Wolfspeed’s challenges on path of transition

How will the SiC market leader react to improve its finances in a growing but increasingly competitive market?

US-based Wolfspeed is the market leader in SiC substrates and epiwafers, but the company’s management is coming under pressure from investors to turn around its financial metrics as it loses share to Chinese players entering the market.

The SiC device sector is set to become the major SiC market over the next five years, Yole Group forecasts, growing from around $2.7 billion this year to more than $10 billion by 2029. The BEV represents the primary market driver, over than 70% of the market. And Industrial applications, including EV chargers and power supply add further momentum to grow the market size.

To ensure Yole Group is at the forefront, the company is dedicating today’s spotlight to the SiC industry, particularly from a manufacturing perspective with the new report, Power SiC – Manufacturing. Yole Group’s analysts are guiding the readers through an in-depth exploration of SiC manufacturing process and dedicated equipment. This encompasses scrutinizing technological advancements, the strategies of prominent SiC equipment manufacturers, and delving into the newest breakthroughs.

In the report, Yole Group shows the transition of focus in the SiC business, the value captured by substrates declined from around 50% to 24%, in the 5-year time of 2019 to 2024. And this value could declined further to 22% by 2029, by seeing the large volume capacity of wafer manufacturing, released by multiple players.

Come along with Yole Group as Poshun Chiu, Senior Technology & Market Analyst ventures today into the realm of SiC, uncovering strategies for industry players to tackle obstacles and foster business growth.

Wolfspeed navigates complex SiC manufacturing landscape

As the pioneer and market leader in SiC substrate, Wolfspeed is also investing heavily in SiC power device production by leveraging its wafer capability. Wolfspeed has first mover advantage in making the transition from 6” wafers to 8” with the construction of its Mohawk Valley plant in the US. The plant opened in 2022 and has started to generate some revenues, but it has been delayed in ramping up production, and expects to reach 20% capacity utilization by mid-2024.

But while Wolfspeed is pushing 8” wafer ramp-up, 6” SiC wafers are becoming more cost-competitive to the rest of the market.

Poshun Chiu Senior Technology & Market Analyst, Semiconductor Substrates & Materials at Yole Group.
SiC manufacturing is complex and the transition to 8” is difficult. In parallel, limited number of 8” wafer suppliers as of 2024 is also a barrier. Companies are still expanding their 6” capacity for a quick time to market. And even with the movements of major SiC device manufacturers to 8”, we do not see 8” as the main platform in the next five years.

SiC wafer and epitaxy wafer production is increasingly competitive with the emergence of Chinese manufacturers such as TanKeBlue, SiCC and EpiWorld, which are engaging in aggressive pricing to gain market share. Sales volumes are increasing on rising demand, but prices are decreasing rapidly, requiring producers to closely manage their costs. Wolfspeed’s market shares at these two levels decreased to a bit above 30% in 2023.

Conversely, while there are multiple companies involved in device production there are still opportunities to grow and wield pricing power as the market expands. Device activities, including power module packaging, is more complex than substrates. And unlike SiC wafers and epitaxy wafers as materials, SiC device is the filed that companies can differentiate themselves with structures and designs.

Wolfspeed’s strategy is clear – the company sees the advantage in moving into the device segment. But in the same time, large amount of CapEx and slow return of investment are not the investors’ favorites. Combining other impacts of economic situation, Wolfspeed’s share price plummeted from $139.55 in late 2021 to just $27 at the end of April 2024, as it reported a net loss of $329.90 million in 2023.

What are Wolfspeed’s options?

The industry has seen consolidation in recent years – with ST Microelectronics acquiring Norstel in 2019 and onsemi acquiring GT Advanced Technologies in 2021. As the focus shifts from materials to devices, more M&A activity is likely as some companies may opt to sell their wafer businesses because they are no longer strategic – which could be a strategy for Wolfspeed. Alternatively, the company could attract more external investment, such as the $500 million automotive supplier BorgWarner invested in the company in 2022.

To include every option, Wolfspeed could also consider agreeing to a sale – although it would be limited to a US-based acquirer, as SiC is considered a strategic material.

A more direct response to shareholder concerns would be for Wolfspeed to cut costs, manage spending, and slow its capital expenditure, much like onsemi and Tesla in similar situations in recent quarters. Wolfspeed may reconsider or postpone its planned investment in a new facility, for example the German fab, while it improves its financial metrics. The company could also consider other approaches, for example to increase its dividend or buy back shares.

Wolfspeed is in a different position to Coherent (formerly known as II-VI), which has slipped from the second largest market share to third place as its revenues have fallen. Coherent has divested its SiC semiconductor business to Denso and Mitsubishi into a $1 billion joint venture as the industry continues to consolidate. Coherent has been losing some share in the wafer business and also wants to enter the device market, but it has yet to gain any significant business.

While the photonics segment is taking a larger part of Coherent’s business, Wolfspeed has sold off its lighting and RF GaN businesses to focus solely on power SiC.

Wolfspeed is in a unique position. The company is the market leader, but it is losing share to Chinese competitors that can provide high-quality wafers at lower prices. Wolfspeed’s new fab has been delayed by 12-18 months – comparable to Tesla when it tried to ramp up EV production but had issues with manufacturing.

Poshun Chiu from Yole Group
But there is also some upside – it is still the leader in SiC material business and shows increase in the revenue generated by Mohawk Valley fab. It’s in line with company’s strategy to make the transition to SiC device business by leveraging the leadership in material,  even with the delay. The company has also accumulated cash in the past two years from investments and financing – leaving it well prepared for the lag in the semiconductor market recovery that had previously been expected in 2024 and could instead materialize in 2025.

The future remains uncertain, but action is imperative. Yole Group’s analysts are committed to advancing their investigation and expertise in this field. With a keen focus on the SiC frontrunner, Wolfspeed, they meticulously analyze its strategies within the expanding power SiC market.

Stay tuned to see how it unfolds!

About the author

Poshun Chiu is Senior Technology & Market Analyst, Semiconductor Substrates & Materials at Yole Group.

Poshun is engaged in the development of technology and market products and is involved in custom projects.

Before joining Yole Group, Poshun had 9 years’ experience in R&D and product management at Epistar (TW & CHN). He is the author or co-author of more than 10 patents in solid-state-lighting. Poshun was also engaged in the development and evaluation of novel applications of process technology and components based on relevant semiconductor material systems.

Poshun received an MSc degree in microelectronics from National Cheng Kung University (TW) and an MBA from IESEG School of Management (FR).

This article has been developed in collaboration with Ezgi Dogmus, Activity Manager, Semiconductor Substrates & Materials and Jean-Christophe Eloy, President & CEO, Yole Group.

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