Cree has announced that the board of directors has approved a restructuring of the LED Products business, a US$500 million stock buyback authorization for fiscal year 2016, as well as its fiscal year 2016 annual operating plan that targets revenues to increase to US$1.8 billion, non-GAAP operating margin increase to approximately 8%, and free cash flow of approximately US$75 million.
Due to recent LED market trends that have resulted in higher LED average selling price erosion than previously forecast and the continued under-utilization of Cree's LED factory, the company has decided to restructure the LED Products business to reduce excess capacity and overhead to improve the cost structure moving forward. Additionally, the company is increasing LED reserves to reflect the more aggressive pricing environment experienced in the current quarter, and to factor in a more conservative pricing outlook for fiscal year 2016.
Cree said it anticipates that the majority of the capacity and overhead related charges will be reflected in operating expenses for the fourth quarter of fiscal year 2015 ending on June 28, 2015, with the balance in the first half of fiscal year 2016. The company anticipates that the channel revenue reserves will be reflected as a reduction of revenue in fiscal fourth-quarter 2015, and the inventory reserves will be reflected as an increase in cost of revenues in the quarter. For the fiscal fourth quarter, the company now targets revenue to be approximately US$375 million.