Shares of silicon carbide chipmaker Wolfspeed (WOLF 1.39%) were sinking on Thursday, down over 20% at one point, before recovering to just a 10.2% decline.
Wolfspeed has embarked on an ambitious massive buildout of its 200mm silicon carbide (SiC) chipmaking and SiC materials plants. The reason is that silicon carbide is thought to be crucial for EV range extension and electrification applications generally. However, SiC is a difficult material to manufacture on 200mm wafers, which offer cost savings over 150mm wafers.
Amid the well-publicized EV slowdown, Wolfspeed's revenue disappointed, and ongoing losses continue to try investor patience.
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.
Analysts at TD Cowen downgraded the stock from buy to hold and lowered the firm's target from $40 to $25. Its analysts cited that Wolfspeed, with its lack of current profitability, is stuck between a rock and hard place. If it delays investment, it could hamper its longer-term competitive position and growth prospects. Meanwhile, if it continues to ramp its manufacturing plants aggressively, it adds risks given the company's debt load -- although Wolfspeed still has an ample $2.55 billion in cash against its $5.66 billion in debt and convertible notes, so liquidity isn't a near-term concern. Meanwhile, William Blair analysts said it had been willing to "look through 200mm rose colored glasses for too long" on Wolfspeed, throwing in the towel and also cutting the firm's rating from outperform to market perform.
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.
