$12 Billion Semiconductor Originator Wolfspeed Files for Bankruptcy

Wolfspeed, a name familiar throughout the global semiconductor industry. Founded in the late 1980s, Wolfspeed can be considered a pioneer of third-generation semiconductor silicon carbide (SiC). At one point in 2021, its market capitalization soared to $16.5 billion (approximately RMB 120 billion).

However, the rise of Chinese counterparts shattered Wolfspeed's golden era. Chinese SiC companies, leveraging mature manufacturing supply chains, forced Wolfspeed into an awkward position of technological lag and high costs, ultimately leading to its defeat in the market. Wolfspeed's fall is, in some ways, a microcosm of broader shifts.

The Rise of the Global SiC Pioneer
A market cap of RMB 120 billion – this was originally a Silicon Valley-style entrepreneurial legend.

The story dates back to 1987. In a restaurant near North Carolina State University, five graduates and another young man co-founded Cree, the predecessor of Wolfspeed. Their situation was so dire that co-founders Neal Hunter and Eric Hunter maxed out their credit cards and took out a second mortgage to hire another founder, John Edmond, as their first employee.

The founding vision stemmed from their university days, where these young men experimented with silicon carbide's material properties to enable semiconductors to operate at higher temperatures and power levels. This also led them to see the opportunity to produce blue LEDs using SiC. Thus, in 1989, Cree launched the world's first SiC-based blue LED and became the world's largest blue LED chip manufacturer in the 1990s.

Then, in 1991, Cree introduced the world's first commercial silicon carbide wafer, solidifying its pioneer status in the SiC field. Subsequently, Cree gradually formed three main business units: LED (LED chips and components), Lighting (LED lighting systems and fixtures), and Wolfspeed. The Wolfspeed business included SiC materials, power devices, and RF devices, among others.

But as the lighting business began to decline starting in 2016, Cree successively sold off its LED lighting and LED products businesses, deciding to fully transform into a third-generation semiconductor company. Simultaneously, in 2018, it acquired Infineon's RF power business. There was also an episode: Cree nearly sold Wolfspeed to Infineon in 2016, but the deal was ultimately called off.

More importantly, Tesla released the Model 3 that same year, becoming the first to incorporate SiC MOSFETs from STMicroelectronics in its inverter. From that point on, silicon carbide stepped into the spotlight of the new energy vehicle industry. As STMicroelectronics' wafer supplier, Cree naturally aimed to seize this opportunity.

The turning point came in October 2021 – Cree officially changed its name to Wolfspeed, completely transforming into a company focused on third-generation semiconductors. Concurrently, Wolfspeed's stock price hit an all-time high in November of that year, soaring to $139 per share, with its market cap reaching $16.5 billion (approximately RMB 120 billion), making it famous for a time.

From the industry trends at that time, the demand for SiC semiconductor applications in new energy vehicles, photovoltaics, and other fields indeed presented Wolfspeed with enormous potential. Leveraging its technological advantages and leading 8-inch SiC wafer production capacity, Wolfspeed quickly cemented its position as the industry leader.

Unexpectedly, however, this name change marked the beginning of Wolfspeed's fall from grace.

The Collapse of a Giant Often Starts Internally
In the eyes of Wolfspeed's top management, the fiscal years 2021-2024 were deemed the most critical investment period, leading to a decision for massive capacity expansion. During this time, Wolfspeed poured billions of dollars into building new factories in the US and Germany. This included capacity construction at the Mohawk Valley 8-inch SiC wafer fab and capacity expansion at the Durham 6-inch SiC wafer fab, among others.

However, this aggressive "bet on the future" expansion strategy clearly overlooked the pace of market development. The first blow came from the slower-than-expected electrification progress in the European and American automotive markets. Local automakers delayed their electric vehicle development targets, causing some OEMs to postpone orders for automotive-grade semiconductors.

Even Tesla, a major proponent of SiC, announced in March 2023 that it would reduce its SiC usage. This news was undoubtedly a bolt from the blue for SiC suppliers serving European and American automakers, including Wolfspeed. As automaker orders significantly decreased, the capacity utilization rates of SiC manufacturers naturally declined, causing costs to conversely rise, creating a vicious cycle.

The most typical case is Wolfspeed's Mohawk Valley factory. As the flagship production line, its construction cost over $5 billion, accounting for more than half of Wolfspeed's capital expenditure. It was originally planned to drive the company's revenue growth for years to come. The harsh reality, however, is that the factory contributed a mere $78 million in revenue in the latest fiscal quarter. Its capacity utilization rate, reportedly, could only be raised to 25% by the end of 2024.

As of today, Wolfspeed's debt stands at approximately $6.5 billion. This includes $1.5 billion in senior secured loans held by Apollo Global Management. Annual interest payments amount to about $800 million, while cash reserves are only $1.3 billion. Its stock price has fallen 33% year-to-date and plummeted a staggering 85% in 2024 alone. The current share price is just over $1, and the latest market capitalization is pitifully low.

Even more critically, the fate of the US CHIPS and Science Act hangs in the balance, with a high possibility of being repealed by the current administration. This means the $600 million in anticipated cash tax rebates Wolfspeed hoped to receive may vanish, adding insult to injury in its current predicament.

As the saying goes, "When the walls come tumbling down, everyone pushes." Just before the collapse, prominent investment institutions had already begun dumping their holdings. According to a regulatory filing, Jana Partners has exited its entire position in Wolfspeed. In Q1 of this year alone, Jana Partners sold nearly 5 million Wolfspeed shares; they had also reduced their stake by about 19% at the end of last year.

Wolfspeed did attempt self-rescue. Over the past year, it fired its CEO, shut down one factory, laid off 20% of its workforce, and focused on its 200mm wafer strategy in an effort to improve cash flow. But at this point, all these efforts seem futile. What likely awaits Wolfspeed now is the final path: bankruptcy. **We are witnessing history.