Market competition in the North American bulb market has pressured Cree to restructure its LED business, said Roger Chu, Director, Research Division, LEDinside.

The U.S. LED manufacturer announced Wednesday that “the company has decided to restructure the LED Products business to reduce excess capacity and overhead to improve the cost structure moving forward.”

Cree's 40W Soft White LED bulb. (Photo courtesy of Cree)

The decision to slim down its LED business was attributed to higher than forecasted LED average selling price erosions, under-utilization of Cree’s LED factory, and its growing reserves that reflect aggressive pricing environment. Cree estimated the restructure would cost approximately $85 million.

Cree, which manufactures LED components for other manufacturers and for its own LED bulb consumption, has been especially affected by main competitors’ low LED bulb pricing strategies in North America, said Chu.

Philips for instance disrupted the U.S. LED bulb price market in May 2015 by pricing two packed 60W LED bulb at a promotional price of US $4.97 through Home Depot sales channel, this brings the cost of a single bulb to $2.48 during the three-month promotional period. GE followed the same strategy by selling a three pack 60W LED bulb for less than $10 through Home Depot channels in June this year.

The steep price cuts are the result of traditional lighting manufacturers growing reliance on Asian OEMs, explained Chu. This places Cree at a disadvantage, since its manufacturing base is in U.S., where production costs are much higher.

“If pricing competitions continues, Cree might increase the volume of outsourced products to Asian manufacturers in the future,” said Chu. “For instance they might increase OEM orders they give to Lextar or other Asian manufacturers.”

The company is also losing ground in Home Depot retail channels, where it previously had an advantageous position.

“Cree entered the Home Depot market about two years ago, and at the time it diversified its LED bulb products by acquiring the ENERGY STAR label,” said Chu. “But with more LED manufacturers entering the Home Depot sales channel, Cree is losing its leverage.”

(Author: Judy Lin, Chief Editor, LEDinside)