Wolfspeed's Bankruptcy Struggles Deepen with Ongoing Negative Margins

What happened

Wolfspeed is operating under Chapter 11 bankruptcy with management disclosing substantial doubt about its ability to continue as a going concern. The company persists with negative gross margins and cash flow, echoing pre-bankruptcy issues that hinder recovery. Intensifying competitive pressures in silicon carbide markets compound operational challenges like underutilization and complex 200mm yield ramps. While liquidity from cash reserves and anticipated tax credits provides a buffer, execution risks and restructuring uncertainties overshadow any near-term optimism. Investors should remain wary of buying dips until clear progress on plan confirmation and margin improvement is demonstrated.

Implication

The equity is highly speculative due to Chapter 11 proceedings and negative fundamentals, making recovery unlikely without successful restructuring. Negative cash flow and margins persist, undermining profitability prospects and increasing reliance on external funding. Liquidity from cash and tax credits offers temporary relief but could be eroded by operational delays or competitive pressures. Upside depends on unproven catalysts like yield improvements and plan confirmation, which carry significant execution risk. Until these milestones are achieved, the risk-reward profile remains unfavorable, supporting a sell stance.

Thesis delta

The news article confirms ongoing fundamental weaknesses without altering the core thesis, which remains a sell due to bankruptcy risks and poor operational metrics. Any shift to a more favorable view hinges on successful restructuring completion and demonstrable margin improvements, which are still uncertain.