Wolfspeed (NYSE: WOLF) stock is rising on upbeat Q4 earnings and revenue results. The company reported a Q4 GAAP net loss of -$0.50 in EPS, which was $0.08 less than analyst estimates of -$0.58. And WOLF stock revenue for Q4 was $228.5m, beating consensus estimates of $209.3m.
What Is Wolfspeed?
Wolfspeed is the leader in silicon carbide (SiC). The company develops and manufactures semiconductor products. The Company offers silicon carbide and gallium nitride GaN solutions for both high power and RF applications such as transportation, power supplies, power inverters, and wireless systems. Wolfspeed serves customers worldwide, and the company was formerly named Cree, Inc.
Wolfspeed Silicon Carbide (SiC) MOSFETs (a type of semiconductor device) enable higher switching frequencies and reduce the size of components like inductors, capacitors, filters & transformers.
Principally, the company makes chips out of silicon carbide, which is more energy efficient than standard silicon. This is particularly attractive to the EV industry as it can improve the range traveled and reduce the charge time for EV batteries.
Silicon Carbide is also becoming more popular in industrial applications and is being adopted for its improved efficiency and increased capacity. Wolfspeed’s products, power devices and RF devices are targeted for various applications such as electric vehicles, fast charging, 5G, renewable energy and storage, and aerospace and defense.
In April, Wolfspeed opened the world's first, largest, and only 200mm silicon carbide manufacturing facility. To meet the rising demand for its innovative technology that supports the growing electric vehicle (EV), 4G/5G mobile and industrial markets, the company is establishing a silicon carbide corridor on the east coast of the United States.
This begins with its 200mm silicon carbide fabrication facility in Marcy, New York. The fully automated power wafer fabrication facility will be automotive-qualified as well. The company is also expanding its North Carolina HQ to hold a mega materials factory.
WOLF Q2 Financial Results
Wolfspeed (WOLF) reported its Q4 and full-year earnings for the quarter ended June 2022.
Q4 Financial Highlights
Revenue: $228.5m (up 56.7% Y/Y from $145.8m)
GAAP gross margin: 34.5%, (up from 30% Y/Y)
Non-GAAP gross margin: 36.5%, (up from 32.2% Y/Y)
GAAP net loss: -$61.8m, or -$0.50 per diluted share (from -$145.2m, or -$1.26 per diluted share Y/Y)
Non-GAAP net loss: -$2.9m, or -$0.02 per diluted share (compared to -$26.9m, or -$0.23 per diluted share Y/Y)
Quarterly design-ins of $2.6bn
Full Fiscal Year Financial Highlights
Revenue: $746.2m (up from $525.6m Y/Y)
GAAP gross margin: 33.4% (up from 31.3% Y/Y)
Non-GAAP gross margin: 35.6% (up from 34.2% Y/Y)
GAAP net loss: -$295.1m, or -$2.46 per diluted share (compared to -$341.3m, or -$3.04 per diluted share)
Non-GAAP net loss: -$59.6m, or -$0.50 per diluted share, compared to -$104.7m, or -$0.93 per diluted share.
Full-year design-ins of $6.4bn
Wolfspeed Chief Executive Officer, Gregg Lowe, said:
We delivered an extremely strong quarter to close out the fiscal year and I am very proud of the progress the Wolfspeed team has made in delivering on our goals. We announced a number of exciting customer wins, opened the world's first fully automated 200mm Silicon Carbide fab at Mohawk Valley, and made significant strides in growing our top-line, while also improving profitability,
How Does Wolfspeed Make Money?
Wolfspeed makes money selling its silicon carbide and gallium nitride GaN chips. The company is not yet profitable, but its latest fiscal 2022 financial year brought in annual revenues of $746m, displaying growth of 42% Y/Y.
The company conducts business in several geographic areas. Revenue is attributed to a particular geographic region based on the shipping address for the products. As of March, Europe was Wolfspeed’s biggest customer, followed by China, then the United States.
WOLF Stock Financials
Over the past year, Wolfspeed Inc (WOLF) has traded between $58.07 and $142.33. After today’s bounce, it trades around $106.18.
Year-to-date, the Wolfspeed Inc (WOLF) stock is down by -11.21%, while the S&P 500 is down -11.03% over the same timeframe.
WOLF stock has a forward price-to-earnings ratio (P/E) of 275. Its price-to-book-value (P/BV) is 4.4, which is well above the industry average of 1.2. WOLF stock does not come with a shareholder dividend.
WOLF Growth Potential
Wolfspeed is shifting its production focus from 150mm wafers to 200mm wafers to meet rising demand to improve operational efficiency. Adopting larger-diameter wafers can significantly reduce semiconductor manufacturing costs.
From a Wolfspeed customer’s perspective, the company’s offerings may offer additional appeal in the current inflationary environment that is causing business input costs to soar.
Furthermore, the company could achieve higher margins as it ramps productivity and grows its order book.
Wolfspeed CEO, Gregg Lowe, also commented:
Looking forward, we remain very encouraged about the industry's prospects for future growth and the activity we are seeing across our end-markets. We had a phenomenal record of $2.6bn of design-ins in the fourth quarter. This achievement, coupled with the previous two quarters of $1.6bn each, provides further evidence of the upward pressure we are seeing on our 2026 revenue outlook, which we now believe is between 30 to 40 percent higher than the $2.1bn we forecasted at the end of last year.
WOLF Stock Risks
China’s lockdowns have proved problematic in the past, and this is something to keep in mind for the future. This can lead to shipping delays and the temporary closure of its Chinese subcontractors.
Building new facilities requires significant cash, which is likely to deter the company from reaching profitability anytime soon. Free cash flow during Q4 was -$86m, comprised of -$31m of operating cash flow and -$55m of capital expenditure.
Should You Invest in Wolfspeed?
The company sees a clear path for Wolfspeed to grow and play a much bigger role in the energy transition as the world moves to greener energy sources and more efficient use of that energy.
FactSet analysts have a consensus Overweight rating on WOLF stock with a target share price of $112.19.
Analyst Ambrish Srivastava of BMO Capital Markets reiterated his Hold rating on WOLF stock with a $100 target price.
Meanwhile, Colin Rusch of Oppenheimer rated WOLF stock a Buy with a target share price of $120.
Wolfspeed's Q4 and full-year results are encouraging, and WOLF stock is heading in the preferred direction. Nevertheless, semiconductor stocks are notoriously volatile due to their cyclical nature, and the sector has been hard hit this year.
Whether you should invest in WOLF stock depends on your risk propensity and investing time frame.