3 February 2021
Cree’s Wolfspeed quarterly revenue grows by 5%
For its fiscal second-quarter 2021 (ended 27 December 2020), for continuing operations, Cree Inc of Durham, NC, USA has reported revenue of $127m, up 5% on $120.7m a year ago and up 10% on $115.5m (53% of total revenue) last quarter (and above the $118-124m guidance), fueled by continuing strong demand for silicon carbide solutions.
“The momentum we’re seeing in silicon carbide reinforces our competence and our growth strategy as we execute on our long-term plan,” says CEO Gregg Lowe.
On 18 October, Cree agreed to sell its LED Products business unit to SMART Global Holdings Inc for up to $300m. The transaction is targeted to close in calendar first-quarter 2021. This follows Cree’s sale in May 2019 of its Lighting Products business unit. “By divesting our LED assets, we have established ourselves as a global pure-play semiconductor powerhouse with a sharpened focus on silicon carbide (SiC) and gallium nitride (GaN) solutions,” says Lowe.
“Demand for devices and materials continues to improve despite the ongoing uncertainty in the macroeconomic environment,” adds chief financial officer Neill Reynolds.
“In power, momentum continues to build as our customers have a demonstrated need for our solutions. In particular, we’re pleased with our 650V [SiC] MOSFET platform, which continued to gain strong traction across a number of industry sectors. While our supply levels remain below normal due to COVID-19 safety measures, we made progress in the quarter and expect to continue to improve as we execute our capacity expansion plan,” Reynolds says.
“In RF [GaN], our performance was better due to increased 5G activity during the quarter with communications infrastructure providers. Our backlog continues to grow, underscoring the growing opportunity we have as the 5G rolls out across the globe,” he adds.
“In materials [SiC substrates], we saw a modest uptick in order flow in the quarter, which we expect to continue throughout the remainder of fiscal 2021,” says Reynolds.
On a non-GAAP basis, gross margin has risen further, from 31% a year ago and 34.5% last quarter to 35.4% (despite the impact of $4m of corporate items). In particular, gross margin for the Wolfspeed business (SiC materials and SiC power devices & GaN RF devices) was 38.5%, up from 34.6% a year ago and 36.6% last quarter, driven by yield and cost improvements in device product lines. “Gross margin performance also continues to be dampened by our continued COVID-19 safety measures,” notes Reynolds.
Operating expenses were $78m (61.4% of revenue). Net loss was $26.6m ($0.24 per diluted share), up from $21.8m ($0.20 per diluted share) a year ago.
Operating cash flow was -$29m. Capital expenditure (CapEx) was $144.7m. Free cash flow was hence -$173.7m. During the quarter, cash and short-term investments overall fell from $1138.5m to $970m.
“We had a strong and healthy balance sheet with $970m in liquidity to support our growth strategy, zero withdrawn on our line of credit, and convertible debt with a total face value of $1bn,” notes Reynolds.
For fiscal third-quarter 2021 (to end-March), for continuing operations Cree targets revenue of $127-133m. Gross margin should to be 34.5-36.5%.
Operating expenses are expected to rise to $80-81m. “The gradual ramp in our operating expenses is fueled by our investments in R&D, including development projects at our Mohawk Valley Fab and supporting 200mm wafer development as well as increased sales & marketing expenses as we pursue new business opportunities,” says Reynolds.
Net loss is targeted to be $23-28m ($0.21-0.25 per diluted share).
“Once the divestiture of Cree’s LED business is complete, we will have achieved a major milestone in our transformational journey to establish our company as a pure-play global semiconductor powerhouse, well positioned to lead the industry transition from silicon to silicon carbide,” believes Lowe.
“To further amplify this transition, we are changing the name of our company to Wolfspeed. This is a natural progression that builds on our strong reputation of developing silicon carbide solutions over the last 30 years, while at the same time capitalizing on the competitive positioning that the Wolfspeed brand has in the market,” he adds. “We expect the name change to be complete sometime in the next few quarters.”
