Wolfspeed (WOLF.N) released its Q1 2024 earnings report (ending in September 2023) after the US stock market closed on October 31st Beijing time. The key points are as follows:

Core Indicators: Wolfspeed achieved revenue of $197 million in Q1 2024, a YoY decrease of 18.2%, which is basically in line with market expectations ($196 million). The revenue side is gradually weakening. The company's gross margin plummeted to 12.5% this quarter, better than market expectations (11.9%), mainly due to the slowdown in market demand and the increase in inventory.

Operating Expenses: Wolfspeed's operating expenses in Q1 2024 reached $108 million, a YoY decrease of -0.8%. The impact of asset disposal reduced R&D expenses, but the sales, general and administrative expense ratio, as well as the R&D expense ratio, continued to remain at a high level.

Net Loss: Wolfspeed's net loss (GAAP) in Q1 2024 was $403 million, and the loss continued to widen. The main reasons for the continued expansion of the company's loss this quarter are the decline in profitability in ongoing operations and the significant loss from discontinued operations.

Guidance for the Next Quarter: Wolfspeed's revenue guidance for Q2 2024 is $192-222 million, slightly lower than market expectations ($218 million). The company's net loss (GAAP) target is $131-151 million, which is basically in line with market expectations (net loss of $138 million).

Overall, looking at the financial statements, Wolfspeed's earnings report is not bad. The revenue side met market expectations, and the gross margin slightly exceeded market expectations.

However, Dolphin Research does not think that Wolfspeed's earnings report is very good. Firstly, on the revenue side, the previous high growth has ceased, and the growth rate continues to decline. Secondly, the gross margin has dropped from over 30% to 12.5% without any improvement. Lastly, the company is still experiencing losses of over 100 million, and the losses are expanding. Although it is better than the market's downwardly revised expectations, it indicates that the company's operating situation is continuing to deteriorate. Looking at the company's guidance for the next quarter, it does not bring confidence. The company is expected to achieve revenue of $192-222 million in the next quarter, slightly lower than market expectations ($218 million). The net loss (GAAP) target is $131-151 million, which is in line with market expectations (net loss of $138 million). Although the revenue side benefits from the capacity expansion of the new factory, the company's losses continue to widen.

The short-term performance being better than "revised expectations" does not indicate a true turnaround in the business. The significant decline in the company's gross profit margin and the continued expansion of losses are undeniable facts. The current Wolfspeed can no longer be seen as having the "high growth" characteristics it had before. A company that loses over $100 million every quarter is unlikely to bring sustained confidence to the market.

Here is Dolphin Research's detailed analysis of Wolfspeed:

1）Revenue:

Wolfspeed achieved revenue of $197 million in the first quarter of the 2024 fiscal year (23Q3), a year-on-year decline of 18.2%, which is basically in line with market expectations ($196 million).

Considering the impact of asset disposal, the company's revenue in this quarter grew by 3.7% compared to the same period last year, reaching $189 million. This is mainly due to the expansion of the company's production capacity, with the Mohawk Valley factory contributing approximately $4 million in revenue this quarter.

The revenue for this quarter is in line with expectations, but the market is more concerned about the company's situation in the next quarter. The company has provided revenue guidance of $192-222 million for the next quarter, and the expansion of capacity is expected to provide support to the revenue side.

2）Gross Profit:

Wolfspeed achieved a gross profit of $25 million in the first quarter of the 2024 fiscal year (23Q3), a year-on-year decline of 69.1%. Compared to revenue, the company's gross profit margin is even more concerning.

The company's gross profit margin in this quarter dropped to 12.5%, a year-on-year decrease of 20.6 percentage points, but slightly better than market expectations (11.9%). Even after excluding the impact of the sale of the RF product line, the decline in gross profit margin is still over 20 percentage points.

Dolphin Research believes that the downturn in downstream demand has led to the continued increase in the company's inventory. In this context, the decline in product prices directly resulted in a significant decrease in gross profit margin.

3. Operating Expenses

In the first quarter of the 2024 fiscal year (23Q3), Wolfspeed's operating expenses were $108 million, a YoY decrease of -0.8%. As the company is still in the early stages of high growth in the industry, its operating expense ratio (especially in research and development) remains at nearly half of its level.

Research and Development Expenses: The company's expenses in this quarter were $44 million, a YoY decrease of 20%. The company sold its RF product line in this quarter, which to some extent reduced its research and development expenses. However, as a high-tech company, research and development expenses still have certain rigidity. After the divestment of assets such as LED, the company's increased investment in research and development is mainly focused on SiC. Dolphin Research expects the company to continue to prioritize research and development investment, with expenses accounting for more than 20%;

Selling, General, and Administrative Expenses: The company's expenses in this quarter were $64 million, a YoY increase of 16.5%. This is mainly due to increased sales expenses in the context of weakened downstream market enthusiasm and increased inventory.

With relatively weak revenue, the company's expenses remain high. This will greatly affect the release of the company's profits and result in continued losses.

4. Net Profit

In the first quarter of the 2024 fiscal year (23Q3), Wolfspeed's net profit (GAAP) was a loss of $403 million, far below market expectations (-$148 million).

Due to the loss caused by the termination of operations reaching $279 million, if this impact is excluded, the company's net profit from continuing operations is a loss of $124 million, which is better than the market's expected loss of $148 million. The better-than-expected performance in operating results is mainly due to the better-than-expected gross profit margin.

Although the company's losses continue to expand, with losses of over $100 million per quarter, it is still better than expected. This indicates that the market has accepted the company's weak operating situation.

Looking at the next quarter, the company has provided an expected profit range of a loss of $131-157 million. The losses continue to expand. Dolphin Research believes that this is mainly due to weak revenue and continued pressure on gross profit margin and expenses.