Wolfspeed Inc.

Wolfspeed’s quarterly results outpaced the surge in demand for its power device product line. The company delivered an all-around beat and is well-positioned to benefit from the rising demand for EVs, industrial products, and 5G. It predicted that the adoption of silicon carbide will reach an inflection point between 2022 and 2023, with increased growth starting in 2024. They also continue to increase efficiency and performance at the Durham fabs. However, they are approaching the limit of their capacity, so any future major increases in revenue and gross margin will mostly come from the Mohawk Valley fab. The Durham wafer fabs will most likely continue to operate at full capacity for the foreseeable future due to the continued high level of client demand. From a supply standpoint, the management anticipates that lower yields in their materials business will impact their revenue. In addition, they are witnessing longer lead times on spare parts, impacting tool availability and productivity in the Durham fab. Among other major developments, the company announced a strategic partnership with BorgWarner, under which BorgWarner will invest $500 million in the company. We give them a ‘Hold’ rating with a revised target price.