What happened
Shares of silicon carbide (SiC) wafer and chip system manufacturer Wolfspeed (WOLF 1.59%) were falling over 18% today as of 11:15 a.m. ET. Blame the company's fiscal 2023 first-quarter earnings report. Interestingly, revenue and earnings narrowly beat expectations, but shares tanked anyway. That's due to guidance for the next quarter.
So what
But first, those Q1 numbers (for the three-month period ended Sept. 25, 2022). Wolfspeed revenue was up 53% year over year to $241 million. Net loss improved to $26.2 million, compared to a net loss of $70.1 million in the same period last year.
There's a tremendous amount of optimism surrounding Wolfspeed (the company formerly known as Cree) as it transitions to a SiC chipmaking pure play. SiC is a more expensive semiconductor material than traditional silicon, but it holds up better under the high voltage and high temperatures that electric vehicles (EVs) subject semiconductors to. With virtually every automaker out there scrambling to electrify its lineup, SiC demand is through the roof.
Wolfspeed says it sees a $40 billion "opportunity pipeline" (over the long term) from SiC as the EV market and other applications for SiC chips steadily climb in the next decade.
Now what
Now for the bad news: Q2 fiscal 2023 guidance. Wolfspeed said revenue should be in a range of $215 million to $235 million. Net loss is expected to be $83 million to $93 million. That's a big decline in sales and earnings from what was just reported, especially for a company rapidly scaling up its manufacturing capacity to meet expected demand.
However, the automotive industry has hit another snag in recent months as supply chain problems, inflation, and waning demand from a weakening economy hit production. It looks as if these troubles are flowing downstream to Wolfspeed -- although at the midpoint of revenue guidance, the company still expects to grow 30% year over year.
Also of note, back in September, Wolfspeed announced it would begin construction of a new facility in North Carolina adjacent to one of its existing chip fabs. This new project, expected to cost $1.3 billion but getting a big lending hand from local governments (to the tune of $1 billion), will be the world's largest SiC chip fab.
Clearly, Wolfspeed is ambitious, and it has a long on-ramp to growth if the EV market gradually makes internal combustion engines obsolete. But perhaps investors were getting ahead of themselves. Even after this morning's tumble, shares of Wolfspeed are handily beating the market with just a 7% decline in the last 12-month stretch -- and an increase of 89% over the last three years.
