Wolfspeed: No surprises, continuing to close factories, lay off employees, and reduce costs

Wolfspeed (WOLF.N) released its fiscal year 2025 second quarter financial report (ending December 2024) after U.S. stock market hours on January 30, 2025, Beijing time. The key points are as follows:

1. Core Indicators: Wolfspeed achieved revenue of $181 million in the fiscal year 2025 second quarter (i.e., 24Q4), a year-on-year decline of 13.4%, which is basically in line with market expectations ($180 million). The impact of weak demand in the industrial and energy end markets and the company's insufficient capacity utilization led to a continued decline in gross margin to -20.8% this quarter.

2. Operating Expenses: $Wolfspeed(WOLF.US) reported operating expenses of $96 million in the fiscal year 2025 second quarter (i.e., 24Q4), a year-on-year decline of 13.3%. Since the last quarter, the company has begun layoffs and cost-cutting measures. Although the company's R&D expenses, sales, and management expenses all saw double-digit declines quarter-on-quarter this quarter, the overall operating expense ratio remains high at 53%.

3. Net Profit: Wolfspeed reported a net loss (GAAP) of $372 million in the fiscal year 2025 second quarter (i.e., 24Q4), with the loss continuing to widen. This quarter, the company's restructuring-related expenses were approximately $188 million. After excluding this impact, the company's operating loss still reached $184 million.

4. Guidance for Next Quarter: Wolfspeed's revenue guidance for the fiscal year 2025 third quarter (i.e., 25Q1) is $170-200 million, with the midpoint slightly lower than market expectations ($193 million). The company's target for net loss (GAAP) is $270-290 million, and after excluding the expected restructuring costs of $72 million, the midpoint is slightly lower than market expectations (net loss of -$194 million).

Overall View of Dolphin: Wolfspeed's financial report is generally standard.

The company's revenue and gross margin continue to be sluggish this quarter, mainly due to weak demand in the industrial and energy end markets, leading to low factory utilization, which in turn affected the company's gross margin performance. Of the final $370 million loss this quarter, approximately $188 million is attributed to restructuring costs. After excluding this impact, the company's operating profit is approximately -$184 million, showing no significant improvement.

Due to the low utilization of some of the company's factories, the company has begun to close factories, lay off employees, and cut costs since the last quarter. Although this will bring certain costs to the company in the short term, it is expected to achieve a reduction in operating losses in the medium to long term. ** In the absence of significant improvements in current business operations, market expectations for the company mainly focus on optimizing management.

The company's total market value has declined from a previous high of nearly $18 billion to below $1 billion. Current market expectations for the company have shifted from "high growth elasticity" to "a gamble of not going bankrupt." Although this financial report still shows no signs of improvement in business operations, the nearly $20 million decline in operating expenses this quarter demonstrates the company's determination to streamline costs. Overall, Wolfspeed's financial report is neither surprising nor disappointing, still aligning with market expectations for continued adjustments in the company's operations.

Here are Dolphin's specific data on Wolfspeed:

1. Revenue

Wolfspeed achieved revenue of $181 million in the second quarter of fiscal year 2025 (i.e., Q4 2024), a year-on-year decline of 13.4%, which is basically in line with market expectations ($180 million), positioned at the midpoint of the revenue target range of $160-200 million.

By product, the company's power device and materials businesses saw declines of 6% and 8% respectively this quarter, mainly affected by weak demand in the industrial and energy end markets. The company's Mohawk Valley plant generated revenue of $52 million this quarter.

For next quarter's revenue, the company has provided guidance of $170-200 million. From the revenue guidance, it appears that the company's operations have not shown significant improvement, remaining basically stable quarter-on-quarter.

2. Gross Profit

Wolfspeed reported a gross profit of -$37 million in the second quarter of fiscal year 2025 (i.e., Q4 2024), continuing to decline year-on-year and quarter-on-quarter. Since the last quarter, the company's gross margin has fallen into negative territory. This quarter, the gross margin further declined to -20.6%, below market expectations (-10.1%).

In this quarter's company cost items, approximately $31.4 million came from the company's restructuring-related costs. Excluding this, the company's gross margin would still be negative.

The continuous decline in the company's gross margin is mainly due to decreased productivity at the Durham wafer fab and Durham materials business. Additionally, the company also conducted a maintenance shutdown this quarter, further impacting the gross margin level.

Overall, Dolphin believes that the significant drop in the company's gross margin is primarily due to insufficient downstream demand, which has affected the company's capacity utilization. Therefore, the company has already begun to close some factory capacities since the last quarter to improve operational efficiency.

3. Operating Expenses

Wolfspeed's operating expenses in the second quarter of fiscal year 2025 (i.e., Q4 2024) were $96 million, a year-on-year decline of 13.3%. Previously, the market tolerated the company's high operating expense ratio due to growth driven by demand in the new energy downstream sector. However, with the company's business showing little growth, the high expense ratio has become a burden on its operations.

1) R&D Expenses: This quarter's expenditure was $44 million, a quarter-on-quarter decline of 12.8%. As a high-tech company, the R&D expense ratio has long maintained above 20%, exhibiting certain rigidity. However, with the company's continued losses, it has reduced its R&D scale for two consecutive quarters to improve its operational situation.

2) Selling, General and Administrative Expenses: This quarter's expenditure was $51 million, a quarter-on-quarter decline of 17.8%. The company also streamlined personnel and expenses in sales and management this quarter, resulting in a decrease in the selling expense ratio to 28.3%.

With no visible growth in the company's revenue and a decline in operational efficiency directly impacting the company's gross margin, the high operating expenses have become a burden. Although the company has begun to reduce expenses, the current proportion of the two core expenses still exceeds 50%, putting significant pressure on the company's efforts to turn a profit.

4. Net Profit

Wolfspeed reported a net loss (GAAP) of $372 million in the second quarter of fiscal year 2025 (i.e., Q4 2024), with losses continuing to expand.

Starting from fiscal year 2025, the company has initiated plans to close and consolidate some factories. During the optimization process, the company incurred approximately $188 million in restructuring-related costs this quarter. After excluding this impact, the company's operating profit for this quarter was approximately -$184 million.

Due to downstream demand, the capacity utilization rate of some of the company's factories is relatively low, affecting operational efficiency. Although the company has begun to close factories and streamline personnel over the past two quarters to alleviate pressure on operating expenses.

The closure of capacity and restructuring operations will incur high related costs in the short term, but will be beneficial for reducing losses in the company's operations in the medium to long term. However, further "turning losses into profits" will still require a recovery in downstream demand and business growth.

For the next quarter, the company has projected a quarterly loss of $270-290 million. Given that the company expects restructuring-related costs of approximately $72 million in the next quarter, the operating loss after excluding this impact will still be around $200 million. The company's business has not shown significant improvement, and it will continue to implement factory closures, layoffs, and cost reductions in the next quarter.