Shares of Wolfspeed, the world's largest silicon carbide (SiC) maker, have plummeted nearly 50% since January, and Jana Partners, an American activist investment firm, sent a letter to the board of directors of Wolfspeed's North American headquarters, urging the company to explore all ways to increase shareholder value, including being forced to sell.
Wolfspeed responded the next day, saying that it would carefully review Jana's letter and looked forward to contacting him on the matter in the future.
Back in 2016, we were caught up in the news that Cree sold Wolfspeed to Infineon for $850 million, and of course, it didn't happen. In recent years, there has been a lot of talk about Wolfspeed considering a sale, and potential buyers have said that they have noses and eyes.
Silicon carbide is so hot, why is Wolfspeed so miserable, and is silicon carbide a good business?
Fu Bin |
EEWorldbbs
High growth, bringing losses?
Since Wolfspeed sold its RF business in December last year, it has become the only pure silicon carbide IDM company in the world, and it stands to reason that the situation is good, but the company has been losing money.
In the second half of 2023, Wolfspeed's cumulative net loss reached 540 million yuan, an increase of 361.49% year-on-year. In February this year FY2024Q2 financial report was even more contradictory: on the one hand, the single-quarter revenue reached $208 million, a year-on-year increase of about 20%, and on the other hand, the non-GAAP net loss was $70 million, or a net loss per share of $0.55, which was larger than the loss of $0.29 per share in the same period last year.
What's even more unbearable is the gross profit margin. FY2024Q2 gross margin decreased to 13.3% on a GAAP basis from 32.6% in the prior year quarter, and non-GAAP gross margin decreased to 16.4% from 35.8% in the prior year, highlighting the cost pressures associated with the addition of new production facilities. Nowadays, the market inventory is increasing, market competition is intensifying, and demand is weakening, which is constantly squeezing gross margins.
In terms of revenue and net loss from continuing operations (GAAP) data for the five fiscal years of 2019~2023, Wolfspeed's revenue has maintained year-on-year growth, although the loss has decreased compared with fiscal year 2021, it still does not meet expectations.
Wolfspeed's FY2019~2023 data, source: TrendForce Compound Semiconductor
In fact, judging from various data, SiC's business is not bad, Wolfspeed's business has actually been growing, and in recent years, Wolfspeed has indeed gotten a lot of money:
- On December 15, 2022, Wolfspeed expanded and extended a SiC wafer supply agreement valued at approximately $225 million with a leading global semiconductor company, which requires Wolfspeed to supply the company with 150mm SiC bare and epitaxial wafers;
- On July 5, 2023, Renesas and Wolfspeed signed a 10-year SiC wafer supply agreement, under which Renesas paid a $2 billion deposit to Wolfspeed to secure the supply agreement for 150mm and 200mm SiC wafers.
- In 2023, Wolfspeed said in its financial report that it had received $5 billion in CHIPS Act funds approved by the Federal Reserve to start the construction of a 200mm material plant in North Carolina;
- In January 2024, Infineon and Wolfspeed announced the expansion and extension of their existing long-term 150mm silicon carbide wafer supply agreement;
- In February 2024, Wolfspeed announced an existing long-term silicon carbide wafer supply agreement with a leading global semiconductor company, with an expanded agreement now valued at approximately $275 million, requiring Wolfspeed to supply the company with 150mm silicon carbide bare chips and epitaxial wafers.
So, why, is Wolfspeed still losing money?
When the "high growth" label is torn off
The reason why it has been in the red for a long time is because Wolfspeed has been investing, and the amount is not small. At the 2022 Investor Day, Wolfspeed announced that it will invest more than $6.5 billion over the next few years, including the John Palmour Silicon Carbide Manufacturing Center (the world's largest silicon carbide crystal growth plant currently under construction in North Carolina, USA), and the already completed Mohawk plant (which opened in April 2022).
