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After Wolfspeed reported its November results, we updated our fair value and raised our quality score to 2.6. We moved our call on the stock from Avoid to Watch. We have added the company's use of AI data centers as a revenue driver and the impact of fresh-start accounting following its reorganization to what we track. We also reset our projections for interest costs and manufacturing margins.
Wolfspeed brought in about 155 million dollars in revenue last quarter, which matched what analysts expected. However, it lost 2.03 dollars per share, slightly more than the 1.99 dollars predicted. The company is currently in a difficult transition, closing older manufacturing sites to move production to its newer, larger Mohawk Valley factory. This new facility uses larger wafers, which are the thin discs used to make chips, to produce more parts at a lower cost.
While the company is winning new business, including a 1.5 billion dollar loan commitment from the government and a deal with chipmaker Infineon, it is still spending more cash than it brings in. For a long-term owner, the focus remains on whether Wolfspeed can fill its new factory with enough orders to cover its high costs and finally turn a profit. Until that factory is running at high capacity, the business will likely continue to face heavy losses.
See the full quarter, and how our tracked metrics did
Source: Company earnings report
Wolfspeed is scheduled to share its latest financial results today. Analysts are looking for a loss of about $1.99 per share on revenue of roughly $150 million. The most important thing to watch is how quickly the company is filling its new Mohawk Valley factory with orders. Because that facility has high fixed costs, the business needs to ramp up production significantly to stop losing money on every chip it makes.
Wolfspeed is launching a new type of transparent silicon carbide designed for use in augmented reality and quantum computing. While the company is currently focused on power chips for electric vehicles, this technology uses its existing expertise to reach different industries that need advanced optical materials.
This is a notable step because it shows the company can find new ways to sell its core material beyond the automotive market. While it won't solve the immediate cash flow challenges from building new factories, it opens up long-term growth paths in high-tech fields that require specialized hardware.
Source: Business Wire
Wolfspeed signed a multiyear agreement to provide silicon carbide devices for BorgWarner, a major automotive supplier. These chips will be used in BorgWarner's 800-volt inverter systems, which are the parts that convert battery power into the energy that actually turns an electric vehicle's motor.
This deal is a helpful win because Wolfspeed is currently spending billions to build out its manufacturing capacity. To stop losing money, the company needs to prove it can fill its new factories with long-term orders from large partners. While this agreement strengthens an existing relationship, the company still faces the larger challenge of managing its high costs until these production lines are running at full speed.
Source: Business Wire
Management has a pattern of setting a low bar and barely clearing it, but the massive losses show they are still struggling to control the high costs of their manufacturing reset.
| Expectation | |
|---|---|
| EPS | $-1.62 |
| Revenue | $165M |