Smart choices in Cree LED deal
Mark Adams knows a good deal. That, you might say, is the business model of Smart Global Holdings, a collection of specialty companies more reminiscent of past conglomerates such as GEC and GE.
Today’ conglomerates have also been getting focussed. The Danaher group for example spun off its test an dindustrial automation companies such as Tektronix and Fluke into a separate subsidiary called Fortive that then split again into Vontier. Adams though begs to differ. Smart Holdings has a global, diversified customer base of over 250 customers includes some of the most well-recognized names in the technology industry.
“I’m not sure I would agree conglomerates are going out of style,” he said after agreeing to acquire the LED business of Cree. The deal is worth $300m but the initial payment is just $15m and brings Smart its first semiconductor company.
Before joining Smart Holdings at the end of August 2020, Adams was Chief Executive Officer at Lumileds and President of memory maker Micron Technology, as well as Chief Operating Officer of memory card maker Lexar Media and Vice President of Sales and Marketing of Creative Labs.
“We leverage what we do well,” said Adams. “Our mission is to scale and grow our company and find great returns and we do this by running companies really well and scale our existing portfolios and find companies that fit our mold – that are really good companies that have the potential to perform better.”
“We look for things around how we operate the company, that can be from manufacturing, IT, supply chain, there’s a number of criteria. We looked at Cree and it matches.”
“Our businesses are unique in that there’s a speciality,” he said. He points to Penguin Computing and SMART Memory Modules as examples (see below). “Even our IoT embedded and wireless business, these are not commodity businesses.”
Next: Why LED?
But at first glance LED as a commodity business doesn’t seem to fit.
“Certainly LED is another horizonal technology, but if you look at what Cree does, they play in the high power LED business. It’s not a mainstream consumer lighting business, they sell into emergency vehicles, architecture, retail lighting. That’s why they perform better than other LED companies so in this space they are a specialty vendor.”
Cree had already sold off the luminaire and LED bulb business, Cree Lighting, to Ideal Industries.
“I don’t think the vertical integration play is important here. They had to find customers that need a special effect, high reliability, different colours, there’s no one vertical company that solves those problems.”
The deal is more about the team, he says. This is the business that started Cree, and the team was being held back, says Adams.
“One of the reasons why Cree LED was available, Greg Lowe made a very strategic pivot to RF and were limited in capacity. They have a SiC (silicon carbide) fab in North Carolina and for every wafer allocated to RF they were getting more margin and more return so this was an asset that wasn’t working for the LED business,” he said.
“They want to incentivise us to move as fast as they can and they want to make sure Cree LED does well – this was the legacy business that started the company.”
“The team led by Claude has a desire to prove themselves again, and they have the ability to grow with the supply agreements as we increase our capacity and they were held back by the growth of Wolfspeed,” he added.
The technology is also changing.
“They are moving from SiC to sapphire for LED and moving from North Carolina to outsourced partners,” said Adams. “We have a supply agreement from North Carolina that is very attractive. It’ll be good margins for Smart,” he said. “By the end of the Q1 29 percent of the business will be with outsourced partner in Asia primarily on 6in wafers and that will continue for the 18 month transition period.”
“Us being the only pure foundry model will play to our advantage – there’s enough capacity that I don’t worry about it.”
SMART Modular Technologies is probably the best known subsidiary of the group.
Founded in 1988, SMART Modular Technologies makes memory modules, solid state storage products and hybrid solutions which are critical to electronic devices and are available in standard, custom and ruggedized, high performance, high capacity applications for global OEMS.
In July 2019, Smart Modular Technologies acquired the Embedded Computing Business from Artesyn Embedded Technologies, and also has a high reliability subsidiary and SMART Wireless Computing, formerly Inforce Computing.
The acquisition of Penguin Computing in June 2018 for $85m and the creation of a new business unit, SMART Specialty Compute & Storage Solutions (SCSS), saw the expansion into specialized computing platforms in artificial intelligence (AI) and machine learning (ML), advanced modeling and high performance computing (HPC).
There are other parts of the group, such as SMART Supply Chain Services (SSCS rather than SCSS) which focusses on logistics and there are opportunities for growth by linking to the other parts of the group. “There is certainly an IoT dimension to smart lighting. There are the overlapping trends of smart embedded business with IoT,” said Adams
“The type of packaging we use in Malaysia and Brazil is significantly more advanced than LED packaging so there’s an opportunity to add value and something we are going to explore,” he said.
“We are on a diversification play to grow and scale the business and we are looking forward to extending our group.”
www.smartgh.com, www.smartm.com, www.smartembedded.com,
www.smartsscs.com and www.penguincomputing.com
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