Cree hopes problems will lighten up soon.

• Author: Williams, Christopher
• Position: Cree Research Inc.

The financial graveyard is littered with the remains of start-up research-and-development labs that offered promising technology but failed to make the critical leap from the red into the black.

Durham-based Cree Research Inc. (NASDAQ-CREE) hopes to land on its feet. The 9-year-old manufacturer of silicon-carbide-based semiconductor products thinks it has a winner with its first commercial application - blue light-emitting diodes. LEDs in red, green and yellow are commonly found in light displays in stereo equipment, billboards and the like. Cree introduced the first blue LED in 1990 and unveiled a brighter version in 1995. With the addition of blue, LEDs can create the whole spectrum of colors.

But it remains to be seen whether Cree has the management savvy and skill to turn its technology into profits. The company has already stumbled in its transition to manufacturing. Production delays caused it to lose $776,000 in the fourth quarter of fiscal 1996, which ended June 30. In addition, some Cree executives sold a chunk of their stock earlier this year, not exactly the display of confidence investors like to see.

Cree is experiencing the normal financial hiccups of any emerging-technology company, says analyst Tarun Chandra of New York-based Laidlaw & Co. "Management is doing all it can," he says. "It's an evolving technology. They are constantly refining it as they go along."

Many investors, however, aren't convinced, and the volatile trading reflects their deepening doubts. Cree's stock hit a high of $31.50 in August 1995 after Cree introduced its brighter-blue LED, then dropped to $8.25 in July. In late September, shares were trading around $12.50.

Cree was founded in 1987 by six scientists at N.C. State University who wanted to make electronic devices from silicon carbide. Cree sells silicon-carbide wafers to the government, other semiconductor manufacturers and companies such as Westinghouse Electric, which uses Cree's products for its high-definition broadcast transmitters.

About $1.7 billion of LEDs were sold last year, the largest producer being California-based Hewlett-Packard. Cree holds the No. 1 spot in the production of blue LEDs, a $30 million segment. Cree's LED business generated about $3 million in revenues last year, but it faces formidable competition in its niche. In 1993, Nichia Chemical of Japan unveiled a blue LED much brighter than Cree's new one. Cree claims that its product is easier to produce and more-compatible...