In early February 2023, Wolfspeed announced plans to build the world's largest and most advanced 8-inch SiC device manufacturing facility in Saarland, Germany, which will form an important part of Wolfspeed's $6.5 billion capacity expansion plan, along with the Mohawk Valley device facility and the John Palmour SiC manufacturing center (SiC materials plant in North Carolina, USA, which is under construction).
Among them, the Mohawk fab is the 200mm silicon carbide (SiC) fab that Wolfspeed has been aggressively promoting, and at the same time competes with Infineon for the title of the world's largest power fab. Not only did the facility ship the first batch of 200mm SiC substrates from its new manufacturing facility in Mohawk Valley, New York, in 2022, but it also announced in July 2023 that it would ship SiC MOSFETs from its 200mm Mohawk Valley device facility to end customers in China.
In order to gain an advantage, Wolfspeed even borrowed money to build a factory. On June 26, 2023, Wolfspeed said the group, led by Apollo Global Management, would make a $1.25 billion debt investment with an additional $750 million of headroom to support its expansion in the United States. The debt investment has an interest rate of 9.875% maturing in 2030 with the option to repay the debt early.
You and I both know that building a fab is very expensive, and Wolfspeed has said more than once that 200mm SiC fabs are expensive to build, but it is clear that investors are not buying it, and there is a disconnect between the company's perception of itself and the shareholders' perception of the company.
In Wolfspeed's view, high investment, high income, as long as I can get the leading edge and operate at full load, I can turn losses into profits, which is why everyone says that Wolfspeed is a "high-growth enterprise".
However, this kind of rhetoric has been said for a long time, and it is not difficult for those who follow the news industry to see that Wolfspeed has been in this situation for many years.
Investors' decision-making has always been "decisive", and when they see some abnormal situations, the priority must be "timely stop loss":
- First, there are more and more companies doing silicon carbide, and in recent years, automobiles have begun to show a decline, and the gross profit margin has been continuously squeezed;
- Second, silicon carbide production capacity lagged behind expectations, especially when there was a 20% utilization rate of new plants.
- Third, Tesla's previous retreat has hit market confidence;
- Fourth, the return rate of the 200mm Mohawk Valley factory that blindly catches up with technology upgrades does not match the huge investment, and it takes time to gradually realize the product yield improvement, stability and market certification, and at the same time, the conversion from 6 inches to 8 inches seems to be able to greatly reduce costs and bring quick benefits, but in fact, the low yield and high defect density of 8-inch silicon carbide wafers will set up obstacles to its large-scale application;
- Fifth, Wolfspeed has signed long-term supply contracts with ST, France and Infineon, and onsemi, but Wolfspeed competes with its own customers and also produces SiC MOSFETs, which is very puzzling, presumably because it is too optimistic about the market and overcapacity in the early stage.
In the past, a big "support point" for Wolfspeed's stock price was that the market believed that it had high growth, and the revenue was already not much "high growth" performance.
You say you can make money in the future, but now all signs are that you will continue to spend money and lose money, and of course everyone wants to sell you quickly. But in all fairness, Tesla has also lost money for more than a decade and has gone through all kinds of difficulties to get to where it is now. The market has always been a huge gamble, and no one knows if I will make money in the future, but you have to at least convince me that I have a lot of potential.
Silicon carbide, crazy expansion
The silicon carbide industry chain mainly includes substrates, epitaxy, device design, wafer manufacturing, and module packaging, of which substrate cost accounts for 40% and device manufacturing accounts for about 19%.
Therefore, there is a saying in the industry - those who get silicon carbide substrates win the world. After all, silicon carbide grows at a high temperature, and it is quite difficult to make silicon carbide substrates, and this furnace is as exciting as opening a blind box.
According to Yole data, in 2022, the world's top 5 companies will have a revenue of more than $100 million in silicon carbide devices, with ST leading the way (37%), followed by Infineon (19%) and Wolfspeed (16%), followed by onsemi and Rohm. In terms of silicon carbide wafers, Wolfspeed is the largest company, accounting for 53%, and Coherent is in second place.
However, the advantages of Wolfspeed's silicon carbide substrate began to disintegrate. Manufacturers are beginning to gradually fill in their substrate layout:
- In 2009, ROHM acquired SiCrystal, a German supplier of SiC substrates and epitaxial wafers.
