Wolfspeed: A Decisive Restructuring Process

2025-03-14 09:45:50 ET

Summary

• Wolfspeed faces significant challenges, including high costs, intense competition, and a delicate capital structure, making profitability a distant goal.
• The company’s market share is expected to decline due to competition, despite its current leadership in SiC production and recent technological advancements.
• Financial struggles are evident with negative cash flow, high CapEx, and a high WACC, indicating potential bankruptcy risks.
• I highly suggest carefully reading the valuation section of this article, as there will be reported all my key assumption leading to the final recommendation.

Investment Thesis

Valuing a company is always a challenge, no matter its industry, size or relevance. The challenge is even harder when the company is a money losing one operating in a cyclical, highly competitive and uncertain market.

Wolfspeed’s profitability is 3-years’ distant, with a delicate capital structure and an incredibly high cost of capital. Even if revenue will grow at a discrete rate in the following year, the company is expected to lose market shares, as harsh competition from China will dramatically intensify. Capital commitments will remain high for the first year, but will significantly decrease from year two, as the company has great production capacity to use....

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