was really too expensive. So we came out with a new LED troffer that is half the cost of the old one and higher performance. We're not taking on fluorescent directly. In many applications, when people are considering an architectural grade fluorescent troffer, we can offer an LED troffer at almost the same initial cost. But more important, we're generating a pay back to the point where people can start to afford to take out their old lights and convert to LED-based lighting.
And last, but certainly not least, is the 152 lumen per watt lamp which in many cases, today, we haven't shown it well and I think in many instances in the industry, most people aren't sure how that's possible. It's not only possible, but we're not done. There's more to go and you'll hear more about that.
The second thing we've been focused on is enabling our customers. So the LED components business -- a very important part of our company. So the idea is that we lead the market with systems and then we can come back with components that we can sell through all the other companies in the marketplace and we did something very different a year ago. We changed our strategy so everyone else is focused on the same LED, make it brighter and they'll buy more. And though we still have focused on making brighter LEDs and more efficient ones, we believe that to make the market truly successful, and to move and to really make these customers win in their market, we had to deliver products that were optimized for specific applications. So if you look at over the last year, we've come out with a range of new products solving different applications, whether it be an MR16, or a spot lamp, or all the different things we've done with these products and it's working, so that despite a really, really tough market environment for LED components, we still grew that business 25% year-over-year.
Now, for those of you who haven't had a chance, if you'd stop at the first demo on the way back today, you'll notice our latest product release in the LED Components area and this is a high-voltage LED, the same idea. So we're taking the chip technology that lets us make very bright LEDs, but we're combining in a way to enable the customer to solve lighting problems they can't solve with the existing component technology. And we've done that by creating an LED with a voltage that's high enough that it makes the rest of the circuit simple enough to fit into a standard candelabra bulb. And this is a continued focus for us in the year ahead.
So what is the strategy? It hasn't changed. We start with systems. Systems give us the chance to lead the market. Someone has to show people what's possible. And when we lead the market, we cannot only set the standards, but we can drive the momentum in LED lighting adoption. We then have an LED Components business and the idea is that as that market gets bigger if we continue to develop leading LED component products, we can sell more of those to all the companies that are in the lighting space today by enabling them to be more successful. And that's a key point. We can't just sell them components. We got to enable their products to be better than what they have today. That's what drives adoption for their products.
And last, but certainly not least, is our LED chip products. Our LED chip technology at the end of the day is what gives us our fundamental advantage, whether it be the efficiency of our systems, whether it be the performance of our components, or the ability to design new components, design to solve problems that frankly have never been solved before.
Probably the biggest question that I've been asked over the last 3 months is that, does the strategy work? And I'm always surprised when I get asked the question because I guess what it means is we haven't done a very good job of explaining what exactly we've done in the last 3 years. So when we bought LLF in 2007, we decided to have a systems business that would go out and lead the market and our belief was, with that systems technology, we could grow that business, but more importantly, enable an even bigger market in LED lighting and sell more components. And here's the result.
So if you look at the upper left slide, you can see that since we got into the systems business, we have grown that product line at over 100% a year. At the exact same time, our LED Components business has grown at over 30% a year. So when I get asked, "Do you think it's possible?" The answer is, absolutely. We've been doing it and we're going to do more of it because that's what we think drives the market. Because its the combination of these 2 things that drive the most important factor to adoption. And that is payback. How quickly does someone who buys LED lighting get their money back in terms of either the maintenance savings or the energy savings.
So the slide on the right shows you that these are external market research numbers. In 2008, those were the first generation LED-based lighting products, whether it be the first generation outdoor products or the first generation indoor products. And what you can see is the payback was pretty long, so not many people bought them, we had some early adopters. As we got the second generation products, the cost came down, the payback was cut in more than half, and we see that the market starts to grow. And with the third generation products we're working on, we now have the lever that would drive the next stage of adoption. So as we bring payback down, adoption goes up and that's the market opportunity we're trying to create. Not only for Cree, but for all of our component customers.
Over the last few years, I talked a lot about what is this market opportunity? So I want to show the same picture I showed you the last few years. So up on the left are these 3 pie charts. What do they say? There's $100 billion market opportunity on an annual basis for new lamp and new fixture sales. And you can see that the fixture market is about 75%, and the lamp market is about 25%. And one of the things we've always talked about is, while we're interested in many parts of this, our focus is on commercial, industrial applications because the belief is that these are the customers that will understand the idea of payback. So if we try to convince you to buy a more expensive LED bulb, you're not thinking about payback, you're thinking about first cost. But businesses fundamentally are wired to think about the cost of ownership and how do you make a capital investment and get your money back.
So this is where we started. And although we've had a lot of success, the first thing I would tell you is, it's still really early. So despite the growth in our own systems business, despite the growth in our components business, we're really in the early stages of adoption and we've learned 2 very important things. The first one is this, if you don't have someone who's going to go out and develop the systems and get those first installation, the market never moves. Markets don't change on their own. Someone goes and makes them change and whether it be what we've done with our downlights in fast food restaurants, what we did it with our PAR lamps when we got designed in the Walmart, or what the BetaLED product line did by getting the streetlights. When you get those first real installations and show people what it looks like, what is already adoption and how does the math work? That's what starts to build the momentum and it's been critical to driving the market, and it's critical for us to figure out how to continue to do this.
