Wolfspeed is no more our Ugly Duckling

Interview with Gregg Lowe, CEO of Cree and Wolfspeed
June 25th 2018
Ralf Higgelke

Wolfspeed is the smallest segment of Cree, dominated by its bigger brothers, lighting and LED. But Gregg Lowe, the new CEO, is determined to turn this ugly duckling into a beautiful swan. At PCIM we talked on this complete change and on the silicon carbide transistors of the future.

DESIGN&ELEKTRONIK: Gregg, since end of September 2017 you are serving as CEO of Cree. What is your mission?

Gregg Lowe: We have an incredible opportunity with our silicon carbide and gallium nitride technology to dramatically change the power industry. At a high level, our vision is to do the same with silicon carbide with regard to silicon as CMOS did with regard to bipolar some 30 years ago. We want to convert the power industry from silicon to silicon carbide.

We have reached now the tipping point where we are starting to see an acceleration of the adoption of silicon carbide driven by electric vehicles, renewable energies like photovoltaic, as well as 4G and 5G base stations. I think we are living in very interesting times for power electronics, especially when you are in silicon carbide.

Can you please describe the economic situation of Cree and Wolfspeed when you took over?

The company has three business segments. Its largest business is lighting, followed by the LED business, and the smallest business is Wolfspeed, the power and RF part of Cree, with roughly 220 million dollars of revenue in our fiscal year 2017 (Lighting had a revenue of some 700 million, LED of 550 million).

Within 4 years we want to make Wolfspeed actually the largest business inside of Cree. Our plan is to quadruple its revenue by 2022 to some 850 million dollars.

This brings to my mind the picture of the ugly duckling turning eventually into a beautiful swan.

I like your picture. The focus of our company has completely changed. It is capitalizing the opportunity we have for growth with silicon carbide.

As lighting and LED is becoming more of a commodity business, power electronics will drive the growth for Cree, won’t it?

That’s for sure. As I told before we are at a tipping point where the demand for silicon carbide is starting to grow exponentially. All major car manufacturers have announced an investment of over 100 billion dollars to convert the power train from combustion engines to electrified ones.

As far as I know the number one cost impact with an electric vehicle is the battery. So with silicon carbide car manufacturers can shrink the battery for having the same driving range or extend the driving range with the same battery. This is a very obvious value proposition.

Let’s talk briefly on the financial results. The last three financial years Cree lost revenue from 1.6 billion dollars to 1.4 billion, and generated a net loss of nearly 100 million in the financial year 2017. And if I sum up the first three quarter results of the financial year 2018 and the guidance for Q4 the annual revenue will be some 1.4 to 1.5 billion. What are you saying to the Board of Directors and to your shareholders in this respect?

We have been very clear with our shareholders, with our Board and with our employees: The focus of the turnaround is driving the growth of the Wolfspeed business. So Wolfspeed will have a higher percentage of the total business. Additionally Wolfspeed has a higher gross profit and a higher bottom-line profit, and this in turn will help us to increase profitability. Eventually the company revenue in 2022 will be roughly 2.4 billion dollars and the operating profit will be roughly 20 percent, a significant increase in profitability.

So far our shareholders are excited about this. We have said to them that by 2022 the Wolfspeed business will be some 850 million dollars, lighting some 700 million, and some 800 million with LED. And our customers are excited about this, because we are investing and extending our capacity in silicon carbide.

What have been the issues with the traditional business segments lighting and LED? Did you get into conflict with some of your LED customers as Cree is also manufacturing lighting products, being in a direct competitor of them?

The issue with lighting was not so much the competitive aspect but self-inflicted problems. We created our own problems by having quality issues, reliability issues and so forth. Our focus with the lighting business is very simple: We want to fix these issues, and we have largely done so. And the next step will be to combine the manufacturing of the LED and the Wolfspeed business segments so that we will have the ability to move some manufacturing capability into the Wolfspeed direction. So you see it’s all about growing the Wolfspeed business.

When you left Freescale after the merger with NXP in 2015 you said that the best strategy and the best products are not enough for being successful. You have to engage with each individual employee. You said that they must be proud of their work. Is this again a big part of your turn-around strategy at Cree?

