Wolfspeed（Minutes）: Expected capital expenditures will significantly decrease in 2026

Wolfspeed (WOLF.N) released its fiscal year 2025 second quarter financial report (ending December 2024) after U.S. stock market hours on January 30, 2025, Beijing time. The key points from the conference call are as follows:

The following is a summary of the Wolfspeed fiscal year 2025 second quarter performance conference call. For an interpretation of the financial report, please refer to "Wolfspeed: No Surprises, Continuing to Close Plants, Lay Off Employees, and Cut Costs"

1. $Wolfspeed(WOLF.US) Core Financial Report Information Review:

2. Detailed Content of Wolfspeed's Financial Report Conference Call

2.1 Key Information from Executive Statements:

Overview of Company Business and Financial Status

Company Transformation and Strategic Focus:

Emphasized the company's advantages as a leader in the silicon carbide field, as well as the advanced capabilities of the Mohawk Valley Fab and Cyber City locations.

Outlined future key priorities: significantly improving financial performance, accelerating the achievement of positive free cash flow; strengthening the balance sheet; raising capital to support long-term growth plans.

Business Progress and Plans:

Closing the 150mm device factory and the epitaxy branch factory, expected to be completed by the end of the year, to lower the breakeven point and accelerate profitability.

Maintaining the fiscal year 2025 capital expenditure (CapEx) expectation, with a midpoint of approximately $1.2 billion, to meet demand growth and maintain rapid supply capability while reducing cash usage.

Beginning to implement additional cost-cutting measures, expected to be realized in the third quarter, including improving operational efficiency, reducing manufacturing costs, and strict cash management to further lower the breakeven point.

Strengthening collaboration with Apollo to improve capital structure and address convertible note issues to strengthen the balance sheet.

Actively advancing cooperation with the U.S. government, including CHIPS Act funding agreements and cash rebates, expecting to secure $250 million in funding support to drive company development.

Market and Competitive Landscape:

Despite facing demand challenges, maintaining optimism for long-term growth in key end markets such as electric vehicles (EVs), emphasizing the company's market opportunities in renewable energy and artificial intelligence data centers.

Highlighting the company's leading position in 200mm wafer production and the launch of the fourth-generation MOSFET platform, showcasing the company's technological innovation capabilities Pay attention to the investigation by the U.S. Trade Representative into China's semiconductor policies, believing that government actions will help create a fair competitive environment for U.S. companies.

Financial Details and Third Quarter Expectations

Second Quarter Financial Performance:

Achieved $181 million in revenue, slightly above the expected midpoint, a 7% decrease quarter-over-quarter.

Power device revenue was $91 million, a 6% decrease quarter-over-quarter, mainly affected by weakness in the industrial and energy end markets; however, electric vehicle (EV) revenue grew 92% year-over-year.

Mohawk Valley revenue was $52 million, an increase quarter-over-quarter, expected to reach $55 million to $75 million in the third quarter.

Material revenue was $90 million, an 8% decrease quarter-over-quarter, impacted by customer inventory adjustments.

Non-GAAP gross margin was 1.8%, a decrease of 160 basis points quarter-over-quarter, but above the expected midpoint, including $29 million in underutilization costs.

Operating expenses were $108 million, below the expected midpoint, a decrease of $11 million quarter-over-quarter, benefiting from cost-cutting efforts.

Adjusted earnings per share were -$0.95, better than the expected midpoint.

Balance Sheet and Liquidity:

Cash and liquidity at the end of the quarter were approximately $1.4 billion, including $91 million from a $200 million ATM equity issuance completed in January.

Free cash flow was -$598 million, including -$195 million in operating cash flow and $403 million in capital expenditures.

Operating cash flow is expected to improve significantly in the second half of fiscal year 2025, benefiting from cost-cutting measures and revenue growth.

Capital expenditures for fiscal year 2025 are expected to be approximately $1.2 billion, significantly reduced in fiscal year 2026.

Third Quarter Expectations:

Revenue is expected to be between $170 million and $200 million.

Non-GAAP gross margin is expected to be between -3% and 7%.

Non-GAAP operating expenses are expected to be between $99 million and $104 million.

Non-GAAP earnings per share are expected to show a loss between $0.76 and $0.88, considering the impact of issuing approximately 27.8 million shares of common stock under the ATM program.

2.2 Q&A Analyst Q&A

Q: With the current slowdown in electric vehicle (EV) demand, what is the company's confidence in medium to long-term demand? How to achieve higher capacity utilization in Mohawk Valley?

A: Electric vehicle (EV) demand: Although the growth rate is lower than expected, it is still growing. Some models have demand growth exceeding expectations, while others are growing slowly. The company collaborates with multiple automakers and has a broad customer base, allowing for significant annual growth even if overall market growth slows.

Other end markets: Positive signs are seen in artificial intelligence, data centers, and energy sectors, and as channel inventories decrease, these markets will strongly support the company's revenue growth.

In the second quarter, electric vehicle (EV) revenue grew 90% year-over-year, and it is expected to grow 20% to 30% quarter-over-quarter in the third quarter, still exceeding 90% year-over-year. The company has a broad customer base and model collaborations, allowing for significant growth even if overall market growth slows Q: How does the increasing capacity of 200mm silicon carbide wafers in China affect the company's competitive environment? Is the company lagging behind its peers in the sales of 200mm wafer capacity?

A: Technical and market advantages: The company is the only enterprise capable of large-scale production of 200mm wafers and has supplied thousands of wafers to Mohawk Valley Fab, demonstrating excellent performance. The company has begun sample deliveries to multiple customers and is collaborating with key partners, putting it in a favorable position.