Along the way though, we learned something really interesting. We've been so focused on this $108 billion market, we've actually missed the bigger opportunity. Most of the places we sell our LED sytems today are actually not new construction. They are not architect-driven renovation properties. They're actually people that are choosing to take out perfectly good lights and upgrade them to LED lighting because it pays for itself. There is an upgrade opportunity of the installed base that is at least 10x greater in our estimates than what the average market is. And it's the combination of these 2 markets that we're focused on driving our business. The key there is, is these markets aren't going to happen on their own, someone has to make them happen, and our strategy is continuing to be, how does Cree make it happen.
So let's talk about where lighting adoption is. The second most common question, where are we at? We're definitely early and what I show you is a big curve and there's no real action that says, what's the rate of adoption in time? What I'm describing is the classic S-curve of technology. It's no different than digital cameras, or when you bought CDs instead of records, or any other technology. In the beginning, new technology comes out and a few people try. It's typically more expensive and those few people want to be early adopters. But as they try it, they like it. And more people hear about it and as more people buy it, the cost starts to come down and it boils on itself. And over time, you get to a point of critical mass and the whole market starts to convert. And obviously our goal is, how do we make this market happen? And then we ask our self, why isn't it happening today? Because we're really still at the early stages and there's only 4 main areas we're focused on that we think if we can overcome these, we can drive adoption faster.
The first one is, today, if you were to go buy lighting and ask for LED-based lighting, what you'd find is, it's a very fragmented market. In other words, every company has a few LED-based products, but no one really has a product offering to solve an entire building's problem. And so you have pieces of it, but no one to really offer a full product line and a total solution. The second piece is, the rate of innovation in components is far ahead of systems. So at Cree, we make LEDs today that are over 150 lumens per watt. It typically takes 18 to 24 months from when we invent a new LED, from when that LED ends up in our customers' system products. If we can shorten that time, we can get the benefit from the LED into the market and that will drive adoption faster.
The third piece is, LED payback is simply too long. So where we see people buying it today is, the payback is 2 years, 3 years, it's a small number. But too many cases, LED payback is 6 or 7 years. So while you might get someone who has very high energy cost or very high maintenance situation to switch, we don't have the broad market change, and we've got to bring the payback down, which is about bringing the initial cost down.
And the last piece is, the lighting market is really not very good yet at selling LED technology. Think about what we're asking you to do. For 130 years since Thomas Edison invented the light bulb, the lighting industry has existed in 2 pieces. There are the lamp or the bulb companies, and there are the lighting fixture companies. The lamp company wants you to buy lots of lamps. In fact, what they have convinced you, the fact that you can buy a completely defective product that routinely breaks is good, and you should buy more. On the other side, you have the fixture companies who say, I don't know anything about that lamp, it's not my problem. I'm going to sell you a fixture and it's going to last for 20 years. What we've asked the industry to do is bring the 2 together. So what we have to do is help an industry that is thought as these 2 separate pieces to bring them together to where the LED is the light source and the fixture are one, and combined, they deliver a value proposition that is about the cost of ownership. Now we've made progress in our indoor product area and there's other companies making progress, but today, we're still behind, as there's too many lighting companies or lighting agents, who want to sell simply on first cost because it's easier, and we've got to continue to build the momentum to make the channel more successful.
So over the last year we've been asking ourselves, if these are the barriers to adoption and we're the leader, what can we do about it? And so what you saw a couple of months ago is our solution. And the idea was we could take Cree, the best indoor LED product line and we take Ruud Lighting, the best outdoor LED lighting company, and we will bring them together. Combined, we would have a product line to serve a range of applications. We would be able to bring the time from new components technology is developed to one single system, we could bring that time down by being integrated. We could focus on how do we improve the payback of all the products, both on the indoor and the outdoor markets and we both been solving the same channel problem. But instead of Cree's indoor products working with one set of agents, and they're out there trying to solving the same problem. Combined, we now have the ability to have scale to push the market even better than in the past. And we believe that this combination that's going to allow us to accelerate the adoption of LED lighting, which is really the key to our business strategy.
So let's talk a little bit about Ruud. I know many of you have heard about it, but here's a company that over the last 12 months ending in June, did about $200 million in revenue. And everyone talks about them as a lighting company and they are in the lighting business, but I want to point out, they're actually quite unique. Ruud Lighting is the first lighting company we've seen in the world that has actually made the transformation from a traditional lighting company to an LED company. Here's a company that in 2007, 100% of their sales were traditional lighting technology. And by making the decision that LEDs were the future and focusing the technical resources with sales resources and the marketing resources on how to drive these outdoor applications with LEDs, they became the leader in outdoor LED lighting, with last year over 60% of their revenue in LED-based products. They've made the transition from the traditional company to the LED company and along the way by being first, they developed unique technology in optics, and thermals, and really an understanding how to sell these products in the marketplace. And so today, we now have the best brand in outdoor LED lighting, BetaLED, and the best brand in indoor lighting, Cree, and we've been able to bring those together and combined, we have the ability to drive the market at a level we simply couldn't do before.
And probably the best example of what Ruud brings us is the city of Los Angeles project. Now I talked a few minutes ago about, you have to have installations that show people what's possible. The city of Los Angeles, when they decided to convert to LED lighting, became the best example anywhere in the world that LED lighting for the outdoor was ready for prime time because this wasn't just a demonstration project. They decided to convert 140,000 streetlights to LED-based streetlights and they did it for one very simple reason, they had a payback that meant these lights we're going to pay for themselves. So they were going to spend $57 million, but they were going to get back over $10 million a year. So this project was enabled by the technology invented at Ruud Lighting. And today, we are now a part of making this happen, but what's more impressive is that in 2 years, they've already found that the payback is better than they thought. So what was a 7-year payback is now less than 6 because the technology is getting better and the costs are coming down.
