AES Semigas


4 November 2021

Wolfspeed quarterly revenue up 35.6% year-on-year

For its fiscal first-quarter 2022 (ended 26 September 2021), Wolfspeed Inc (formerly Cree Inc) of Durham, NC, USA has reported a fifth consecutive quarter of revenue growth (for continuing operations) to $156.6m, exceeding the $144-154m guidance range. This is up 7.4% on $145.8m last quarter and 35.6% on $115.5m a year ago, bolstered by the rapidly expanding market for silicon carbide products.

Fiscal Q1/2021 Q2/2021 Q3/2021 Q4/2021 Q1/2022
Revenue $216.6m $127m $137.3m $145.8m $156.6m

“We are driving the transition to silicon carbide-based solutions during a period of momentous change, which is demonstrated by our expanding list of customers and formal name change,” says CEO Gregg Lowe.

After divesting its Lighting Products business in May 2019 and its LED Products business in March 2021, on 4 October Cree changed its name to that of its Wolfspeed business unit, focused on manufacturing silicon carbide materials as well as both silicon carbide (SiC) and gallium nitride (GaN) power-switching & RF semiconductor devices.

Power device revenue was up 57% year-on-year in fiscal Q1. “Momentum continued to build as our customers have a demonstrated need for our products,” states chief financial officer Neill Reynolds.

“For RF, we continue to see good activity on the 5G front, but performance was slightly muted due to output challenges,” says Reynolds. “We did see some supply constraints and some lower productivity during the quarter as our Malaysian contract manufacturer continued to ramp activities back up following the recent COVID-19 outbreak [which led to a seven-day closure reducing last quarter’s revenue by $3-5m]. At this time, we do not expect any additional impact and to avoid shutdown as the factory continues to ramp towards the normal production schedule,” he adds.

“For materials, we saw better order flow during the quarter, which we expect will continue for the remainder of the fiscal year,” says Reynolds.

Driven by the solid performance in materials and improving SiC MOSFET cost and yields, non-GAAP gross margin has risen from 32.3% last quarter to 33.5% (at the top end of the 31.5-33.5% guidance range) . However, this is still down from 35% a year ago. “We view the gross margin impact as short-term in nature due to the sub-optimal device production footprint we have in North Carolina, and we expect it to modestly improve going forward as we work through factory transitions and improve yields,” says Reynolds.

In May 2019, Cree began a multi-year factory optimization plan. “In Durham, we have a major expansion underway right now to continue the growth of our [silicon carbide] materials capacity,” says Lowe. “The space, conversion and re-setup is actively being converted from an old lighting and office space into industrial space for significant growth of our crystal growth and epi capability [part of a plan to increase materials capacity by 30x]. Our expansion enabled us to increase the number of growers, and take advantage of our continued crystal growth technology improvements, which increased production yield.” Also, in September 2019 Cree announced that the plan was being anchored by a new automated 200mm SiC device fabrication facility at Marcy in Mohawk Valley, New York State (expanding from the firm’s existing 150mm-wafer SiC device fab in Durham).

Due largely to R&D, including investment in the 200mm pilot line supporting the ramp-up of the new Mohawk Valley Fab, operating expenses rose further, from $82m last quarter to $86m.

Start-up costs, primarily related to the ramp at the Mohawk Valley Fab, were about $8.6m in fiscal Q1/2022. They are expected to rise throughout the remainder of the fiscal year (coming mostly in the second half, through qualifying and ramping up the Mohawk Valley Fab), amounting to a total of about $80m for full-year fiscal 2022.

Net loss has been cut from $26.9m ($0.23 per diluted share) last quarter to $23.8m ($0.21 per diluted share), better than the guidance range of $25-29m ($0.21-0.25 per diluted share).

Cash outflow from operations was -$62.5m. Capital expenditure (CapEx) was $208.5m (up from $168.1m last quarter and $113.5m a year ago). Patent spending was $1m. Free cash outflow was hence -$272m (up from -$114m a year ago).

Cash, cash equivalents and short-term investments has hence fallen from $1154.6m, but still Wolfspeed has $857.8m of cash and liquidity on hand to support growth. “We will be opportunistic from a capital market standpoint to ensure we can have the flexibility to invest as we see fit, to continue to underpin our position in the market, and fuel future growth,” says Reynolds. “We remain confident that the business is well positioned to realize its full potential as a pure-play global semiconductor powerhouse,” adds Lowe.