Long-term cooperation and customer trust: The company has established long-term cooperative relationships with customers, who value the company's technical strength and product quality, giving the company an advantage in market competition.

Q: What is the progress of the company's cooperation with the new government regarding funding from the CHIPS Act? Are there any challenges?

A: Cooperation progress: The company maintains frequent and constructive communication with the CHIPS project office and is narrowing down the list of issues, which is a positive sign. The company's stance is highly aligned with the new government, and funding from the CHIPS Act is crucial for the company's development.

Future outlook: The company is optimistic about receiving funding from the CHIPS Act, expecting to receive the first payment in the calendar year 2025. The company will continue to work with the government to finalize the funding agreement.

Q: What are the company's plans for fundraising? Is it considering raising funds through 200mm wafer supply agreements?

A: Fundraising plans: The company is raising funds through various channels, including improved operating cash flow, tax credits under Section 48, and asset sales, to achieve liquidity goals. The company expects to obtain over $1 billion in liquidity support through these measures.

200mm wafer supply agreements: The company is in discussions with long-term partners regarding 200mm wafer supply agreements, but currently, there are no specific developments to announce. The company will continue to advance relevant negotiations to meet market demand.

Q: The company mentioned a breakeven point below $1 billion; is this target realistic? When is it expected to be achieved?

A: Cost reduction measures: The company has implemented the first phase of its cost reduction plan, expecting to achieve $200 million in annual cash savings, which will lower the breakeven point to below $1 billion. The company has also initiated the second phase of the cost reduction plan to further optimize operational efficiency.

Future outlook: Despite uncertainties in market demand, the company is confident in achieving its breakeven point target and will continue to focus on cost control and improving operational efficiency.

The company will continue to execute its operational plan, driving the power device business towards 200mm wafers and reducing operational costs. As revenue grows and cost control measures are implemented, the company will gradually approach the breakeven point.

Q: How are the company's intention orders and awarded orders this quarter? Does the current financial situation affect customer cooperation?

A: Design wins and design-in: This quarter, the company achieved $1.5 billion in intention orders and approximately $800 million in awarded orders, bringing the total awarded orders to $12.2 billion. The company will continue to push for the conversion of awarded orders into actual orders and revenue.

Customer cooperation: The company maintains close communication with key customers, transparently sharing its development plans and financial status. Customers are confident in the company's technical strength and product performance, continuing to cooperate with the company to drive business development Q Is the closure progress of the Durham plant in line with expectations? Is the capacity transfer to Mohawk Valley going smoothly? When is the operational milestone funded by the CHIPS Act expected to be achieved?

A Closure of the Durham plant: The closure progress of the Durham plant is in line with expectations, and it is expected to be completed in the second half of the 2025 calendar year. Although actual demand is higher than expected, the company has met the demand through increased efficiency, resulting in positive cash flow.

Capacity transfer to Mohawk Valley: The company is accelerating the transfer of design to Mohawk Valley Fab and collaborating with customers to achieve long-term cooperation goals.

The capacity transfer to Mohawk Valley Fab is proceeding as planned, and a quarter-on-quarter revenue growth of 20% to 25% is expected in the third quarter. The company is confident in achieving the operational milestones funded by the CHIPS Act, which is expected to be realized in early 2025.

Q What is the current revenue structure of the company's end markets? How will this structure change in the future with the integration of Mohawk Valley capacity? What are the company's plans for the development and certification of thinner wafers (such as 30 microns)?

A End market revenue structure: The company's end market revenue structure has changed over the past year, shifting from being primarily industrial and energy-focused to being primarily electric vehicle (EV)-focused. In the future, with the integration of Mohawk Valley capacity and changes in market demand, the revenue structure is expected to gradually return to a ratio of 70% for electric vehicles (EV) and 30% for industrial and energy (I&E).

Development of thinner wafers: The company is developing 30-micron thick wafers and plans to apply them to internal production in the future. The company has begun sampling the 30-micron thick wafers but has not yet completed the transition.

The company will continue to promote the development of electric vehicles (EV) and industrial and energy (I&E) businesses. With the growth in market demand and the enhancement of the company's capacity, the revenue structure is expected to gradually become balanced.

Q Has the company's cooperation with the U.S. government changed? How stable is the company's business in the current market environment?

A Government cooperation: The company's cooperation with the U.S. government continues to strengthen, especially in terms of CHIPS Act funding and defense projects. As a domestic leader in silicon carbide technology, the company's relationship with the government is crucial for its long-term development.

Business stability: Despite fluctuations in market demand, the company's business stability has been recognized by customers. The company has established long-term cooperative relationships with customers, who have confidence in the quality of the company's products and technological strength, allowing the company to maintain relatively stable business performance amid market fluctuations.

Through technological innovation and product performance enhancement, the company has established close cooperative relationships with customers. Customers are confident in the company's long-term development, providing strong support for the company's business stability.

Q Does the breakeven point mentioned by the company include startup costs and underutilization costs? Is it possible for capital expenditures in the fiscal year 2026 to be close to zero? A Breakeven Point: The breakeven point mentioned by the company is calculated based on the entire income statement, including startup costs and underutilization costs.

Capital Expenditure: Capital expenditure for the fiscal year 2026 is expected to be between $200 million and $600 million, and the company has the ability to further reduce this figure. Considering factors such as the 48 tax credit, capital expenditure on a net basis may even approach zero.

Q When is it expected that startup costs and underutilization costs will be completely eliminated? Is it dependent on time or revenue growth?

A Cost Reduction Factors: The reduction of startup costs and underutilization costs depends on the company's growth rate and capacity utilization. It is expected that these costs will gradually be eliminated when the company's capacity utilization approaches 70%. As revenue grows and capacity utilization increases, these costs will gradually decrease.

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