What was an energy savings of 40% is now over 55%, and so we're showing the world through applications like this, that LED lighting is ready and it's really created momentum not only in our systems business, but really around the world to start to take a serious look at moving to LED-based lighting for streetlights.
So we now have Cree and we have Ruud and we have scale. The other piece we have is we have this integrated approach that while I get asked many question about it, I really think this is why we're successful. So this isn't a challenge for us, this is the opportunity. Because we have a focus on systems, we can drive the payback. If we bring the payback down, it would drive adoption, if you drive adoption, it creates a bigger market for Cree's systems business and for our customers. And in the process of doing this, because we are not only the component supplier, but the system supplier, we have developed component technology that fundamentally solves the lighting problem in ways that weren't being addressed before. So we have the knowledge and understanding how to make our customer successful in ways we just couldn't do before. And I really think it's this integration that's going to be critical to continue to drive the market as we go forward.
So that's the big picture. So what we have to do in next year because everybody wants to know, great, so what are keys in the short term? Well, first one is, we have to continue to lead the market. We're leading the market and driving adoptions where to start? So what does that mean at systems? We have to come out with new performance level that open new applications, but we also have to come out with products that have fundamentally lower payback. We have to continue to push from the first-generation product to the second, to the third, bringing down that initial cost, improving the performance and getting those paybacks not at 5 or 6 years, but at 2 years or less. That's what we've seen that really starts to move the market.
The second piece is we have to continue to develop components that enable our customers. And it's not just the technology. One of those we've learned in the last year is, you can develop all the great components, but we're dealing in many cases with lighting companies that's as I've said before, have never had to deal with the light source, they didn't know anything about the lamp, that was someone else's problem. And we're now asking them to develop systems to where the light source and the fixture are integrated. This requires them to do testing they never had to do. This requires them to understand specifications that simply weren't part of their business. And so what we announced in the last month or 2 was something called TEMPO design services. It's the first chance for Cree to go beyond the product and try to take our expertise at the systems level and at the components level and bring it together and help our customers be more successful. Do our biggest customers need that? No, but there's a huge number of small- to medium-sized companies where all the things we've learned about what works and what doesn't, we can help them by showing them how to test their design, by showing them some tricks that maybe they hadn't considered so that we can get their products through that innovation curve to where they're getting payback the first time out. That also helps us drive adoption and that really helps us create a more successful components business in the long-term.
The second piece, and I know on everyone's mind is, we need to increase profitability. So there are things we control and things we don't and we're focused on the ones we control. So what can we do? We can drive LED lighting adoption. That's going to create a bigger market. That's going to increase the volume and that volume's going to give us benefits from simply running a factory of high utilization and greater scale. But in addition to that, we're doing things everyday. The reason we're successful today in a really tough environment is we've been reducing our cost over the last year. We've made tremendous improvements in yields, productivity. We have new product designs that continue to come out that are fundamentally lower cost than the ones we made a year before. And these are going to be lower-cost whether or not we've increased that utilization, and that's what we're focused on, and this is not just at the chip level, these are chips, these are LED components, these are LED sytems as we bring that cost down, we can expand the market which then helps enable LED lighting adoption.
The last piece is, and we haven't talked a lot about it because we've really been focused on lighting, but we haven't forgotten about power and RF. Here's a business that a year ago, we were really excited. We were seeing great growth in the solar market, we were seeing great growth for our diodes and server power supplies, and we saw all this opportunity. And since then, we've seen the solar market essentially go through a period of time where there are -- have more capacity and inverters than they have demand. So we have almost no demand for the solar side of the business, except in a few new applications. And with servers, here's a market that's been affected by the slowdown in the overall economy. But we're not focused on the things we can't control. We're focused on the ones we can. So what are we doing. We've invented a MOSFET that should give us the opportunity to go to our existing customers for diodes and help them save even more energy by designing our MOSFET in their application. But beyond that, we've got to go to the next application. We understand how to bring the cost of this technology down, and we have to start pushing beyond these few nice niche applications we have today and we have to get to those mainstream areas where our technology can be much more broadly adopted.
So is it going to be a business where the short term is going to have to work through some issues? Absolutely, but are we discouraged? Not in the least. This technology fundamentally saves energy over the other technologies that are out there today. And we are confident that if we continue to innovate, we can take this into more mainstream applications.
So with that as I wrap up, I want to remind you of the last big Annual Report for 2 reasons. A year ago, we showed you this picture and this is Santa Barbara, California, and this is a demonstration installation of 23 streetlights, and we are very proud that it used our LEDs. What I'm even more proud to tell you is, these are now our streetlights. But more importantly than the 23 streetlights is the fact that it gives you an example of how much opportunity is in front of us. So in this city alone, there are 3,000 streetlights that are not yet LED-based. In North America, there is 37 million, and in the world, there's over 200 million and we're just talking about streetlights. So if you ever wonder where is LED lighting adoption and what's the opportunity? Just think about this application, it's one small piece of the lighting industry and we have the technology to transform it, but the opportunity is in front of us. And that is why I say, I'm even more excited today about the opportunity to change this market than I've ever been. And despite some of the challenges, we really are in a better position to make this happen than ever before.
