An interesting conversation during Cree’s earnings conference call earlier this week captures the challenge one of the world’s top developer and manufacturer of LED lighting still faces.

Consumers aren’t quite ready to dump conventional lighting for LEDs even if they last longer, save energy and are “green.”

Chuck Swoboda, the Durham-based company’s chairman and chief executive officer, talked with analysts about a fiscal year and a fourth quarter that produced its first $1 billion year in sales. He sees challenges and opportunities ahead worldwide, from increasing market growth in LED-hot China to convincing consumers LEDs are a good buy.

The consumer challenge came to light when Joe Osha, an analyst at Bank of America, squeezed in the last question of the day. Here’s how the conversation went, based on a transcript provided by financial website SeekingAlpha:

Osha: “Can you talk a little bit about what your thoughts are on the retail lighting replacement market? I know you had talked some about how the margins there were not attractive, but you’ve got to balance that against the need to fill a fab. What are your thoughts about that market, and what you want to do in it?”

Swoboda: “So, look. Obviously, the primary focus of our LED business has been to serve commercial/industrial. It’s actually, in the end the real big – the big market. And it’s the same thing really for our systems business. Now, I say that, but we do have, in our systems business we have done a couple of products that we sell – that Home Depot sells under their brand, because we do want to enable that market where it’s appropriate.

“I would tell you we have some customers today in different places around the world where our LEDs are designed into their products that are consumer or retail-based. It’s going to vary. It’s not the primary part of our business, but I think we stay pretty engaged there and continue to look for opportunities to enable customers to make products that really work.

“My personal view – so, we have activity there. It’s not a big driver of the business at this time. What I would tell you philosophically is that I think one of the reasons that the market is okay, but hasn’t moved really to that next level is, is it’s a combination of – I think, in my personal view consumers want a bulb that works pretty much like the one they have today, and they want the light to come out in all directions, and they want it to dim and do the other things they would expect it to do. And, so, I think that’s our first challenge as an industry, we’ve got to come out with products that really solve that problem. And then second, I think that we’ve got to continue to find ways to hit different cost/price points.

“So it’s a nice business. It’s obviously the LED bulb segment and grown over the last year, but at the same time, there’s another step away that has to have some other things happen to it. At the end of the day, it’s the old rule of thumb. Most new technology doesn’t really gain big adoption until it’s better than what it replaces and the value proposition makes sense. The consumer is pretty straightforward on that. I think we’re just not quite there.

“Some cool products. We’ve got lots of interesting stuff coming out, but I just think there’s more innovation that needs to happen to really make that, what I’ll call mainstream.”

Osha then told Swoboda that he has Cree “products in my kitchen and I think they’re great.”

To that, Swoboda said: “Awesome.”

So to Cree on joining Red Hat as local high-tech ventures cracking the $1 billion barrier, here’s a tip of the hat from The Skinny.

Now, if Swoboda can just convince hundreds of millions of Americans and consumers worldwide to put LEDs in their kitchen, Cree might become a $10 billion company.