[By Guanchacn Column Author心智观察所]
The top player in the global silicon carbide industry, Wolfspeed, is about to face its final challenge - due to difficulties in solving its massive debt problem, it is seeking to file for Chapter 11 bankruptcy protection under U.S. bankruptcy law and plans to file for bankruptcy within weeks. The company's stock price fell more than 57% in after-hours trading.
In fact, since the second half of last year, this compound semiconductor company that aimed to integrate the entire chain of silicon carbide substrates + epitaxy + devices has shown clear signs of decline, with bankruptcy already on the agenda. Even the $800 million allocated by Biden's "Chip Act" couldn't save it.
Silicon carbide is a wide bandgap semiconductor material. Compared to traditional silicon, it has higher voltage resistance, temperature tolerance, and high-frequency performance, with widespread applications in high-power, high-temperature, and high-frequency scenarios. It has been a popular track in capital markets for many years. At one point, Wolfspeed was at the forefront, aggressively expanding production in the United States. How did it end up in such dire straits?
Many analysts have analyzed the company's decline from the perspectives of product definition, market route selection, marketing strategy, etc. In fact, the fundamental reason is that Wolfspeed's position is too far from China.
In other words, not tightly embracing the Chinese mainland market is the main cause of its bankruptcy.
It's cruel, but for an industry like semiconductors that is highly internationalized and globalized, and in a highly competitive field like silicon carbide, if you can't deeply understand what's happening in the Chinese market, you won't find your direction or future.
Precursor: Wolfspeed Squeezed Out of the LED Track
The predecessor of Wolfspeed was Cree Research, founded in 1987. This company was a pioneer in the application of silicon carbide (SiC) and launched the first blue LED based on SiC in 1989 and went public on the US stock market in 1993.
Wolfspeed (the former Cree) was the global pioneer in making LEDs using silicon carbide. Due to the good lattice compatibility between silicon carbide and gallium nitride, Cree used silicon carbide as the substrate and gallium nitride as the epitaxy layer, which once thrived.
Until 2017, LED business still accounted for two-thirds of Cree's total revenue. However, at this time, rumors began to spread that Cree would divest its LED business and fully shift to compound semiconductors, especially the manufacturing of silicon carbide substrates + epitaxy layers.
Because at this time, Cree found a problem: the global LED market began to become oversaturated, with gross profit margins continuously declining, no longer so profitable, and unable to continue painting pies for major shareholders.
Cree's retreat in the LED field was closely related to the booming development of the Chinese mainland market.
In 2013, the domestication rate of Chinese LED chips broke through 50%, and companies like San'an Optoelectronics and Huacan Optoelectronics achieved technological breakthroughs, replacing imports; after 2015, China became the largest producer and consumer of LEDs globally, accounting for over 70% of global capacity, with San'an Optoelectronics ranking among the top three LED chip manufacturers worldwide.
Outside the market, more importantly, there were technological breakthroughs. After 2010, China achieved breakthroughs in key technologies such as sapphire substrates, epitaxial growth, and chip cutting. The light efficiency of domestic chips rose from 80 lm/W to over 200 lm/W, reaching international standards.
San'an Optoelectronics mass-produced 6-inch LED epitaxial wafers in 2014, breaking the monopoly of Cree and Nichia Chemical of Japan.
China formed a complete industrial chain layout from substrate materials, epitaxial chips, packaging to applications, achieving coordinated cost reduction. In 2015, China's patent application volume in the LED field accounted for over 40% globally, gradually breaking through the patent barriers of companies like Nichia Chemical and Toyoda Gosei.
Tragic, Wolfspeed Squeezed Out of the Silicon Carbide Track
To be fair, around 2018, when Cree decided to gradually divest its LED business, many small and medium-sized LED enterprises both domestically and internationally indeed faced tough times, engaging in low-price competition, with many bankruptcies. It was normal for international giants to withdraw from general lighting businesses and divest themselves.
It was reasonable for Cree, which had substantial historical accumulation in the silicon carbide industry, to fully transition to compound semiconductors. Moreover, at that time, Musk sent him "warmth." Tesla's rise drove the popularity of global silicon carbide concept stocks.
Tesla significantly improved the efficiency of inverters and vehicle range by first mass applying silicon carbide power devices in its Model 3, setting a technical benchmark for the industry. As a leader in the electric vehicle sector, Tesla's innovative choice drew attention to the performance advantages of silicon carbide, prompting automakers and suppliers to reassess their technology paths and accelerate the mainstreaming of silicon carbide in the new energy track.
A rush to develop SiC solutions by automakers, combined with intensive investment from capital markets, ultimately elevated silicon carbide from a niche technology to a core track in new energy vehicles and energy sectors.
In 2021, Cree changed its name to Wolfspeed and began its "Great Leap Forward" in silicon carbide.
A senior wide bandgap semiconductor analyst told Guanchacn Observing Institute that Wolfspeed's choice to take the path of 8-inch substrates, which involved higher costs and earlier investments, was also limited by objective conditions. The elimination of 6-inch lines in the U.S. left wide bandgap semiconductors starting on the "high-end" route.