So with that, what do I want you to remember? First of all, this is a tremendous market opportunity. It is very large and adoption is low, and that's a good thing. That means the opportunity is in front of us. Our strategy is working. We've shown that systems drive adoption and that adoption helps drive our components business. Cree, plus Ruud, gives us the ability to drive the market and accelerate adoption in ways we couldn't do before. And when we bring all that together, we're in an even better position to set the standards, to influence how this market is going to change and we will put Cree in a better position as the LED lighting brand that I think we'll be even more successful in the year's ahead. And at the end of the day, do we have challenges? Absolutely. But, just think about the track record. We've been through many cycles before and what we've shown is that innovation at both the product and the business level is the key to continuing to be successful. And we're confident that we're going to look out a years ahead and you're going to actually be surprised when you don't see LED-based lighting. And our challenge is, how do we make sure that it's ours.
So with that, I'm going to stop here and take a few questions.
Charles M. Swoboda
So we have a couple of people with microphones, I'm going try to get them to you so that I can repeat it. This is being webcast, so if I repeat your question, it's not because I didn't hear it. It's because I want to make sure the webcast hears it.
What's going on in China? You didn't talk too much about China today. So what's Cree doing in China?
Charles M. Swoboda
So what's Cree doing in China? So China continues to be a very important market for us. It's our single largest market to sell our LED components. What we see in China is that there continues to be a real focus on energy efficiency in many different regards, and what that means for us in terms of LED lighting is, there continues to be a lot of support for new more efficient infrastructure. So we're having success selling LED's for streetlights, but it goes beyond just streetlights. We're seeing a bunch of applications in China starting to emerge. But just as important as the applications there, there's so many designs being done there that are now going into other markets. So it's both important as a market that we sell products that consumes LED lighting, but also as a huge part of the supply chain to provide products elsewhere and we continue to have great success. One of the things we've seen is that over the last year, as China realized that performance and standards were important, those standards have resulted in a real push towards more high efficiency, higher quality LEDs, and it's really been helpful to our business and really the other high-quality suppliers in the market. So I'd say, overall, it's been a positive. On the other side, there's been lots of talk about China as a potential competitor, so investing in LED capacity. And what we've actually seen over the last few months is, there has been a real shift into reducing some of the investments that were out there. So we've seen a reduction in some of the capital plans. We've actually seen companies that announced that they were getting into the LED business. But based on what they've seen, had decided to cancel those plans. And so, I also think we're going to see a rationalization of that part of the market from a supply standpoint. The reality is, today is, while there's been lots of investment, the technology there really lags, not only the technology that we have, but even the technology in other parts of the world right now. So, there's still a learning curve. And I think that's a key thing to remember, this is not a technology where you just buy the equipment and you're in the business. What we've proven for almost 20 years now because this isn't the first time this happened. In Taiwan, 10 years ago, is that buying a reactor gives you a piece of equipment, but it's actually the human capital and the learn that's required to make this technology work and what we've demonstrated over a really long period of time now is, while you can come up that learning curve, we continue to raise the bar. And so I think there continues to be a fairly sizable gap that allows us to innovate and differentiate ourselves in the market. Yes?
Chuck, what I hear consistently among investment advisors, especially the guy that handles my personal investments, he's been looking at Cree for over 2 years, and the analogy that he uses, and it persuaded him from making that investment is the solar panel analogy that we're headed into an environment that's going to be heavily commoditized, lower margins and even lower stock multiples than we're seeing today. So could you talk about solid state lighting versus solar, and perhaps I'll be able to educate him and he'd be able to buy a few shares of Cree.
Charles M. Swoboda
So the question is, for those on the webcast is, how is LED lighting not like solar? And what can we do to continue to deliver margin and growth and not have the technology commoditized? Is that close enough? So I think LED lighting is similar in one regard, it's part of the equation of alternative energy efficiency. They are technologies that globally, we need. But I think when you look at actually what drives our business and what are the dynamics of the industry, I think they're quite different. So first of all, I think in terms of LED lighting, we're talking about a complete disruption of a very old and existing technology. Well, true, we're talking about taking on all of lighting and essentially providing something we think is better across the board. So I think it's more disruptive in that regard. But more than just being disruptive, in the solar business, one of the challenges is that as companies invested and bought the equipment, they were able to come up with technology curve and close the gap relatively quickly. And while there's still differentiation, and I don't want to say there's not Tom, we have a solar CEO in the audience. But I think what you're seeing is, is that they've been able to close the gap and truly create a supply-demand situation that has really created the commodity-like market. And LEDs, for almost 20 years, there's been companies going out and spending large amounts of capital, buying equipment to get into the business, that still haven't caught us. And the reason they haven't caught us is 2 things. It's a lot harder to come up that curve because it's not just the equipment, it's the knowledge of how to make it work. The process knowledge is still one of the most important differentiations in the industry and it remains that way today as it was 10 years ago. But it's not just process knowledge, the bar is moving. So the other thing you have to keep in mind is, we're not done innovating. We're not done making brighter LEDs. If you turn 10 years ago, I would have told you we would have been happy. We probably would have stopped doing R&D at 150 lumens per watt. I think we probably had a slide to that affect. Now I had that slide because some R&D guy at Cree told me that's the best we were going to be able to do. And what we found is, we're now well over 200 lumens