- In 2019, ST acquired Norstel, a Swedish supplier of SiC substrates, and in early December 2022, ST announced that it would cooperate with Soitec to develop SiC substrate manufacturing technology.
- On November 1, 2021, Yasumori Mi收购了SiC 衬底供应商GT Advanced Technologies.
In the beginning, although the manufacturer established its own substrate supply through acquisition, the production capacity could not keep up with the demand, resulting in the device manufacturer constantly stocking, so it cooperated with Wolfspeed, and there was a situation of both cooperation and competition. In recent years, manufacturers have been frantically expanding production, and huge production capacity is waiting to be released.
Incomplete statistics of international 6-inch silicon carbide substrate production capacity, tabulating the world of electronic engineering
Not only foreign manufacturers are participating in this competition, domestic manufacturers of silicon carbide are growing rapidly, and the total share of the two companies in the world, Tianyue and Tianke Heda, has reached 15%, and by the end of 2023, both of them are among the top three in the world in terms of production capacity, and the expansion speed is fast, and it is expected to further consolidate the global leading position in 2024.
Some people in the industry estimate that the mainland's 6-inch silicon carbide substrate production capacity in 2023 will account for 42% of the global production capacity, and it is estimated that by 2026, the mainland's 6-inch silicon carbide substrate production capacity will account for about 50% of the global production capacity.
Incomplete statistics of domestic 6-inch silicon carbide substrate production capacity, tabulation |
It can be seen that in the next year, the silicon carbide market will only become more volatile, and technology, yield, and price will become the key to competition, and Wolfspeed will face more and more pressure.
The controversial silicon carbide
In fact, after many years, the market controversy over silicon carbide is still endless, and the biggest controversy is still expensive.
Some people believe that the performance of silicon carbide is still very strong compared with silicon-based, and as long as the cost can be reduced, it is a matter of time before it becomes mainstream. However, whether the cost can be reduced if you use more or whether you will use more after you reduce it first, it is a matter of opinion.
Is it profitable for companies? At least a lot of companies are coming out with strong earnings reports:
- ST: The performance of its silicon carbide (SiC) products is very impressive, with annual revenue reaching US$1.14 billion (about 8.1 billion yuan), an increase of more than 60% over 2022;
- X-fab's annual revenue last year was US$906.8 million, a year-on-year increase of 23%, and the SiC business contributed US$73 million in revenue;
- Tianke Heda: With a compound growth rate of more than 90% for 7 consecutive years, its annual revenue has doubled as of October 2023;
- Roshow Technology: year-on-year growth of more than 152% to 162%;
- Jingsheng shares: net profit of 68 million yuan ~ 78 million yuan.
At the same time, the market for silicon carbide is growing. According to TrendForce, the global SiC power device market size was approximately US$1.61 billion in 2022 and will reach US$5.33 billion by 2026, with a CAGR of 35%.
As a non-linear development industry, it is really difficult to judge the reasonable valuation of silicon carbide. In 2025, whether the penetration rate of new energy (vehicles, photovoltaics, wind power) or the penetration rate of silicon carbide in new energy, it is far from the end. If the endgame can cash in on the current market capitalization, and the industry trend is very clear, then it is difficult to say that the current high valuation is unreasonable.
Wolfspeed's current technological advantages are visible to the naked eye, and its technology, process, quality and market share are at the forefront of the market. According to TrendForce's analysis, objectively speaking, it is not an ideal choice for Wolfspeed to seek large manufacturers with strong financial strength and technology and resources to synergize with it, and of course, the losses of silicon carbide substrate companies such as Wolfspeed and Coherent may be temporary, after all, the logic of semiconductors is different from that of other industries, and it is not possible to immediately present it in financial performance within a few years.
So whether Wolfspeed will be able to occupy the market, and whether the current high input will be able to produce output, sell or not? This is undoubtedly a big gamble, and none of us can predict.
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Source: Electronic Engineering World
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