Wednesday, 1 November 2023
by Rose White
Shares of semiconductor maker Wolfspeed (NYSE: WOLF) had gained 25.6% by 10:45 a.m. on Tuesday, powered by a robust earnings report.
First-quarter revenue rose 4.2% year over year, landing at $197.4 million. The company reported an adjusted net loss of $0.53 per share, more than double the loss of $0.24 per share in the year-ago period.
The analyst consensus targets had called for a net loss of $0.67 per share on sales near $207.6 million, so Wolfspeed’s results were a mixed bag from the Street’s perspective.
Guidance for the second quarter of fiscal year 2024 continued the mixed signals, calling for slimmer bottom-line losses but also lower revenues than your average analyst had expected.
But it didn’t take much to brush some pressure off Wolfspeed’s stock, which entered this report with incredibly low expectations. Share prices were down by 60% year to date by Monday’s closing bell, and investors are still looking at a 49% loss in 2023 after Tuesday morning’s agile jump.
Wolfspeed’s silicon carbide and gallium nitride chips have some unique qualities. Silicon carbide processors, for example, can operate under extremely high temperatures, which is helpful for managing the power flow in electric vehicle batteries. Gallium nitride semiconductors, on the other hand, are perfect for 5G antenna systems and other radio frequency applications.
So Wolfspeed serves some exciting growth markets such as electric vehicles and 5G networking, but the inflation crisis caused slowdowns in demand for new cars and installation of 5G networks.
This company is a market leader in the production of these unusual semiconductor types and should remain in that pole position as the economy gets back on track. Wolfspeed CEO Gregg Lowe certainly expects to have a technology advantage over a growing group of potential competitors:
“While there have been several new entrants to the materials market, Chinese and others, the significant ramp required to create high-quality materials is still in front of them,” Lowe said on the first-quarter earnings call. “It’s taken us 35 years to master this technology, which we know firsthand can be incredibly difficult to work with, let alone scale and produce at the highest quality possible.”
Does that head start make Wolfspeed a buy at today’s modest share prices? Well, the balance sheet has $3.3 billion in cash reserves but also $5.1 billion of long-term debt and convertible notes. With this somewhat precarious fiscal foundation, Wolfspeed is prepared to survive a lengthy downturn but at a significant cost. A small investment in this speculative turnaround story could make sense, but I would not bet the farm on Wolfspeed.
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