per watt in R&D and I think it's the ability to continue to raise the bar in performance and translate that to benefits for the customer. So it's not technology for the sake of technology. What is more efficient LEDs mean, it means we bring the cost down. We can bring the payback, and as long as there is a gap of where that innovation drives the economic argument and we maintain that gap with the other companies, I think there's a tremendous opportunity to be different. That's at the LED level. There's a second piece. As a systems company in lighting, we are not solving a simple problem. What we put by getting into the businesses, it's not as simple as taking LEDs and shoving in in a metal box. Making good LED lighting is a complex problem, and one of the things we get paid for is solving that complexity because it doesn't just take good LEDs, it takes optics knowledge, it takes thermal knowledge, it takes the ability to build a highly efficient drive circuit to make this all work together. So we're not only innovating from an LED standpoint and staying ahead of the competition, but as a systems company, we're getting paid for innovation because we're making -- taking complex problems and turning them into value for the customer. And I don't think we've even scratched the surface limit that's possible. So today, our best systems that we offer are our 115 lumens per watt. So there's a whole lot more innovation on the system side as well, and I think as long as those 2 things remain out there and we're a leader, I think we have the opportunity to grow, not only our revenue, but to grow the profits and improve those margins. Now, with that all being said, we are a semiconductor company and there are cycles to the business and what I would encourage your investors to do, don't look at Cree in the last 12 months. Look at the last 10 years because there's a whole lot of investors at this part of the cycle that in the past, ask me a year later, why didn't you tell me? And there's no guarantee what will happen in the future, but I will tell you, we are passionate about innovation, and I am confident we will be one of the leaders. And I believe that if we are that leader and we continue to innovate and solve those problems, we can deliver better financial results in the future. In the back there.
In Europe they have been using fluorescent-type lighting for longer time than we have in this country. There's great concern about damage to eyes, people have read those, I have not seen any research. If you're here, sad to say. Have you seen any research, first of all? Secondly, has there been any research on Cree lighting and the effect on reading light and the eyes of people reading?
Charles M. Swoboda
Yes. So I think that question is, has there been any research on the damage to people's eyes from fluorescent or from LED? Is that a good example of the question? What I would tell you is that I've seen a variety of research, but nothing out that there that I would put a lot behind on either one. What I would tell you is that generally speaking and accepted in the industry, that fluorescent lighting is good enough to read under and that I believe it's -- we're also showing that LED lighting is as good or better. And the reason I say it's better is, one of the challenges with fluorescent lighting is that it's a very high frequency light source and some people can actually see the frequency there and it affects them, but more important than that, it's actually relatively low quality light. If you go from an incandescent light bulb to a fluorescent, you're making a pretty good compromise, not just because it's probably bad at dimming, or not just because it has Mercury. But because generally speaking, they're giving you a lower quality of light. One of the things we've done with LED lighting and specifically one of the successes we've had at Cree with TrueWhite technology is, we deliver light that is as good or better than the incandescent light it replaces. So in many cases, what we're doing for our products is we're actually going out and offering our LED troffers as an upgrade to the fluorescents, not just in energy savings, not just in maintenance, because that's the business case. But in many cases, we're offering it -- upgrading the quality of the light. But in terms of people's concerns about, it has a harm, what I generally see is most time that research, and this is not all cases, but in many times, when I look behind that research, it's someone trying to protect an old technology. And generally speaking, you should pay attention to it, we should make sure there's not something there, but I don't worry too much about it. Who else? We're going to go here and we'll come back.
Turning the learning curve usually involves a great deal of intellectual property. Do you see any problems in protecting your intellectual property?
Charles M. Swoboda
Yes. So the question is, when you come up the learning curve there's typically issues with having intellectual property to get there and protecting it from other companies. I would say today Cree is in a very good position. Obviously, since were founded, we focused on patents to build the portfolio. Originally at the materials levels then the chip, the component and at the systems level, and with the acquisition of Ruud, we've added even more systems IP around the outdoor lighting market. I think we're in a strong position. I think there's some other companies that are out there that are in a strong position. But I think if you look at what's happening in the market, my guess is, is you're going to see some IP issues come up where the companies that have strong portfolios whether they be Cree or Philips or companies like OSRAM are going to have to take a stand. And you see that today in the marketplace where OSRAM is actually in a lawsuit with 2 Korean companies over some of the lighting IP. So I feel like we're in a strong position, but my guess is, is we're going to have some actions in the future to defend that, but we'll see where that goes, but more to come. But I think we're in a good position to start with. Yes?
Chuck, maybe one way to send the message to all those nonbelievers who called you after the fact, would be to buy up some stock when it gets down to these very, very low level. It's a great vote of confidence, you've got great cash flow. Comments?
Charles M. Swoboda
Yes, so the question is that, I'm going to paraphrase that, why aren't we buying the stock back? And the question is -- my answer would be in the short term. We didn't do anything recently because we've just gone through a pretty major transaction. So in buying Ruud, we wanted to go through that transaction before we start to use the cash for other purposes because I do think that while buying the stock back can have some psychological benefits, at the end of the day, I really believe we're supposed to invest that money and give you an even bigger return than I can get by buying it back. With that being said, we do have a buy back in place and what I would tell you is that, stay tuned. I think we've shown in the past that at certain levels, we will buy that stock back and we'll just have to see what happens here over the next month and quarters.
