The truth about Wolfspeed’s bankruptcy chatter

At a time when the explosive growth in artificial intelligence (AI), data centers, electric vehicles (EVs), and renewable energy is triggering an unprecedented demand for high-voltage, high-frequency and high-efficiency power devices, the chatter about silicon carbide (SiC) poster child Wolfspeed’s bankruptcy has startled the semiconductors world.

Wolfspeed, which divested its LED and RF businesses to focus on SiC-based power electronics, has been considered a flagbearer in the rapidly emerging SiC semiconductors market. The company pioneered 1-inch, 2-inch, 4-inch and 6-inch SiC wafers, and it was the first outfit to open an 8-inch SiC wafer fab in Mohawk Valley in 2022.

In fact, Wolfspeed is now the only company manufacturing SiC devices on 8-inch wafers in high volume. So, what has gone wrong in Wolfspeed’s SiC fairy tale? For a start, while the word bankruptcy triggers a sense of shock for a company that’s considered the market leader, the truth is that Wolfspeed is restructuring itself to address financial vows and reinforce operational efficiency.

After all, SiC is a new market that is constantly evolving. That inevitably brings growing pains, especially when a new technology like SiC entails higher product development costs while carrying small-volume orders. In other words, Wolfspeed’s situation is more than a company in crisis.

Figure 2 The SiC-based devices promise to transform power electronics in segments ranging from data centers to EVs to renewable energy. Source: Wolfspeed

Why bankruptcy

Now, let’s take a closer look at Wolfspeed’s predicament. First and foremost, a slowdown in EV demand is widely quoted as the cause of Wolfspeed’s current misfortunes. Second, while the SiC substrate business has served as the cash cow for Wolfspeed, the arrival of Chinese players has led to a steep decline in the price of SiC substrates.

According to Yole, the advent of Chinese SiC substrate suppliers has led to a significant capacity expansion and a 30% price drop in 2024. Third, and probably most important, are Wolfspeed’s financial headwinds. It’s carrying $6.5 billion debt while its sales projections seem too optimistic amid the EV slowdown and aggressive push from Chinese players in the SiC market.

So, this bankruptcy news looks more like a bid to establish supply chain discipline, capital flexibility, and policy alignment. The recent change of guards at Wolfspeed in which Gregg Lowe bowed down to make way for Robert Feurle is most likely about setting the stage for this critical transition.

Figure 2 It’s probably no coincidence that Feurle’s appointment precedes the bankruptcy news. Source: Wolfspeed

It’s pretty ironic that Wolfspeed, then known as Cree, made a huge bet on LEDs at a time when the LED market was about to crash. Nearly two decades later, Wolfspeed decided to transform itself into a power electronics device company. Yole calls it an exciting story of business transition.

While the Wolfspeed bankruptcy is most likely coming in weeks, it’s important to put things in perspective. Wolfspeed is still a market leader in SiC materials and is ranked number four in SiC power devices. That said, SiC’s technology and cost challenges leave Wolfspeed with gigantic task of turnaround in a market that demands high CapEx for future development.

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