Wolfspeed Faces Uncertain Future
The company’s CEO resigned amid losses, fab closures and layoffs. What’s next for the power semiconductor vendor?
By Mark LaPedus
Wolfspeed, a supplier of power semiconductors, faces an uncertain future amid the departure of its top executive, fab closures, losses and layoffs.
The troubled Durham, N.C.-based company also faces some uncertainty on whether it can obtain funding from the CHIPS and Science Act, which is supposed to shore up its balance sheet. But the future of the CHIPS Act is unclear. With or without funding, Wolfspeed will likely see more downsizing. And the company is ripe for a possible acquisition.
Meanwhile, in its most recent announcement, Gregg Lowe, president and chief executive of Wolfspeed, this week suddenly departed from the company. The board appointed Thomas Werner, chairman of Wolfspeed, as executive chairman. The board is looking for a permanent chief executive for Wolfspeed, the pioneer and a major player in the silicon carbide (SiC) power semiconductor market. These power devices can withstand higher voltages and currents with lower losses in systems.
In addition, the company also plans to cut its workforce by 20%. During a recent conference call, Wolfspeed reiterated its plans to shutter a fab in North Carolina as well as a facility in Texas. Last month, Wolfspeed postponed its 200mm fab project in Germany.
Who is Wolfspeed?
Founded in 1987, the company was originally known as Cree Research. In 2021, Cree Research changed its name to Wolfspeed. The company competes in the large but fragmented power semiconductor market. These are specialized devices, which are used to control the flow of electricity in systems, while reducing the power losses during operation.
There are several different types of power semiconductors in the market. Wolfspeed competes in one segment in the market, namely SiC-based power semiconductors. SiC power devices are used in the automotive, computer, industrial and other markets. Electric vehicles (EVs) represent the biggest market opportunity for SiC power devices. These devices can be used in the traction inverter and other places in EVs. In EVs, the traction inverter is an electronic system that is used to make the wheels turn.
Meanwhile, Wolfspeed is a vertically integrated company. In other words, the company is involved in every aspect of the process from start to finish. Wolfspeed fabricates SiC substrates within its own facilities. Then, the company takes the substrates and manufactures SiC power devices within its own fabs. And it sells these devices under its own brand name in the marketplace.
Wolfspeed also sells SiC substrates to outside companies, including its competitors. Infineon, On Semiconductor, Rohm, STMicroelectronics and others also sell SiC power devices.
After a period of strong growth, the power semiconductor market in general is in the midst of a slowdown. In addition, suppliers of SiC-based power devices face some headwinds in the market, particularly for EVs. The EV market is taking off in China. But sales for EVs are disappointing in Europe, the United States and elsewhere. In fact, several car makers have pushed out or scuttled their EV efforts.
As a result, demand for SiC power devices has been slower-than-expected in recent times. More recently, the computer and industrial markets have been sluggish.
For this and other reasons, Wolfspeed has reported several consecutive quarterly and yearly losses. For the first quarter of fiscal 2025, Wolfspeed recently reported revenue of $195 million, as compared to $197 million a year ago. The company posted a loss of $282.2 million, compared to a loss of $395.7 million a year ago.
For its second quarter of fiscal 2025, Wolfspeed targets revenue from continuing operations in a range of $160 million to $200 million. GAAP net loss is targeted at $401 million to $362 million.
On the bright side, the company delivered 2.5 times growth in its automotive business year-over-year. The total number of car models using a Wolfspeed’s SiC devices in the power train increased by 4x from 2023 to 2024, and is expected to grow by another 75% in 2025.
Going forward, Wolfspeed plans to focus its efforts on the production of its SiC devices within its new 200mm fab in Mohawk Valley, based in New York state. For some time, the fab has been in production, at least to a limited degree.
In fact, Wolfspeed was the first company to bring up 200mm SiC production. But the company failed to capitalize on its leadership position here. Now, several vendors are ramping up 200mm SiC fabs. In total, there are 14 200mm SiC fabs in the works, according to TrendForce, a market research firm.
Because Wolfspeed plans to focus on the 200mm market, the company will shutter its older 150mm fab in North Carolina over time. It also plans to close a facility in Texas.
Meanwhile, hoping to reverse its losses, the company is taking steps to bolster its balance sheet. Last month, the U.S. Department of Commerce and Wolfspeed signed a non-binding preliminary memorandum of terms to provide up to $750 million in proposed direct funding to Wolfspeed under the CHIPS and Science Act.
In addition, a consortium of investment funds led by Apollo, The Baupost Group, Fidelity Management & Research and Capital Group have agreed to provide Wolfspeed an additional $750 million of new financing.
At least one of these funding proposals may be in jeopardy. Now, there is some uncertainly with the CHIPS program. President-elect Donald Trump has been critical of the CHIPS Act, leaving many to wonder about the future of the program. It’s unclear if the Trump administration will maintain the program, revamp it or repeal it.
What’s next?
So what’s next for Wolfspeed? In my estimation, here’s some of the possible options for the company:
Maintain the status quo
The company will find a new CEO. The new management team will stay the course. The cost cuts are in place. It will continue to focus on producing its devices within its new 200mm fab. But under this plan, Wolfspeed will continue to lose money for a long time.
More cost cuts with a bailout
The new management team will focus on profitability. That means more cost cuts. It will focus on 200mm production. The company will also require funding from both the CHIPS Act and Apollo. It may require a bailout. But still, Wolfspeed will continue to spill red ink for a long time.
New strategy
Wolfspeed needs to make a tough decision: Does it want to remain a vertically integrated company or not? The company sells SiC devices, but it faces intense competition from Infineon, On Semi, ST and others. That’s a money-losing business for Wolfspeed. So is the fab.
In reality, Wolfspeed’s value is in its ability to develop and sell SiC substrates in the market. Perhaps it should focus on the materials business. It may need to sell the device business and the fab. But under this plan, Wolfspeed would become a much smaller and niche-oriented player in the market.
Become a SiC foundry vendor
Wolfspeed already dabbles as a SiC foundry vendor for the U.S. Department of Defense. Perhaps Wolfspeed should focus on becoming a full-time, pure-play SiC foundry vendor. Under this plan, the company would make SiC devices for others.
X-Fab, a German foundry vendor, is currently the only company that focuses on the SiC foundry business. Based on X-Fab’s experience here, this is not an easy market. Most SiC vendors want to produce devices within their own fabs.
Outright sale
It probably makes the most sense for a company to buy Wolfspeed. On Semi is a logical candidate, according to reports. Microchip and TI are other possibilities. A private equity firm is an idea. Germany’s Infineon and Japan’s Renesas are also candidates. But it’s doubtful that the U.S. government would allow a foreign company to acquire Wolfspeed.
TI makes the most sense in terms of acquiring Wolfspeed. TI has a gallium nitride (GaN) device portfolio. SiC devices simply rounds out the product line.