Charles M. Swoboda
Next question. Over here?
Where are you getting your brains?
Charles M. Swoboda
Where am I getting my...
Not your personal...
Charles M. Swoboda
Oh, our company's brain? So where are we getting the people that make Cree successful? The intellectual capital.
You're in brain business. Where are they coming from?
Charles M. Swoboda
So as you look at way we're hiring our employees today, in the U.S., obviously, we have a great university system, both here in North Carolina, but really across the U.S. If you look at the nature of Cree scientists, they actually don't just come from North America, they're actually global. So we have scientists from Turkey and Russia and just about every major country that has a developed science program around the world, and we continue to be very successful recruiting those people to Cree whether they work here in North Carolina, whether they work in our Santa Barbara R&D center, or if they work now in our offices in Racine, Wisconsin. And one of the ways we do that is, what we found is great scientists and great engineers want to work in a place that values them. And so we try to make it really clear that we value their role in innovation, and it doesn't mean we don't value all the other pieces of running a company, we try to make that more important. And I would tell you, we're actually adding some R&D capabilities today in our operation in Hong Kong, as well as we have some R&D now even in China because they have a growing base of really, well-educated engineers and we're going to leverage that for parts of our business as well. So we'll go anywhere we need to. I think the key is, do we create an opportunity for those people to be successful? And many cases what success is to the best scientist, it's a chance to pursue the science. It's a chance to make products that matter. And I would tell you one thing that's different at Cree, our best engineers and scientists, want to work on a product that has the most impact to the business. So I've never had to have a conversation in my more than 10 years at Cree where I needed to tell a scientist, hey, don't get too focused on that esoteric idea, focus here. Our best scientists want to do things that create shareholder value and I'll tell you why. Because we never gave up on the idea that stock options work and they do work and we have a group of scientist that benefit when we create shareholder value, and are completely committed to trying to make that happen. And I will tell you, it is the reason we have a successful technology industry in this country and that continues to work for us. Yes?
If you could just comment on your market share. Obviously, your industry is growing. You're showing more revenue. The Ruud acquisitions should have -- certainly have enhanced the market share, but basically, how does the market look in your position in that as far as your market share?
Charles M. Swoboda
Right. So the question would be is, what is our market share? As a lighting company or as a components company, and I'll try to answer both of them because my guess is you're interested in both. As a lighting company, it's very hard to get good market data today. Here's what we believe. We believe that Cree plus Ruud puts us in the number 1 market position for LED-based lighting products in North America, that's primarily where we sell them. Now it doesn't mean there are other companies in the market, but in the markets we compete in, we believe we have the leading products in those segments, and our business is really the leader. Again, those are only certain segments we compete in today. If you look at those products outside, really outside of North America, it's going to vary. So, for example, in Europe, we have products on the outdoor that we sell under the Ruud Lighting brand, but on the indoor, we don't sell our own brand product, we actually sell through a partner in Zumtobel, and they would do quite well, but the reality is they are viewed as a leader and even though we are often providing much of the products and technology that go in there. So I like our position, but I don't have any good exact market data to give you, but I'm confident in saying the markets we're participating in, we are the leader. Now if I shift gears to components, we're pretty confident that we have the largest share as an LED lighting components company out there today. That, again, is a little bit tough to calculate who's got what share out there. But we're pretty confident in the markets we're in for our LED components, that we have the market leadership position as well. And you got to be a little careful because everyone defines lighting differently. For example, we don't consider automotive lighting part of the LED lighting market. It absolutely is an application for LEDs and lighting, but since we don't even attempt to participate there, we don't measure it that way. So you have to be a little careful in how we look at that, but where we participate we think we have both the business lead and the technology lead, but it doesn't mean we don't have lots of competition. So what else? We got some questions over here, where are my micro -- oh, here, let's start here.
As I understand it, the manufacturing yield is an area where there's a lot of scope for improvement. Can you go through what you've been able to do to increase manufacturing yields? And if it's a 9-inning game, what inning are you in, and as you benchmark what your competitors do, what inning do you think they're in?
Charles M. Swoboda
So the question is, manufacturing yield? Where are we at? What's the opportunity? And if it's a 9-inning game, what inning are we in and our competitors? The interesting thing about yield, and I spent quite a few years actually in the operation side of our business, is that we're so good at inventing new products that have never been tried, we successfully lower the bar every time we introduce a new product. What that means is, with every new product, we start the opportunity to improve the yields. So it doesn't mean we go backwards, what it means is, as we push the technology to new levels, we typically are creating processes oftentimes that have never been tried before. And in those processes, we're often releasing a product with a relatively low yield than that process because we know it differentiates us and then we can, then, over time, increase that. I'd say that overall, I feel our yields and processes that would be the same are as good or better than the other good companies in the marketplace, so there's kind of the market leading companies. And I would say in many cases, it's better than many of the other competitors, but that's a little bit of apples and oranges. Our process is a little bit different. We grow our LEDs on silicon carbide. Most of our competitors use sapphire. We package our LEDs slightly differently than our competitors, and our systems are, in fact, unique in themselves. So it's hard to make a direct comparison, I think we're as good or better than the people we compete with today, but that being said there's tremendous opportunity. So what inning are we in? If you ask me that mega bright LED chip, the 1 we released in 2001, we're in extra innings. That product, there's not much more we can do. That's a 10-year old product. But if you look at the latest products, our XML. This is our very high power packaged LED component we came out with 6 or 9 months ago, we're probably in the fourth or fifth inning. In some of the new technologies that will get released, my guess is we have products today back in the second or third inning. And that's actually a good thing. What it means is, as technology changes, there continue to be innovative ways to come up that curve. So it doesn't mean you go back, it doesn't make it look more costly. It means that, that new process though is typically immature, and it's that innovation curve that allows us to bring the cost down and typically when we get near the end, we're inventing the next product with a different process technology. So the way we make a chip today or the way we make a component is very different than the way we were making it back in 2001. The way for growth technology is different, the epi growth technology is different, the chip design and the fab processes are very different, we're on much larger wafers, and so all those pieces continue to change. I think there's tremendous room going forward to improve yields and part of that's because as the new products come out, it gives us that opportunity over and over again. So I would say that for the foreseeable future, yield improvement is something you'll hear me talk about and it's something we talk about every week as we figure out how do we make those costs get lower from the previous week. Over here?
