Analysis of Wolfspeed's Decline and Growth Prospects Amid Disappointing Results

Thursday, 2 May 2024, 20:12

Learn about Wolfspeed's recent disappointing financial results and guidance, its ambitious 200mm silicon carbide chipmaking buildout for EV applications, and the impacts on investor sentiment. Despite revenue miss and ongoing losses, the company's potential activist involvement and design wins offer some bright spots. Should investors see the dip as a buying opportunity or exercise caution?
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Analysis of Wolfspeed's Decline and Growth Prospects Amid Disappointing Results

Why Wolfspeed Sank Today

The silicon carbide chipmaker delivered disappointing results and guidance, but should investors buy the dip in this activist target? Shares of silicon carbide chipmaker Wolfspeed (NYSE: WOLF) were sinking on Thursday, down over 20% at one point, before recovering to just a 10.2% decline.

A slower-than-expected ramp

In the first quarter, Wolfspeed revenue came in at $200.7 million, slightly missing analyst estimates, with an adjusted (non-GAAP) loss of $0.62 per share slightly beating on the bottom line. However, the company also guided for a relatively weak second quarter, with revenue expected to come in between $185 million and $215 million, compared with a consensus estimate of $226.34 million, and adjusted losses of $0.72 to $0.86 per share, larger than Q1.

The miss is frustrating, with revenue only growing about 4% year over year despite management's optimistic talk over the past few years. The delay of the ramp for next-generation silicon carbide products also caused several analysts to lose patience today.

But an activist could help out shareholders

Despite the disappointment, there were some bright spots in the quarter and in the general Wolfspeed story. Management noted $2.8 billion in future design wins in the quarter, the second-highest on record despite the EV slowdown. Moreover, the company more than doubled its revenue sequentially from its new 200mm Mohawk plant, although even that doubling only led to $28 million in revenue.

Moreover, activist investor JANA Partners recently got involved in Wolfspeed, buying an undisclosed amount of stock and encouraging Wolfspeed to consider a sale of its assets. Wolfspeed management hasn't said much in response, only that it will "carefully review JANA's letter, and we look forward to engaging with them in the near future." But with the stock down nearly 70% from 52-week highs, management may be pressured into a sale at some point. Should you invest $1,000 in Wolfspeed right now?


This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.


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