Wolfspeed’s Stock Struggles Amid Financial Challenges
Wolfspeed (WOLF) shares have decreased by 22% over the last month, trailing behind the Zacks Computer and Technology sector, which saw a rise of 3.5%, as well as the Zacks Semiconductor – Discretes industry, which faced a 10% drop.
The company’s recent financial performance has contributed to its stock decline, as revealed in its first-quarter fiscal 2025 report on Nov. 6.
Wolfspeed generated revenues of $194.7 million, representing a 1.4% decrease from the same period last year. This figure fell short of the Zacks Consensus Estimate, which was set at $200 million. The non-GAAP gross margin also dipped to 3.4%, primarily due to a lower revenue mix from its industrial and energy sectors, along with decreased product margins from the Durham Fab.
Wolfspeed is currently facing increased restructuring costs related to facility closures and consolidation efforts, as it shifts to 200mm wafer device fabrication from the existing 150mm technology. The company’s dependence on international sales, coupled with escalating competition from China in the silicon carbide market, is creating additional challenges.
Trend Analysis: Wolfspeed Price and Consensus
Wolfspeed price-consensus-chart | Wolfspeed Quote
Difficult Outlook for Q2
Looking ahead to the second quarter of fiscal 2025, Wolfspeed anticipates revenues between $160 million and $200 million.
The Zacks Consensus Estimate for revenues stands at $179.42 million, which suggests a 13.91% decline compared to the same quarter last year.
Expected non-GAAP losses are estimated at between 89 cents and $1.14 per share.
The consensus for earnings is now at 98 cents per share, reflecting a reduction of 9 cents over the last 60 days, and indicates a significant drop of 78.18% from the year-ago period.
Building a Brighter Future
Despite these setbacks, Wolfspeed is concentrating on fortifying its capital structure and cutting operational costs through the production of advanced 200mm silicon carbide products. This strategy aims to improve yields and lower costs, positioning the company for better profitability.
The establishment of cutting-edge silicon carbide facilities in Mohawk Valley and North Carolina is part of this plan, with expectations of generating around $3 billion in annual revenues from 200mm silicon carbide production.
The company seeks to capitalize on the increasing demand for silicon carbide within the electric vehicle (EV) and energy sectors, which are both on the rise as the world embraces cleaner technologies.
Wolfspeed has secured up to $2.5 billion in funding, with $750 million from the CHIPS Act and another $750 million from a lending group. This funding enhances the company’s ability to bolster its U.S. production and support long-term growth.
Though demand may develop gradually, Wolfspeed is gaining a notable share in the EV market. In the first quarter of fiscal 2025, the company achieved $1.3 billion in design wins, marking the third-highest total on record, and $1.5 billion in design-ins, with approximately 70% related to EV platforms.
Wolfspeed’s Market Position
Currently, WOLF holds a Zacks Rank #3 (Hold).
While Wolfspeed is taking measures to obtain funding and reach design goals, it also faces challenges such as falling gross margins, widening net losses, restructuring costs, and a cautious revenue outlook. These factors suggest that investors might consider waiting for a more positive signal before entering the stock.
Alternative Investment Options
NVIDIA (NVDA), Fortinet (FTNT), and OSI Systems (OSIS) represent better-ranked opportunities in the tech sector, each with a Zacks Rank #2 (Buy). Their long-term earnings growth projections are 20.00%, 18.28%, and 12.85%, respectively.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
