Wolfspeed Reports Increased Losses Amid Declining Revenues
Wolfspeed (WOLF) announced a non-GAAP loss of 91 cents per share for the first quarter of fiscal 2025. This represents a decline from a loss of 53 cents per share in the same quarter last year, falling short of analysts’ expectations by 9.90%.
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Pained by Declining Revenues
The company reported revenues of $194.7 million, down 1.4% compared to the previous year and missing consensus estimates by 2.71%. The Mohawk Valley Fab was a contributor, generating $49 million in revenues this quarter.
In terms of product segments, Power Products brought in 49.9% of the overall revenue, while Materials Products accounted for the remaining 50.1%. Power Products saw a 4.1% drop in revenue, totaling $97.1 million, whereas Materials Products experienced a slight increase of 1.5%, reaching $97.6 million.
Power Device Design Wins Strengthen
Wolfspeed reported $1.5 billion in power device design-ins and $1.3 billion in design wins during the quarter. These figures reflect positive momentum in product development, even amidst broader financial struggles.
Operating Results Reflect Challenges
Wolfspeed’s non-GAAP gross margin fell significantly to 3.4% from 15.6% year over year, chiefly due to underutilization costs amounting to $26.4 million. The sales, general, and administrative expenses were recorded at $62.2 million, which is 31.9% of total revenues, marking a 3% decline year over year.
On another front, research and development expenses spiked by 15.4% year over year to $50.9 million, representing 26.1% of total revenues. Additionally, the company faced $19.7 million in costs related to factory start-ups this quarter.
Wolfspeed’s non-GAAP operating loss grew wider to $113 million, compared to an operating loss of $72.3 million in the same period last year.
Balance Sheet Under Pressure
As of September 29, 2024, WOLF had $1.68 billion in cash, cash equivalents, and short-term investments, a decrease from $2.17 billion as of June 30, 2024. The long-term debt stood at $3.14 billion on the same date.
The company reported a free cash outflow of $528.2 million, which included $132 million from operating cash outflow and $395 million spent on capital expenses.
Weak Guidance for Q2 2025
For the second quarter of fiscal 2025, Wolfspeed anticipates revenues between $160 million and $200 million, with a projected non-GAAP loss ranging from $1.14 to $0.89 per share. The Mohawk Valley Fab is expected to provide around $50 million to $70 million in revenues during this period.
The company is aiming for a non-GAAP gross margin between -6% and +6%. Additionally, projected non-GAAP operating expenses are set at $110 million, reflecting a decrease of $10 million from the prior quarter as part of restructuring efforts.
WOLFs stock has plummeted 68.5% so far this year, trailing behind the Zacks Computer & Technology sector which has returned 25.1%. With guidance suggesting continued struggles, the stock may face further selling pressure.
Stock Position and Recommendations
Currently, Wolfspeed holds a Zacks Rank of #3 (Hold). Investors might consider better-ranked stocks such as Shopify (SHOP), BiliBili (BILI), and NVIDIA (NVDA). Shopify carries a Zacks Rank of #1 (Strong Buy), while BiliBili and NVIDIA have Zacks Rank #2 (Buy).
Shopify shares have increased by 4.9% year to date and will report their third-quarter results on November 12. Bilibili shares have surged by 82% year to date, with third-quarter results set to be announced on November 14. Meanwhile, NVIDIA has seen a remarkable gain of 194% this year, with results for the third quarter of fiscal 2025 due on November 20.
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