Wolfspeed Should Have Listened to Me Two Years Ago
Summary
Leadership Shakeup: Wolfspeed’s CEO was fired last week amid mounting operational and financial struggles.
Seven Straight Losses: Wolfspeed has reported negative EPS for seven consecutive quarters, with declining revenues and underutilized facilities like the Mohawk Valley fab.
Canceled Fab Plans: The company canceled its €3 billion Germany fab project while struggling to ramp its existing operations.
Debt and Competition: Wolfspeed’s high debt-to-equity ratio (0.602) and slowing EV demand have eroded its SiC market share against rivals like onsemi and Infineon.
Wolfspeed (NYSE: WOLF) has been a subject of intense scrutiny, and recent developments have only reaffirmed my long-standing concerns about the company. Two years ago, I issued warnings about Wolfspeed's strategy, noting overhyped projections, operational delays, and an unsustainable financial structure in a September 21, 2022 article entitled “Wolfspeed: Separating Automotive SiC Hype From Reality.”
Now, with the board of directors firing the CEO, the cracks in the company’s foundation are becoming more apparent. This article consolidates key insights from my past analyses and explains why Wolfspeed remains a strong sell. Below are six issues I’ve identified that shows my rational for this rating.
1. Seven Quarters Without Profitability
Wolfspeed has been unable to turn a profit for seven consecutive quarters, a critical indicator of its ongoing operational and financial struggles. The company's Non-GAAP EPS has remained negative, with no sign of improvement. This performance is particularly concerning given the growth of the Silicon Carbide (SiC) market and the successes of competitors like onsemi and STM.
Chart 1 illustrates Wolfspeed's inability to achieve profitability over the last seven quarters, with negative EPS consistently widening.
Chart 1
2. EV Market Slowdown and Competitive Pressures
The EV industry, a major driver of SiC demand, has slowed significantly in 2023 due to rising interest rates, regulatory uncertainties, and shifting consumer preferences. Wolfspeed’s reliance on OEMs like GM and Volkswagen exacerbates its vulnerability to these headwinds.
I first alerted reader to a slowdown in EV sales and its impact on the SiC market in a January 10, 2024 article entitled “Tracking A 2024 Slowdown In Silicon Carbide For EVs With Eyes On ON Semiconductor And Wolfspeed.”
Chart 2 shows Wolfspeed vs. competitor market share for SiC Devices, between CY Q4 2021 and Q2 2024. Wolfspeed has consistently underperformed competitors such as onsemi ON) STMicroelectronics (STM) and Infineon (IFNNY), according to my report Power Semiconductors: Markets, Materials and Technologies and details are available on The Information Network’s website.