“While we continue to confront some of the challenges associated with the broader macro-environment, we continue to invest for the future to support several growth opportunities across multiple sectors,” says Lowe.
“Customers continue to give us feedback that the interest in and demand for silicon carbide continues to grow. The strength of our device opportunity pipeline, which currently stands at more than $10bn, underscores the demand we’re seeing, not only for automotive power, but also in RF, industrial and energy solutions,” says Lowe. “The cadence at which our sales team is converting these opportunities continues to be impressive, with approximately $600m of design-ins awarded during the previous quarter. A significant portion of these were for automotive products and the rest spread across industrial, communications, infrastructure, energy and aerospace and defense. Further, our engineering team is constantly innovating to bring new products to market,” he adds.
“Earlier this month, we announced the launch of the Wolfspeed Wolfpack family of power modules, which supports a wide range of solutions for power markets, including EV task charging, renewable energy and energy storage and industrial power applications. This 1200V Wolfspeed MOSFET module technology delivers maximum efficiency in packages that allow customers to significantly increase efficiency and performance with smaller, more scalable power systems. Once again, we’re working closely with the team at Arrow Electronics to successfully launch this new offering. While the automotive industry continues to anchor our business, merits of silicon carbide are being recognized across other industries, and we are well prepared to serve the different needs and applications of these businesses,” notes Lowe.
“On 5G, while China continues to lead the world in infrastructure and mobile rollout, we are encouraged by signs of progress in other regions. Although we’re still in the early stages, we expect 5G and GaN-on-SiC to be a multi-year growth opportunity as momentum continues to build.”
“In materials, we are pleased to announce that we signed an extension and expansion of an existing long-term wafer supply agreement with a major semiconductor provider during this past quarter. The extended agreement now represents approximately $250m in materials and provides the customer with Wolfspeed’s 150mm SiC bare and epitaxial wafers over the next several years. The extension is yet another example of how the industry at large is shifting towards silicon carbide and how we are best positioned to lead this transition,” says Lowe.
“Our 200mm team has made solid progress, and in fact has made substantial breakthroughs in 2020. As a result, we have decided to forgo our original plan to initially open up the Mohawk Valley fab at 150mm. Instead, we’ll begin ramping Mohawk Valley directly with 200mm silicon carbide substrates in the first half of calendar 2022, establishing the world’s first 200mm silicon carbide fab,” says Lowe. There is also some incremental CapEx spending associated with building more 200mm crystal growers (Cree builds its own SiC crystal growers for all wafer diameter sizes).
“We are raising our fiscal 2021 CapEx spend to about $550m [from $400m previously], which reflects a greater percentage of completion of Mohawk Valley versus our previous CapEx plan as well as leased investments in 200mm wafer and epi capacity,” he adds. “The higher completion rate of the fab construction and fit-out this year and the increased investment in 200mm capacity will give us the ability to ramp the fab solely at 200mm. We believe it is in the best interest of our customers to have the Mohawk Valley Fab and the Durham crystal growth facilities up and running at 200mm, saving a qualification cycle, and allowing for a quicker adoption in the industry. We see this as better positioning the company to address what many are now expecting to be a steepening demand curve for silicon carbide beyond 2024.”
“Our current operations are not optimized to support our ambitious long-term growth plans. To achieve the necessary operating scale to support the steepening demand curve in the automotive 5G and other critical industrial sectors out beyond 2024 and meet the needs of our customers, we determined it’s better for us to invest now,” says Reynolds. “We will now be running 150mm to support our current book of business, while at the same time building out our 200mm assets sooner than we originally planned, which calls for additional 200mm equipment,” he adds.
“While we currently have ample liquidity to fuel our investment plans, we will continue to monitor the capital markets and evaluate ways we may continue to maximize our financial flexibility as we expand our leadership position,” says Reynolds. “Our CapEx and cash flow during 2021 continue to be subject to variability depending on our Mohawk Valley construction progress as well as reimbursement timing from the state of New York.”