The very first week at Cree I did a survey of all our employees. I asked them what they liked about the company, what they didn’t like, and what they would change. A lot of the things we are doing right now are engaging with our employees and listening to them. I want to have a management mindset that is focused on setting the direction and getting any obstacles out of the way of our employees so that they can accomplish great things.

We are beginning to see the first fruits of these efforts. The rate of people leaving Cree is decreasing. We still have a long way to go, but within a very short amount of time more of our employees are excited about what we are doing; and more of them are engaged in what we are doing. We have been very clear with them with regard of redirecting the company.

I believe very strongly that a good strategy is not enough. You have to have employees who are motivated, excited and proud their work.

Did you hire personnel?

Yes. We have hired several new executives. All of them were coming from the semiconductor industry, for example from Texas Instruments, Freescale and Analog Devices.

As the revenue declines also the expenses for R&D decline as they are fixed 10 percent of the revenue. Do you think you have to increase the percentage of R&D expenses?

Although the percentage might not change, the absolute R&D expenses will grow as we grow the Wolfspeed business. Likewise the ratio of R&D expenses between the three business segments within Cree will change as Wolfspeed will overtake the other two segments revenue-wise. To be very direct, if we quadruple the revenue of Wolfspeed, we also quadruple its R&D expenses.

Do you think canceling the acquisition of Wolfspeed by Infineon was good or bad for Cree?

For Cree this was absolutely great. The opportunity to grow the business is very substantial with Wolfspeed being a part of Cree. If you recall, when signing the deal in August 2016 electric vehicles weren’t quite there. Selling Wolfspeed wasn’t a bad idea back then. But we are very fortunate that it didn’t happen, because now we have a great opportunity for growth.

Cree and Wolfspeed themselves made some acquisitions over the past years. I remember the acquisition of the module specialist APEI and just recently Infineon’s RF business. Are you looking for more acquisitions?

We have shown in the past that we are interested in growing our business by acquisitions, and I would anticipate that acquisitions will be a part of our future strategy.

Regarding the acquisition of Infineon’s RF business we announced in March 2018 we are still digesting it. So far we’ve done a great job integrating that team into Cree. All those Infineon employees have signed up, and they are excited to be a part of Cree.

Why did you acquire Infineon’s RF business?

There is a great growth opportunity for gallium nitride on silicon carbide in the mobile communication infrastructure, starting with 4G, but of course extending to 5G. Wolfspeed has been a strong supplier of the GaN technology, but we didn’t have the packaging technology in house. Infineon has this advanced packaging technology which is very important for RF. So now we are able to combine these two center pieces offering to our customers a complete solution for their RF power applications.

I remember talking to John Palmour, Wolfspeed’s CTO, two years ago here at PCIM regarding the spin-out of Wolfspeed. He said to me that this gives Wolfspeed the possibility to raise capital by itself. But at the end Wolfspeed didn’t go public and is still 100 percent a part of Cree. Do you newly plan an IPO of Wolfspeed?

Our focus right now is growing the business. We believe that we can organically quadruple the Wolfspeed business within 4 years, acquisitions might be a part of the strategy. But an IPO of Wolfspeed is not on my mind right now.

Since recently silicon carbide was a game for companies who have their own fabs. This is very different with GaN where a fabless model is quite common. Now X-FAB came out with a foundry model for silicon carbide. Do you think this will change the game as fabless semiconductor companies have now the possibility to produce their own SiC devices?

I think the most important right now is the material supply with silicon carbide raw wafers. This has to increase substantially as we are reaching the tipping point of the demand. Therefore we have doubled our capacity the past year, we will double it again next year. We will spend roughly 200 million dollars of capex for growing the business. And we will continue doing so.

Now let me answer your question on a foundry model for silicon carbide. With digital CMOS the foundry model became prevalent due to the cost of wafer fabs. An advanced digital CMOS fab is very capital intensive and costs multi-billions of dollars. If you look now at power semiconductor manufacturers like Infineon, ON Semiconductor or STMicroelectronics, most of them have their own fabs, because it’s much less capital intensive. So the success of a foundry model for silicon carbide will be based on the capital intensity of that industry. But for the next years the growth of the silicon carbide business will be driven mainly by the growth of the substrate business which is part of our strategy.

