Cree CEO Chuck Swoboda, May 2013. (Credit: Michael J. Bowles for Forbes)
This North Carolina maker of light emitting diodes aims to kill off the incandescent lightbulb. It’s already doubled its market cap to $7 billion in just one year.
In the ad for Cree lightbulbs you see snow whipping across a desolate field as a bagpipe creaks out “Amazing Grace.” An announcer holds up a lightbulb and speaks into the camera. “Mr. Edison , today we lay to rest your creation, the incandescent lightbulb. I know you’re not shocked, sir. You knew that it needed an unreasonable amount of energy to do its job and that it had the life span of a lucky bug.”
He fits the bulb into a tiny wooden casket and places it into a hole in the ground. Then we see Cree’s new LED bulb. “The biggest thing since the lightbulb,” we’re told.
It’s a fun commercial, and Chuck Swoboda, CEO of Cree, means no disrespect. “We made sure the Edison estate was okay with it,” he says. “There’s an Edison quote that has always been inspirational to us: ‘There’s a better way to do it. Find it.’ ”
Swoboda believes his company has done just that. More than 130 years after Thomas Edison created the first salable lightbulb, his design remains little changed. Electricity flows across a resistant wire in an oxygen-free environment and glows. Cree’s lightbulb, on the other hand, uses an array of light-emitting diodes to create a similar kind of rich, warm light without the headache-inducing flicker of compact fluorescent bulbs.
It does so with unassailable economy. A regular incandescent bulb costs $1 and uses $7 of electricity a year if used three hours a day. A Cree bulb may cost $10, but it uses 10% of the electricity, costing $1 a year. And while an old-school bulb will burn out in less than two years at that rate, LED bulbs will keep working for more than 20 years. At a cost of $9.97 for the equivalent of a 40-watt incandescent, or $12.97 for a 60-watt replacement, the Cree bulbs are cheaper than comparable LED offerings from rivals.
That performance is a big reason Cree now boasts $1.3 billion in sales and $70 million in earnings. Its market cap of $7 billion has doubled in less than a year; investors foresee broad adoption of LEDs once federal lighting standards force the phaseout of 40- and 60-watt incandescents in 2014. Nationwide, of roughly 6 billion lightbulbs in American homes, 3.6 billion are incandescents. Lighting sucks up roughly 14% of America’s electricity; replacing all those Edison bulbs with LEDs could cut that demand in half.
The Durham, N.C. company was founded in 1987 and went public in 1993. In those early years it had a good business selling semiconductor chips made of gallium nitride that glow when an electric current is passed through them. But the early light-emitting diodes came in only two colors: red and green.
The industry’s elusive Holy Grail was a “
white” LED. If they could somehow create a bright blue LED they could combine it with the red and green to make what the human eye would perceive as white light. For years physicists thought bright blue was an impossibility, until in 1994 a researcher at Japanese company Nichia proved it could be done.
white” LED. If they could somehow create a bright blue LED they could combine it with the red and green to make what the human eye would perceive as white light. For years physicists thought bright blue was an impossibility, until in 1994 a researcher at Japanese company Nichia proved it could be done.
Cree’s engineers followed soon after with their own bright blue LED chip, made from wafers of silicon carbide. “Everything came from this,” says Swoboda, who joined the company in 1993, when it had only 30 workers. It now boasts over 6,000.
At first Cree just made the chips and sold them to the LED makers; early uses included backlit car dashboards and cellphones. The potential seemed so great that in 2004 analysts were calling Cree the next Intel INTC -0.25%. But white LED lights weren’t ready for the residential market. Early fixtures cost too much and suffered from another then-unsolved problem: LEDs are a directional light source; like a weaker version of lasers, they cast light in only one direction. That’s fine if you want to spotlight something but a nonstarter if your aim is to replace the all-around glow of incandescents.
Playing to their strengths, LED makers started marketing so-called downlights. Cree in 2007 bought Chinese light-fixture maker Cotco and in 2008 acquired LED Lighting Fixtures. It began a relationship with Home Depot HD +1.92% selling downlights under its EcoSmart brand.
It hadn’t even tried developing an incandescent replacement, instead focusing on municipalities and industrial customers. Anchorage, Alaska replaced 16,000 high-pressure sodium streetlights with LEDs; Los Angeles is gradually swapping out 140,000. Wal-Mart installed LEDs at hundreds of its stores . To profit from this industrial market, Cree in 2011 bought fixture manufacturer Ruud for $525 million.
So how to make LEDs mimic incandescents? The key was in redesigning the structure in the middle of the bulb called the filament tower, where 10 or 20 LEDs of varying colors are arranged. Cree’s configuration let the individual light sources overlap, creating an omnidirectional glow.
For now Home Depot is the only place you can buy the Cree, part of an exclusive deal to roll out the bulb in more than 2,000 stores. “The exclusivity is to be negotiated. We will look at other partnerships at some point,” says Swoboda.
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