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01/11 16:18
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights several negative factors: a decline in revenue expectations, operating losses with negative gross margins, and challenges from Chapter 11 bankruptcy. Despite some operational improvements, the lack of profitability guidance and ongoing soft market demand contribute to a negative outlook. The market cap suggests a moderate reaction, leading to an expected stock price movement of -2% to -8% over the next two weeks.
Revenue $197 million, flat sequentially and up slightly compared to the same period a year ago. The increase was consistent with expectations despite a soft demand environment.
Non-GAAP Gross Margin Negative 26%, including approximately $29 million in specific inventory reserves and other onetime charges related to realignment of manufacturing footprint and transition costs. Also impacted by $47 million in underutilization costs from Mohawk Valley and JP materials factory.
GAAP Operating Expenses $84 million, which included $15 million of restructuring and transition-related items. Excluding these, operating expenses declined $4 million sequentially and approximately $44 million year-over-year due to cost efficiency actions.
Net Loss (GAAP) $4.12 per share, including $504 million of reorganization items related to Chapter 11 proceedings. This includes $28 million of professional fees and $476 million of noncash debt-related adjustments.
Net Loss (Non-GAAP) $0.55 per share, an improvement of $0.36 per share compared to the same period last year.
Inventory Levels $385 million at the end of Q1, down approximately $50 million sequentially due to efforts to align production with current customer demand and the ramp down of the 150-millimeter device fab in Durham.
Capital Expenditures $104 million, primarily directed towards closing out former capital commitments. Gross CapEx spend decreased by $108 million sequentially and $333 million year-over-year due to completion of the initial phase of JP construction.
Gen 4 device platform: Launched earlier this year, it is the most advanced generation of silicon carbide technology Wolfspeed has ever brought to the market. It is purpose-built for high-voltage, high-performance demands of next-generation applications, including AI data centers, aerospace, and defense.
200-millimeter silicon carbide materials: Introduced a commercially available full suite of 200-millimeter silicon carbide materials, reinforcing technology leadership and opening additional potential with customers.
Automotive: Silicon carbide remains central to next-generation electric vehicles. Wolfspeed's customer pipeline includes major global OEMs focused on EV performance and efficiency. Demand in the broader EV market has moderated near term, but long-term fundamentals remain intact.
Industrial & Energy: Focused on data center power, renewable energy infrastructure, and energy storage applications. Despite moderated demand due to elevated inventory levels, interest in silicon carbide power solutions for high-efficiency systems continues to grow.
Aerospace and Defense: High-voltage devices are enabling mission-critical systems, diversifying revenue base and highlighting the strategic importance of U.S.-based semiconductor manufacturing.
Materials: Vertically integrated model provides a distinct advantage as Wolfspeed ramps 200-millimeter production. The John Palmer manufacturing center in North Carolina offers significant capacity to meet future customer demand.
Operational excellence: Focused on improving quality, cost, and speed across facilities. Steps include matching output to demand, tightening supply chain, and consolidating production from legacy 150-millimeter lines to 200-millimeter manufacturing.
Leadership restructuring: Rebuilt leadership team with experienced professionals in semiconductor and operational fields to drive customer-centricity and performance culture.
Cost efficiency: Reduced operating expenses and capital expenditures significantly, aligning production with demand and moderating capital intensity.
Financial restructuring: Completed financial restructuring, emerging with an improved balance sheet and simplified operating model to accelerate profitability.
Fresh-start accounting: Adopting fresh-start accounting next quarter, providing a clean slate for financial evaluation and aligning with the restructured business.
Long-term strategic plan: Developing a new sustainable long-term plan with financial and operational milestones to be unveiled in the first half of calendar 2026.
Financial Restructuring: The company has recently emerged from Chapter 11 bankruptcy, which introduces risks related to fresh-start accounting, revaluation of assets and liabilities, and potential challenges in aligning financials with the restructured business.