I'd like to ask you about the payback argument is a hard 1 to make for government, because they get their budgets year-after-year. So I would like to know -- but again, on the other hand, that seems like a really great way to demonstrate the advantages of LED light. It's like, you said streetlights, stoplights and people can see the quality of the light is much better. So I would like to know what Cree is doing to support government adoption of LED fixtures, in particular, if you have any examples of support for Durham, your home city?
Charles M. Swoboda
All right. So the question is, what are the examples and how we're being successful in driving LED lighting adoption in terms of working with governments or municipalities and specifically, is there something in Durham we can point to that we support? I think we have to think about government a little bit differently. I think you can think about the federal government, and I think we can talk about more local and municipal governments. Where we have had success over the years in some projects, for example, putting our indoor LED lighting in the Pentagon, getting our LED lighting installed in some different military bases, those are very practical decisions. They are making the decision that they had a budget to use our technology and it lowered their maintenance costs. So it was actually a payback argument for them, but really where we focus most of our "government efforts" is really at the municipal level and there's often a question asked is that, "But no government has any money, so how do they buy LED lighting?" We're actually in the business of offering them a way to take capital and turn them into immediate cost savings. One of the things we learned when the city of Raleigh did their first installation is, if you buy a product that has a 7-year warranty, and it pays for itself in 5 years, you can finance that over the life of the product, and you instantly get savings from a cash flow statement because they financed it. And what we see is that in many cases, LED lighting is a critical project to take some capital with a known payback that they have been able to finance even through bonds or through private financing and solve one of their short-term issues, which is, they have a cash flow problem. So we're taking a capital project and turning it into a near-term cost savings in terms of the ongoing operating cost and that the idea is you finance this over 7 years and you get your payback sooner and immediately, you've reduced your short-term cost in terms of the maintenance and energy savings. Now, can all cities do that? No. And in some cases, these are cities that want shorter and shorter paybacks and so that's what we're working to do. But if you look at the case of Los Angeles, that's a payback argument. They spent $57 million, got a 7-year warranty, and they get $10 million back a year. At the end of 7 years, they're ahead of the game. And because they are able to leverage financing, they got that short-term benefit. In terms of things we're doing in Durham, I don't have any one big project. I think what we're seeing is, whether in Durham or anywhere else, more cities that are looking at their financials are starting to look at LED lighting, and it's a very important part of not only the indoor business, but really the outdoor market. This idea of streetlights is a great opportunity. I think you'll see more and more examples at the municipal level of where we're going to be installing LED-based street lighting and it truly is a payback argument. So I don't think they're that much different. In fact, in some cases, a municipality is willing to consider 5-year payback more than a company. So in the case of a company, they want to see their money back faster, no different than me talking to Cree's CFO. They're interested in payback, but if you say it's 5 years, they want it in 2. And so, I think what we're seeing is that as that comes down, we go beyond municipal opportunity. But I think it's a great market in the near-term and as far as Durham, if we have some profile one, I guarantee you, we'll be promoting it. We have one here?
For understandable reasons, your presentation, it's discussion is concentrated on lighting, but you have another product line and it's the one that drew me initially to the company and that is power semiconductors. It's only 10% of your business. Obviously, it's not your total focus, you proved that. And so I think it's positioned for sale or spinoff. Quick question is, why don't you sell or spinoff that enterprise?
Charles M. Swoboda
So question is, to repeat it is that, we have a power in our product line, less than 10% of the revenue. I don't focus on it very much, so why don't we sell it or spin it off? Today, what we have is technology that is still not able to get in the mainstream applications. But if there's one thing we've proven at Cree over 24 years now is that we don't give up easily on that opportunity, and the great part is, we're actually now starting to see what those applications look like. So we have a small business that is self-sustaining today, it's both sustained through the sale of products as well as we continue to have funding to develop new technology, a lot of it government-sponsored and we still believe there is an opportunity to make that an important business for us. Do I think it's going to happen in the short-term, I really don't. I think it's going to grow, but I think relative to lighting, it's going to take a few years. So I'm not ready to give up on it because I think that the opportunities, what it could be worth to Cree and its shareholders 3 to 5 years from now is worth a lot more than anyone would be willing to pay for it. What most people don't appreciate when a technology is yet taken off is they underestimate what's possible in that market. It's no different than how people would have talked about LED lighting 5 years ago. They're going to discount what's possible. We have the experience to actually see what is possible and I think we understand the technology to level, but I think there's an opportunity to make it a more valuable part of the company. And for right now, I'm not going to overpromote it because generally speaking, anything that's beyond the next couple of years, I'd be better off talking about what I can deliver and hopefully it will be a pleasant surprise in the years ahead.