Is this growth in capacity coming from increasing the number of raw wafers or from migrating from 4 inch wafers to 6 inch wafers?

It’s actually both. We have increased and will increase the number of raw wafers produced, and on top of that the wafer area is increased by migrating to larger wafer diameters. All the new crystal growth is done on 6 inch.

In March 2018 you also signed a long-term agreement with Infineon to supply them with 6 inch silicon carbide raw wafers. Can you disclose more details of that agreement, it’s timeframe for example?

Well, I cannot disclose the details. We publicly said that this supply agreement is valued at well over 100 million dollars. And now let me put this into perspective: The whole Wolfspeed revenue was some 220 million in 2017, and roughly a third of that was the material business. So you see this agreement is very substantial to us. It assures us revenue for a good amount of time, and it assures Infineon the supply of raw wafers for the same period of time.

You are still manufacturing only planar SiC MOSFETs while competitors like Rohm and Infineon are offering trench SiC MOSFETs. When will we see the first trench SiC MOSFETs from Wolfspeed?

We are definitely working on our own trench technology, but what really matters today is performance and price. We have the lowest on-resistance in the industry with planar technology and a competitive price. If needed, and this time will come, we will switch to trench, but I think this won’t happen in the near-term future.

Jeff Casady, business development manager at Wolfspeed, said in October 2015 that the company has SiC IGBTs in the lab. When will you present the first commercially available SiC IGBTs?

Our technology reaches all the way from 600 volts up to 25 kV. Commercially available are just the SiC MOSFET devices up to 1700 volts with a clear focus on 1200 volts. What silicon carbide IGBTs can do on an application level is incredible, but they are targeted at much, much higher voltages, greater than 10 kV. We have industry partners we are working with, but silicon carbide IGBTs are still very much an R&D project and will not be commercially available in the near future.

Why are you going after SiC IGBTs?

The application areas for these very high voltage devices would be mostly related to “grid tied” inverters for alternative energy, as well as other grid level power management applications and HVDC power transmission. With silicon carbide MOSFETs you can go up to 10 kV blocking voltage. With silicon carbide IGBTs we can address blocking voltages well beyond 10 kV, with the potential for all the way up to 30 kV. It is similar as with silicon: Silicon MOSFETs end at around 800 to 900 volts, beyond that you need silicon IGBTs.

… or silicon carbide MOSFETs.

Exactly! I think, if we had silicon carbide MOSFETs in the 1980s, there had been no need for silicon IGBTs.

Wolfspeed is specialized on SiC for power and on GaN for RF. Do you have any plans to offer GaN for power?

Let it put me this way: We have a tremendous opportunity right now in silicon carbide for power electronics. So we are focusing on growing and expanding that business. The fact that we are also manufacturing GaN for RF power is great. We get a lot of know-how and we already have a lot of intellectual property in GaN. Having GaN for power as an option in the future is great, but right now we have to concentrate on our silicon carbide activities for power and our GaN activities for RF.

At the end I have a personal question to you, Gregg. After leaving Freescale and before joining Cree you took some 2 years off. I read that you wanted to learn playing guitar. Did you do so?

I always accomplish what I want to do. Yes, I learned playing guitar.

You know I have some millions of kilometers traveling to visit with customers and employees - enough to have flown to the moon many times. So after leaving Freescale after its merger with NXP me and my wife decided to take one year off. And after that year I would begin looking for a new job. I had a bucket list, and one of the topics on that list was learning to play guitar. So I played guitar every day for one year and a half. My favorite piece of music is “Hotel California”. I enjoy playing guitar, but I’m not in a band. It’s very relaxing. At the moment I practice once or twice a week.

The other topic on my bucket list was visiting all National Parks in the US. We have been to Yellowstone, Grand Canyon and so on. All the places my German friends had visited, but not me.

Gregg, many thanks for taking the time.