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(Bloomberg) — In one of the best years on record for semiconductor stocks, Wolfspeed Corp. managed to lose more than a third of its stock value. Most people on Wall Street aren’t betting on a rapid turnaround in 2024.
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The maker of chips that control power in electric cars and other equipment was the only stock on the Philadelphia Stock Exchange’s semiconductor index to decline in 2023. Investors were depressed by delays in efforts to introduce more advanced ways to make chips, a critical component. This should encourage the spread of electric vehicles and further increase profitability. Wolfspeed has not been able to bring its new factory in upstate New York close to capacity.
In a sign of how little confidence analysts have in the stock’s rise, Wall Street’s average price target was just a few dollars higher than the stock’s price at the beginning of the year, according to data compiled by Bloomberg. Since then, Wolfspeed has fallen another 20%, once again being the worst performer on the benchmark chip index. Less than half of the 24 analysts covering the company rate it a buy.
“The company’s track record has been very inconsistent,” said Susquehanna Investment Group analyst Chris Rolland, citing a series of disappointing earnings reports since October, when the company reported better-than-expected sales. There is no such thing.” “We need to continue to meet and, if possible, exceed our revenue expectations from Mohawk Valley Lamp,” he said of the New York plant.
Wolfspeed’s problems stem from production disruptions at another factory of the company, one of the largest manufacturers of silicon carbide wafers. Wafers are the basis of the company’s chips, and a supply shortage has slowed production at its Mohawk Valley chip factory.
For chipmakers, not being able to maximize production with expensive production facilities is a cardinal sin, as they have high fixed production costs and can quickly become obsolete. The cost of building a plant is justified only if the company can operate the plant 24 hours a day in as close to flat conditions as possible.
If Mohawk Valley is soon at full capacity, Wolfspeed could reduce costs by up to 40% compared to existing production, giving several companies a “significant cost advantage” over competitors like ON Semiconductor. You should be able to do that. According to Wells Fargo analyst Gary Mobley,
But the clock is ticking. Peers are currently reporting a slowdown in auto demand as automakers cut orders to reduce inventories of unused parts. Mobileye Global warned last week that the buildup was weighing on orders, with first-quarter sales down 50% from a year earlier.
Of course, not everyone is pessimistic about Wolfspeed. Prime Minister William Blair’s Jed Dorsheimer named the stock the “best idea” of 2024. The call says the Mohawk Valley will soon have the wafers it needs to run at much higher capacity, and that wafer supplies from China won’t immediately weaken Wolfspeed’s competitiveness. It is rooted in belief. advantage.
For Canaccord Genuity’s George Gianaricas, one of 11 analysts who rate the company’s stock a “buy,” ownership of Wolfspeed boils down to enough carbonization to supply the Mohawk plant. It will bet on the company’s ability to produce silicon.
“Could they make that material? I think so, but probably no one knows, including them,” he said in an interview.
The company said there is more demand than it can currently supply and that bringing the new facility online presents significant revenue opportunities.
“Our capacity expansion plans support a $20 billion market opportunity by 2030,” the company said in an emailed statement. “We are diligently working to increase our U.S. production capacity as there will be significant supply and demand mismatches for the foreseeable future.”
When Wolfspeed releases its second-quarter results later this month, it is expected to report a net loss from continuing operations of $139 million, according to the average analyst estimate. The company has not made an annual profit since 2014, and is not expected to return to profitability on an annual basis until 2027.
The Mohawk Valley plant is targeting 20% utilization by the end of fiscal year 2024, which ends in June. To meet demand for so-called SiC wafers, the company is also investing in another facility in North Carolina to grow crystals that become the wafers that form the foundation on which chips are built.
For now, all investors are looking for is proof that bets on producing new chips are paying off as the cost of making new chip production increases, said Cowen & Co. analyst Joshua Buchalter. That’s what it means.
“The key is how many wafers can you make at a high enough yield to cover the facility,” he said.
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Proceeds are scheduled to be paid on Thursday
–With support from Thyagaraju Adinarayan.
(Updates with addition of corporate statement starting from 12th paragraph.)
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