Profitability Challenges: The company is operating at a loss, with a negative gross margin of 26% in Q1 2026, driven by underutilization costs, inventory reserves, and restructuring-related expenses.
Demand Environment: Soft demand across key markets, including automotive and industrial sectors, is impacting revenue and inventory levels. This weakness is expected to persist through fiscal 2026.
Operational Efficiency: Challenges in scaling production and aligning output with demand, particularly during the transition from 150-millimeter to 200-millimeter manufacturing, are affecting efficiency and cost structures.
Customer Trust and Retention: Certain customers have pursued second sourcing of products during the bankruptcy process, which could impact long-term customer relationships and revenue stability.
Capital Deployment: The company faces risks in managing capital expenditures and ensuring returns on investments in new manufacturing capacities, particularly in a soft demand environment.
Market Competition: Competitive pressures in the silicon carbide market, as peers ramp up 200-millimeter device production, could challenge Wolfspeed's market position.
Regulatory and Strategic Execution: The company must navigate regulatory requirements and execute its strategic plan effectively to achieve long-term profitability and growth.
Revenue Expectations: Fiscal second quarter revenue is expected to be in the range of $150 million to $190 million, reflecting a quarter-over-quarter decline due to accelerated customer purchases in fiscal Q1 and second sourcing by customers during the bankruptcy process.
Profitability Outlook: The company is focused on becoming a self-funded business by preserving cash and carefully considering future investments. Profitability guidance is not provided due to the adoption of fresh-start accounting in Q2.
Capital Expenditures: Capital expenditures have been significantly reduced, with a focus on maximizing returns on existing capacities and aligning production with near-term demand.
Market Trends and Demand: Softness in the market is expected to continue through fiscal 2026. Long-term demand for energy-efficient power solutions remains strong, particularly in automotive, industrial, energy, aerospace, and defense sectors.
Operational Changes: The company is consolidating production around 200-millimeter manufacturing and closing the 150-millimeter Durham device fab by the end of the calendar year. This is expected to improve efficiency and reduce costs.
Strategic Plan and Long-Term Outlook: A comprehensive long-range plan with financial and operational milestones will be unveiled in the first half of calendar 2026. Updates on timing will be provided in the next earnings call.
The selected topic was not discussed during the call.
The earnings call highlights several negative factors: a decline in revenue expectations, operating losses with negative gross margins, and challenges from Chapter 11 bankruptcy. Despite some operational improvements, the lack of profitability guidance and ongoing soft market demand contribute to a negative outlook. The market cap suggests a moderate reaction, leading to an expected stock price movement of -2% to -8% over the next two weeks.
The earnings call presents mixed signals. Positive aspects include improved revenue and materials revenue, leadership changes, and cost-saving measures. However, the negative EPS, restructuring charges, and competitive pressures weigh down sentiment. The guidance for Q3 2025 indicates potential challenges with expected losses. The company's market cap suggests a moderate reaction. Overall, while there's potential for improvement, uncertainties and risks related to economic factors and leadership transitions balance the outlook, resulting in a neutral sentiment.
The financial performance shows a decline in revenue and gross margin, with significant free cash flow negativity and restructuring charges. Despite optimistic guidance and potential growth in EV revenue, there are concerns about underutilization costs, competitive pressures, and unclear management responses. The ATM equity offering and restructuring efforts might not offset negative sentiment due to revenue misses and operational inefficiencies. Given the market cap, the stock is likely to react negatively, with a potential decline of 2% to 8% over the next two weeks.
The earnings call summary presents a mixed picture: while there are positive signs such as strong design wins and growth in EV revenue, there are also concerns like reduced revenue guidance, workforce reduction, and restructuring costs. The Q&A section did not provide clear answers, particularly regarding CHIPS Act milestones and Renesas' commitments, adding uncertainty. The market cap of $2.9 billion suggests moderate sensitivity to these factors. Overall, the lack of a clear shareholder return plan and uncertain guidance balance out the positives, leading to a neutral stock price prediction over the next two weeks.
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