At first glance, Wolfspeed's factory in Mohawk Valley seemed to lead by one generation compared to domestic 6-inch silicon carbide substrates and epitaxial factories. However, specialized equipment for silicon carbide like epitaxy, etching, injection, annealing, PVD, etc., are emerging things and cannot share the same platform as silicon-based equipment. There are huge risks in yield and capacity.
Domestic 6-inch lines, though seemingly lagging behind, are more mature and reliable, capable of replicating the model of flooding the market with quantity and reducing prices: "In the long term, considering cost factors, 6-inch lines will not be eliminated by 8-inch lines in the short term and will exist for a long time," the analyst told Guanchacn Observing Institute.
Luhangzhi, a semiconductor analyst from Taiwan region, also expressed his views on Wolfspeed's predicament on social media, pointing directly to cost issues: Wolfspeed sells carbonic silicon wafers worth $10,000, with costs as high as $17,000. Intel sells each high-end silicon wafer worth $10,000 at a manufacturing cost of $16,550, while TSMC is slightly above $10,000.
Interwoven with the silicon carbide production line, Wolfspeed almost placed all its production focus and investment on the North American continent, while North America is not the place where the demand for silicon carbide terminal markets is absorbed.
The explosive growth of the new energy vehicle industry is the main driver of silicon carbide: domestic automakers are accelerating the adoption of silicon carbide motor drive systems to enhance range and shorten charging times. High-end models of brands like BYD and NIO have already scaled up the use of silicon carbide MOSFET modules. Meanwhile, the demand for efficient and high-temperature silicon carbide devices in new energy infrastructure such as photovoltaic inverters, energy storage systems, and ultra-fast charging piles is surging, coupled with policy inclinations under the "dual carbon" goals, further amplifying market demand.
In this context, Wolfspeed's so-called high-end 8-inch MOSFETs are like water without a source outside mainland China.
Success came from Tesla, and failure also came from Tesla.
In the first quarter earnings conference in 2023, Musk revealed that Tesla is optimizing circuit design to reduce the usage of silicon carbide transistors in the next-generation motor drive system by 75% while maintaining performance. This adjustment directly stems from cost pressures and supply chain bottlenecks of silicon carbide devices—long-term tightness in global silicon carbide substrate capacity, coupled with low yields of automotive modules, keep costs high. Tesla aims to alleviate cost and supply risks by reducing usage and enhancing design efficiency while exploring alternative paths such as silicon IGBTs.
This move sent shockwaves through the supply chain, increasing expectations of a "cooling down" in the silicon carbide track. Following the announcement, Wolfspeed's stock plummeted by 10% on the same day.
Since then, Wolfspeed has never recovered, gradually sliding toward bankruptcy.
Alienation from the Chinese market is tantamount to buying your own coffin.
Since 2023, Wolfspeed has not resolved its capacity utilization issue. The utilization rate of its Mohawk Valley factory remains at only 20%. In the second quarter of the 2024 fiscal year, Wolfspeed achieved revenue of $200 million, a year-on-year decrease of 14.9%. In terms of gross profit, the company achieved a gross profit of $2 million in the second quarter, a year-on-year decrease of 96.3%, with a gross margin of only 1.2%, setting a new record low.
Wolfspeed's Mohawk Valley Factory
After the former CTO left, the newly appointed female CTO was inexperienced and unable to deeply perceive the company's crisis awareness and dynamic market trends. Due to insufficient cash flow, the company continues to increase long-term debt, with current net debt being 4.5 times the equity. Even with blood transfusions from orders from Renesas Electronics of Japan, the huge initial expenditures of the German factory could not be converted into effective capacity. With the scale of operations too large, it could not support burning six or seven hundred million dollars per quarter. Bankruptcy might be its most dignified ending.
Wolfspeed's bankruptcy crisis is closely related to its strategic neglect of the Chinese market. As the absolute center of the global new energy vehicle, photovoltaic, and energy storage industries, China accounts for over 40% of global demand for silicon carbide devices, with annual growth exceeding 30%. However, Wolfspeed has long focused on the European and American markets and failed to establish localized supply chains in China or deeply bind with leading customers like BYD and NIO in a timely manner.
Its long validation cycles for Chinese manufacturers and slow customized responses have led to many orders being grabbed by competitors like Infineon and San'an Optoelectronics. In the semiconductor industry's competitive logic of "winning China wins the world," this regional strategic imbalance caused it to miss out on key growth points.
The uniqueness of the Chinese market further amplified Wolfspeed's mistakes. On one hand, under the trend of technological decoupling between China and the U.S., Chinese automakers and equipment manufacturers prioritize local or non-U.S. supply chains to mitigate risks. Wolfspeed neither established factories in China nor formed joint ventures with local enterprises, becoming an "unreliable supplier."
On the other hand, the maturity speed of China's SiC supply chain exceeded expectations. Domestic manufacturers from substrates to modules, such as Tianyue Advanced and Taikeda Semiconductor, have achieved a transition from technological catch-up to price dominance. Without cost advantages or a local service network, Wolfspeed was squeezed out of the world's largest incremental market, accelerating its financial collapse.
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Original Source: https://www.toutiao.com/article/7508184058610991635/
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