Wolfspeed is a semiconductor company that specializes in silicon carbide technologies. The company’s focus is on providing solutions for efficient energy consumption and a sustainable future. Their product families include silicon carbide material and power devices targeted at various applications, such as electric vehicles, fast charging, renewable energy, and storage.
Jana, an experienced activist investor founded by Barry Rosenstein, has urged Wolfspeed to engage in a comprehensive review of strategic alternatives, including a possible sale of the company. Jana’s activist strategy has evolved over the years, transitioning from the three “Vs” (Value, Votes, Variety) to the three “Ss” (Stock price, Strategic activism, Star advisors/nominees). Jana’s recommendations for Wolfspeed include prioritizing execution, earning an acceptable return on capital, setting realistic targets, and outlining a clear plan for capital expenditures.
Despite being the world’s leading producer of silicon carbide, Wolfspeed has faced challenges in executing its expansion plans. The rollout of two major manufacturing facilities in North Carolina and New York has been plagued by delays, with projected low utilization rates. Additionally, the company announced plans to build the world’s largest SiC manufacturing facility in Germany, raising concerns about its ability to execute and meet demand.
To address the challenges it faces, Wolfspeed should focus on improving execution at its existing facilities in North Carolina and New York. The company needs to earn an acceptable return on capital, set realistic targets, and provide a clear plan for capital expenditures to avoid dilutive capital raises. By creating a credible forward-looking plan, Wolfspeed can regain investor confidence and potentially see a rebound in its stock price.
While Jana recommends that Wolfspeed explore strategic alternatives, including a possible sale of the company, the current stock price may not support a sale at a premium. Instead, management should focus on fixing operational issues and improving the company’s performance. Seeking investment from a strategic partner at a high multiple could help shore up supply and support future growth.
Drawing parallels to Jana’s past investments, such as Freshpet, where operational fixes led to improved performance, Wolfspeed can learn from previous experiences. By addressing supply shortages, improving execution, and implementing sound capital allocation strategies, Wolfspeed can potentially achieve similar success.
Wolfspeed needs to prioritize execution, earn an acceptable return on capital, and set realistic targets to overcome its current challenges. By developing a clear plan for capital expenditures and exploring strategic alternatives, the company can position itself for long-term success in the semiconductor industry.