“Our power business continues to see strong demand from the automotive markets, and we are also encouraged by the increasing demand across a number of industrial and energy customers,” says Lowe. “The strength of our device opportunity pipeline, which now is about $18bn, underscores the significant demand we’re seeing not only for automotive power, but also in RF, industrial and energy solutions,” he adds. “At our 2019 Investor Day, we showed a $9bn device opportunity pipeline. So, we doubled the pipeline in the last two years and now have more than 8200 potential projects. And the team continues to identify additional opportunities at a rapid pace. Meanwhile, the sales team is converting these opportunities at an impressive rate, with approximately $560m of design-ins awarded during the last quarter [and $2.9bn in fiscal 2021]. A significant portion of these [about half] were for automotive inverters, while we also continued to secure other interesting applications, including a low charger for electric vehicles, an elevator, energy storage products, and an induction cook top.”

For fiscal second-quarter 2022 (to end-December 2021), Wolfspeed expects revenue to grow to $165-175m, driven by strength across all product lines, but particularly power devices. Gross margin should rise to 33.7-35.7%. Operating expense are targeted to rise slightly to $88m (after which they should continue to rise modestly each quarter as Wolfspeed invests in R&D and sales & marketing resources, says Reynolds). Net loss is targeted to be cut to $19-23m ($0.16 to $0.20 per diluted share).

“We are continuing to experience a significantly steeper demand curve from our customers for silicon carbide products than we had initially expected,” notes Reynolds. “This has led to supply constraints, for some customer orders will not be fulfilled in fiscal year 2022, and channel inventory levels will remain low, until we ramp our production in our Mohawk Valley Fab,” he adds. “We’re confident that we will be able to meet the high demand. But in the meantime we are continuing to accelerate CapEx capacity investments and our team is working hard to improve output in our Durham facilities. We are anticipating net capital expenditures of about $475m for the year, with Q1 representing the peak investment period. We’ll start to see a modest step-down beginning in Q2 and continuing throughout the second half of the year as we receive more reimbursements [from the state of New York] for the Mohawk Valley construction [the firm has so far received only about $60m of the pending $500m reimbursements]. We continue to pull capacity expenditures where we can at the fiscal year 2022 to better support the steepening demand curves. We remain on track to operationalize the world’s largest silicon carbide fab in the first half of calendar year 2022,” he adds.

“Our massive device pipeline and continued success securing design-ins continues to give us confidence in our ability to achieve our target revenue for fiscal 2024 of $1.5bn, with current demand trends offering some potential upside based on the steepening demand for silicon carbide through 2024 and beyond,” says Lowe. “Our strategy is further supported by developments in the broader market. Global electric vehicle sales are expected to be over 6 million this year according to consulting firm Wood Mackenzie. Electric vehicle sales in first-half 2021 nearly tripled worldwide compared to the first half of last year. The share of electric vehicle sales and the global passenger car sales doubled compared to the same period last year… And, as more OEMs and tier-1s leverage silicon carbide-based solutions for powertrain, on-board chargers and off-board fast chargers, which increases the vehicle’s range and reduce charge times, we expect the adoption rates to continue to increase,” adds Lowe. “We remain well-positioned to capitalize on these opportunities as we are in the midst of an increase in manufacturing capacity, including bringing online the world’s largest silicon carbide fab in a matter of months. In fact, we believe our capacity expansion efforts were a critical factor that led General Motors to choosing us to provide power device solutions for its future electric vehicle programs [as announced on 4 October]. Our silicon carbide devices will enable GM to install more efficient EV propulsion systems in several different models. That will extend the range of its rapidly expanding EV portfolio,” continues Lowe. “The combination of Wolfspeed global leadership in silicon carbide and GM’s commitment to an all-electric future - including a plan to launch 30 electric vehicles globally by the end of 2025 - establishes a powerful partnership.”

“The key to our gross margin transition from the low 30% to 50% plus relies heavily on our fab cost footprint transition from North Carolina to Mohawk Valley,” notes Reynolds. “As we transition to that new footprint and qualify the factory in 2022 and drive revenue growth into 2023 and beyond, we will see the benefits of increasing production from our advanced 200mm fab,” he adds. “Wafer processing costs at Mohawk Valley are expected to be more than 50% lower than Durham, not fully including the benefit from the diameter change from 150mm for 200mm. In addition, we expect cycle times in Mohawk Valley to be more than 50% better than in Durham, and yields in Mohawk Valley to be 20-30 points higher than where we are in Durham today. We’re already seeing good evidence from our Mohawk Valley pilot lines to support these projections, and anticipate a heavy margin improvement as we move to our new fab.”

See related items:

Cree becomes Wolfspeed, trading on NYSE under new ticker ‘WOLF’

Cree’s quarterly revenue up 34.5% year-on-year

Cree’s quarterly revenue growth of 21% year-on-year driven by 50% growth for devices

Cree completes sale of LED business to SMART Global Holdings

Cree’s Wolfspeed quarterly revenue grows by 5%

Cree completes $500m at-the-market equity offering

Cree’s revenue rebounds in September quarter

Cree completes sale of Cree Lighting to Ideal Industries

Tags: Wolfspeed SiC substrates Power electronics


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