Penguin Solutions sells Cree LED for an undisclosed price as inventory near-triples to $749 million
Penguin Solutions paired a 68% sales quarter with a $167 million quarterly cash outflow, then agreed to sell Cree LED, its LED-chip segment, for cash at an undisclosed price. The company calls the sale a sharpened data center focus; the balance sheet suggests the cash also has work waiting, and January's fiscal Q1 report tests it.
Vincent Jiang · 3 min read
A sale with every detail except the price
Penguin Solutions+13.65% — Penguin Solutions, up 13.65 percent today, the Nasdaq-listed data center supplier formerly called SMART Global Holdings, agreed on November 3 to sell Cree LED, the Optimized LED segment that makes LED chips for lighting and screens, to Transom Capital Group, a middle-market private-equity firm, in an all-cash deal expected to close in the first quarter of 2027 1.
The 8-K, the SEC filing that reports current events, names the buyer, the advisors and the closing conditions 1. It never names the price 1. Chief executive Kash Shaikh calls the divestiture "another milestone" in a transformation into a pure-play, data center-focused company 1.
Record sales, deeper outflows
The quarter behind the sale, reported on October 6, is the kind that gets small caps re-rated: net sales of $567 million, up 68%, diluted earnings of $1.00 a share, up 133%, with AI-driven work at 78% of revenue, growing 141% 2. Integrated Memory rose 158% to $341 million, three-fifths of the quarter 2. Six new AI infrastructure customers signed, four of them neoclouds, the GPU renters outside the hyperscaler club 2.
Cash moved the other way. Fiscal 2026 free cash flow ran at an outflow of $163 million, after inflows between $58 million and $100 million every year from fiscal 2022 through 2025, on capital spending of just $12 million 3. Inventory ended the year at $749 million, near triple the $255 million a year earlier 3.
The outflows deepened as sales accelerated: roughly $78 million in the May quarter and $167 million in the August quarter 4. A $750 million zero-coupon convertible note due 2031 bridged the gap, lifting total debt to $853 million from $525 million 3.
Sales set records as quarterly cash flow went negative
The August quarter's record sales came with the deepest cash outflow of the run
- Net sales
- Free cash flow
Data
| Net sales | Free cash flow | |
|---|---|---|
| Nov '24 | $341.1M | $11.98M |
| Feb '25 | $365.52M | $70.54M |
| May '25 | $324.25M | $90.91M |
| Aug '25 | $337.92M | -$73.36M |
| Nov '25 | $343.07M | $28.21M |
| Feb '26 | $343M | $53.35M |
| May '26 | $478.71M | -$77.63M |
| Aug '26 | $566.68M | -$167.41M |
Two believers on file
Fidelity's Schedule 13G, the SEC's passive-holdings disclosure, filed on November 5, puts FMR and Abigail Johnson at 15.0% of the common stock, 7.7 million shares, a filing that certifies the shares were acquired in the ordinary course 5.
SK hynix+3.46% — SK hynix, up 3.46 percent today, the Korean memory-chip maker, went further the week before: a Schedule 13D with an event date of October 29 shows about $377 million of convertible preferred, a 9.1% beneficial stake, convertible at $32.81, far below the $52.69 the shares touched on November 3 6.
Bank of America−0.46% — Bank of America, down 0.46 percent today opened coverage on October 9 at Buy with a $100 target 3. The eight-analyst average sits at $85.62, 130% above the November 5 close of $37.22, and the stock is still up 90% for the year after a 23% five-session slide 7.
January settles it
Management says the inventory was built to match customers' deployment schedules and calls working capital efficiency "an important priority for fiscal 2027" 3. The reaffirmed fiscal 2027 outlook, about $2.43 billion of sales or roughly 40% growth, still counts a full year of Cree LED, about a tenth of projected net sales, and will be updated after the sale closes 12.
The memory trade repriced anyway. Micron+5.72% — Micron, up 5.72 percent today plunged 17.46% and SanDisk 22.26% on November 5 on concern that political scrutiny could slow data-center construction 8, then rebounded in Friday-morning trading, with PENG quoted up 14.9% on Yahoo Finance 83. At the November 5 close, Penguin traded at 8.16 times forward earnings, cheaper than all but Micron among the ten cheapest US chip stocks 9.
Penguin's 8.16 forward P/E is second-lowest of ten US chip stocks
Penguin is the second-cheapest of the ten cheapest US chip stocks
Data
| Value | |
|---|---|
| Micron Technology | 3.72x |
| Penguin Solutions | 8.16x |
| First Solar | 11.14x |
| Amkor Technology | 12.18x |
| Cirrus Logic | 13.09x |
| MKS | 13.44x |
| Skyworks Solutions | 14.42x |
| Qualcomm | 15.43x |
| Kulicke & Soffa | 15.49x |
| Enphase Energy | 17.42x |
The fiscal Q1 report, likely in early January, settles it: watch operating cash flow and inventory as closely as EPS 3. If the chips ship on customers' schedules, the outflow was the cost of a 68% quarter 3. If they sit, Penguin is borrowing at 0% to hold memory chips customers have not yet taken 3. Whenever the Cree LED price is disclosed, that figure shows how much relief the balance sheet actually gets.
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