What percent of your retail products are made in China?
Charles M. Swoboda
So retail products. We only have one product that is sold through retail and that is CR6 downlight that gets sold under the EcoSmart brand at Home Depot. That product today, the LED chips are all made here. We package them in China, and they're assembled and brought back. I think the percentage is probably maybe somewhere a little 50-50 one way or another. I think right now, it's probably slightly more made in China than made here, but still pretty significantly made here. We also have a whole range of products that actually are made here. So as we get into -- the reason I mentioned that is that product is a relatively small product. As the products get larger, we make more and more of them here. So today, all those troffers you see, the fluorescent replacements, those are made today in Durham, and when the process of qualifying production adding we're seeing in Wisconsin. The streetlight products, they're all made here in North America, primarily in Wisconsin, but at other suppliers. As the technology gets larger and heavier, it actually incentivizes us to build more, and it's really a function of where the market is. One of the key things for people to understand is, is that typically, the market will drive where the technology moves to. So as we see more adoption in North America, I think you'll see more production here, and it's a proof in our systems business you see more and more of the new products. It happens to be that in the 1 retail product you pointed out, we do assemble that in China today.
I know you have built a lot of new capacity recently and in the past few years. And -- but hearing, what you're saying today is, all I hear is growth, and growth, and growth, here, there and all the parts of the corporation. How do you feel your capacity situation is relative to your future needs? And are you going to be able to meet the new capacity as it continues to grow?
Charles M. Swoboda
So the question is, how can we meet the capacity needs in the future for successfully achieving these growth in these opportunities I've talked about? So the good new is, in the near-term, we have -- our capacity, we got ahead of the curve. So we have an opportunity in the next 12 to 18 months to where really the key is, how do we utilize the capacity we created. The second thing to keep in mind, and I think this is always -- it's easy to miss, is that we have more capacity today for the same products we did a year-ago even if we didn't add any equipment. When you increase yields, you actually get more capacity. So we're always trying to create -- and that typically is incremental, but the switch to 150 millimeter or 6-inch wafers, that's going to give us another opportunity. So I think we're well-positioned in what I would say is the near-term, 12 months out. As we get into that 12 to 24 months, depending on the growth of the market, then we'll have to continue to look at investments both here and in our factories around the world. So I'd say right now, short-term, we're going to be slowing down some of those capital purchases, so I think we're in a good situation. But as we go forward, for us to achieve these objectives there's a tremendous amount of capacity that'll have to be added somewhere in the years ahead. I think it's a little premature to decide what that is and when because frankly, we've got to deliver on that growth in the short term first. But I absolutely -- if you look at the end of the road here, there's a large piece of land we cleared and the reason we cleared it is we believe we're going to need that capacity in the midterm and we wanted to get ahead of that so that when the opportunity, as the markets start to grow, and as opportunities come up, we can shorten the cycle of how quickly we can add that capacity. And so we're planning -- we continue to plan for the future and believe we're going to need that. Anyone else? One more.
Semiconductor technology is at Cree's core, but I've been struck by the fact that over the last 10 or 15 years, you've chosen to operate the board with minimal to almost no semiconductor technology background on the board. Could you comment on that?
Charles M. Swoboda
So the question is that Cree has semiconductor technology in its core and if you look at the board, it's actually evolved to less and less technology focus -- semiconductor technology focus. Now I would say that there are a few people on the board that still have quite a bit of experience, even if it may not be obvious although Tom Warner is a solar guy. I can assure that we have lots of very healthy discussions about what we're doing from a semiconductor technology standpoint, and we have other board members that add different pieces of it but we purposely evolve the board to provide the insight that we think actually maybe we don't have internally. So one of the challenges was is your board here to help you manage the business you have or help direct the strategy where we're going, and one of the things you've seen with our board is with added expertise in areas, that frankly Cree had never been before. So we're a systems company today. We never had to think about selling in retail. I mean, we sell a product to a consumer through Home Depot. I can assure you that the people that founded the company, while we're excited and we're pretty sure we can figure out any problem, we didn't have a lot of experience in that area. So we've tried to add that expertise. So I think it continues to with fine experience both on the technology side and the semi side, but also on some of the system side because I would hope that the board helps us not just with managing the business we have, but with really challenging us on what is the strategy, and how can we be successful in some of these new markets in the future. And I think this started from personal experience. I don't feel any lack of being challenged on the semiconductor side because I still think we have a healthy knowledge base there. Anyone else? All right. I'm going to continue.
All right, we're now going to return to the business of the meeting. It appears that all shareholders who wish to vote had done so and I therefore declare the voting closed and call upon the Inspector of Elections to deliver his report.
Thank you, Mike. Mike really looks forward to this every year, so. All right, the Inspector has delivered his report with the results of the voting and the report shows that all proposals received the votes required for approval, that the advisory report on Executive compensation was favorable, and that shareholders voted to recommend that an advisory vote on Executive compensation to be held annually.
That concludes the business of the meeting to be conducted, and the meeting is adjourned. And sincerely, thank you again for all those who come each year. We really enjoy the chance to tell you our story and we hope to see you again next year.
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