Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Wolfspeed Inc (WOLF, Financial) is aggressively optimizing its capital structure, targeting $200 million in CapEx reductions for fiscal 2025.
- The 200-millimeter device fab is producing solid results at lower costs, providing significant die cost advantages.
- The company has secured $21 billion in EV Design-Ins to date, indicating strong demand for its silicon carbide technology.
- Mohawk Valley Fab generated $41 million in revenue for the quarter, showing substantial growth from the previous year.
- Wolfspeed Inc (WOLF) is eligible for more than $1 billion in Section 48D cash tax refunds from the IRS, providing a significant future funding source.
Negative Points
- The company is experiencing continued weakness in industrial and energy markets, impacting revenue from its Durham Device Fab.
- Non-GAAP gross margin for the fourth quarter was only 5%, indicating profitability challenges.
- The ramp of EVs is slower than previously projected, affecting revenue expectations.
- The company is facing liquidity concerns, as evidenced by the market's reaction and stock price decline.
- There was an incident at the Durham Fab that negatively impacted non-GAAP gross margin by 500 basis points, adding to operational challenges.
Q & A Highlights
Q: How much of your outlook at Durham is still levered to Industrial & Energy (I&E), and how much visibility do you have regarding the Durham Fab's demand and margin profile? Also, does the guidance include the $20 million impact from the equipment incident?
A: Visibility on Durham is cloudy, and we anticipate it being down for the rest of the calendar year. The guidance does include the $20 million impact from the equipment incident. We are managing inventory levels and expect a recovery in I&E demand in the first half of the next calendar year. (Gregg Lowe, CEO; Neill Reynolds, CFO)
Q: What is the bare minimum you have to spend on The JP, assuming Mohawk Valley is not equipped, and can you materially cut down CapEx? How do you plan to achieve positive free cash flow by early 2026?
A: The progress at Building 10 allows us to support up to 30% wafer start utilization at Mohawk Valley, reducing the urgency to ramp The JP quickly. We will complete the fixed cost build-out of The JP by the end of this calendar year and align tool and equipment investments with wafer start needs. We are also focusing on lowering CapEx and driving operating efficiencies to achieve positive EBITDA in the second half of the fiscal year and positive operating cash flow by early fiscal 2026. (Gregg Lowe, CEO; Neill Reynolds, CFO)
Q: What is the thought process behind potentially closing the Durham Device Fab, and what does that imply for the existing footprint there?
A: The decision is driven by the progress and productivity of the 200-millimeter platform, which offers better economics and yields. The industrial and energy business is currently down, making it an opportune time to transition. The Mohawk Valley Fab will absorb the revenue, and the transition will be detailed further in the next earnings call. (Gregg Lowe, CEO; Neill Reynolds, CFO)
Q: Are there operational metrics you need to meet to monetize the tax credits accrued, and can you discuss their transferability?
A: The tax credits are aligned with the CHIPS Act and require assets to be placed into service. They are administered through the IRS tax return process. While tradability is not a focus, we expect to monetize these credits significantly by 2026. (Neill Reynolds, CFO)
Q: Can you clarify the margins and profitability between Mohawk Valley and Durham?
A: While specific margins between the factories are not disclosed, the profitability at Mohawk Valley is significantly better due to its highly automated and state-of-the-art capabilities. This informs our decision to transition from Durham to Mohawk Valley. (Neill Reynolds, CFO)
Q: What is the timeline for the Mohawk Valley ramp and revenue realization?
A: There is a two to three-quarter lag between wafer starts and revenue realization. The mix between automotive and industrial energy parts also impacts revenue. We expect Mohawk Valley to absorb significant revenue as we transition from Durham. (Neill Reynolds, CFO)
Q: Can you provide an absolute number for EV revenue and its classification?
A: EV revenue has doubled in the quarter and tripled year-over-year. It now represents over 50% of our Power Device revenue and is expected to grow further. (Neill Reynolds, CFO)
Q: What happened during the incident in Durham, and do you have redundancies in Mohawk Valley to handle similar issues?
A: The incident in Durham was a facilities issue that has been rectified. Mohawk Valley has significant redundancies, including power feeds and second-of-a-kind tools, making it more resilient to such incidents. (Gregg Lowe, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
