It’s truly a shame.
According to The Wall Street Journal, Wolfspeed, the leading US silicon carbide (SiC) wafer company, is reportedly on the verge of filing for bankruptcy. Following this news, the company’s stock price plummeted by 60% overnight on Wednesday, topping the list of decliners in the US stock market.
Wolfspeed is a name not unfamiliar to the global semiconductor industry. Founded in the late 1980s, Wolfspeed was a pioneer in third-generation semiconductor silicon carbide, with its market capitalization once reaching an impressive $16.5 billion (approximately 120 billion RMB) in 2021.
However, the rise of its Chinese counterparts put an end to Wolfspeed’s good times. Chinese silicon carbide companies, leveraging mature manufacturing supply chains, put Wolfspeed in an awkward position of technological lag and high costs, ultimately leading to its market defeat. Wolfspeed’s downfall is, to some extent, a microcosm of a larger trend.
The Rise of the Global Silicon Carbide Ancestor: Once Valued at 120 Billion RMB
This was originally a true Silicon Valley startup legend.
The story goes back to 1987, when five graduates from North Carolina State University and another young man co-founded Cree, Wolfspeed’s predecessor, in a restaurant near the university. They were in such dire straits that co-founders Neal Hunter and Eric Hunter maxed out their credit cards and took out a second mortgage so they could hire another founder, John Edmond, as their first employee.
Their initial inspiration came from their university days, when these young people attempted to make semiconductors operate at higher working temperatures and power levels based on the characteristics of silicon carbide. This also made them see an opportunity to produce blue LEDs using silicon carbide. Thus, in 1989, Cree launched its first silicon carbide-based blue LED and became the world’s largest manufacturer of blue LED chips in the 1990s.
Subsequently, in 1991, Cree introduced the world’s first commercial silicon carbide wafer, establishing its pioneering position in the silicon carbide field. Since then, Cree gradually formed three business units: LED (LED chips and components), Lighting (LED lighting systems and fixtures), and Wolfspeed. Among these, Wolfspeed’s business included silicon carbide materials, power devices, and RF devices.
However, as the lighting business began to decline in 2016, Cree successively sold its LED lighting and LED product businesses, deciding to fully transition to third-generation semiconductors. In 2018, it acquired Infineon’s RF power business. There was also an interlude: Cree almost sold Wolfspeed to Infineon in 2016, but the deal was eventually called off.
More importantly, in that same year, Tesla released the Model 3, which for the first time featured STMicroelectronics’ silicon carbide MOSFETs in its inverter. From then on, silicon carbide stood in the spotlight for new energy vehicles, and Cree, as a wafer supplier to STMicroelectronics, naturally seized this excellent opportunity.
The turning point came in October 2021, when Cree officially changed its name to Wolfspeed, completely transforming into a company focused on third-generation semiconductors. At the same time, Wolfspeed’s stock price hit a new high in November of the same year, soaring to $139, with a market capitalization of $16.5 billion (approximately 120 billion RMB), gaining widespread fame.
From the industry trends at the time, the demand for silicon carbide semiconductor applications in new energy vehicles, photovoltaics, and other fields indeed brought immense imaginative space to Wolfspeed. With its technological advantages and leading 8-inch SiC wafer production capacity, Wolfspeed was able to quickly secure its position as an industry leader.
But what was unexpected was that this name change turned out to be the beginning of Wolfspeed’s fall from grace.
Who Killed It ?
The collapse of a great edifice always begins from within.
In the eyes of Wolfspeed’s senior management, the 2021-2024 fiscal years were considered the most important investment period, and therefore, they decided to significantly expand production capacity. During this period, Wolfspeed continuously poured billions of dollars into building new factories in the United States and Germany, including capacity expansion for the Mohawk Valley 8-inch silicon carbide wafer factory and the Durham factory’s 6-inch silicon carbide wafer capacity.
However, this aggressive, “betting on the future” expansion strategy clearly ignored the pace of market development. The first direct impact was that the electrification progress in the European and American automotive markets fell short of expectations, leading local car manufacturers to delay their electric vehicle development goals, resulting in some OEMs postponing orders for automotive-grade semiconductors.
Even Tesla, the “pioneer” in silicon carbide, announced in March 2023 its intention to reduce silicon carbide usage. This news was undoubtedly a bolt from the blue for European and American automotive silicon carbide suppliers, including Wolfspeed. When automotive orders significantly decrease, the capacity utilization rate of silicon carbide manufacturers naturally declines, while costs inversely rise, forming a vicious cycle.
The most typical case is Wolfspeed’s Mohawk Valley factory. As a flagship production line, the plant cost over $5 billion to build, accounting for more than half of Wolfspeed’s capital expenditure, and was originally planned to drive the company’s revenue growth for several years. However, the bleak reality is that the factory only contributed $78 million in revenue in the latest fiscal quarter. And as for capacity utilization, it’s reportedly only expected to reach 25% by the end of 2024.
As of today, Wolfspeed’s debt stands at approximately $6.5 billion, including a $1.5 billion senior secured loan held by Apollo Global Management, with annual interest expenses of around $800 million, while its cash reserves are only $1.3 billion. Its stock price has fallen by 33% year-to-date and plunged by 85% in 2024. Currently, each share is just over $1, and its latest market capitalization is even more dismal.
Even more fatally, the fate of the US CHIPS and Science Act is uncertain and it’s highly likely to be repealed by the current administration. This means that the $600 million cash refund Wolfspeed had hoped to receive may fall through, undoubtedly worsening its current predicament.
As the saying goes, “when a wall falls, everyone pushes it.” Before the collapse, well-known investment institutions had already liquidated their positions. According to a regulatory filing, Jana Partners has exited all its holdings in Wolfspeed. In the first quarter of this year, Jana Partners sold nearly 5 million shares of Wolfspeed stock; by the end of last year, it had reduced its stake by approximately 19%.
Wolfspeed has not been without attempts to save itself. Over the past year, Wolfspeed has dismissed its former CEO, closed a factory, and laid off 20% of its workforce, focusing on the 200mm wafer roadmap in an attempt to turn around its cash flow. However, as of now, all these efforts seem to have been in vain. The only path likely awaiting Wolfspeed is bankruptcy.
The Last Straw: The Rise of Chinese Competitors
An Eastern force also played a role in Wolfspeed’s downfall.
Although Wolfspeed had an early start, the gap between Chinese companies and this silicon carbide pioneer is visibly narrowing. According to a TrendForce report, Wolfspeed still ranks first in the 2024 global silicon carbide substrate market with a 33.7% market share. However, it’s striking to see that Chinese companies TankeBlue and SICC (Tianke Heda and Tianyue Advanced) have performed brilliantly, ranking second and third globally with market shares of 17.3% and 17.1% respectively.
More critically, while Wolfspeed’s mass-produced 8-inch SiC substrates theoretically could reduce unit costs by 30%, the persistent problem of actual yields below 40% has remained unsolved for a long time. At the same time, Chinese manufacturers, through process innovation, have driven the price of 6-inch substrates down to 30% of international levels, directly breaking Wolfspeed’s cost bottom line. Consequently, the internal and external pressures on Wolfspeed are considerable.
In fact, this is a microcosm of the rise of China’s third-generation semiconductor industry. Tianyue Advanced, which listed on the STAR Market in 2022, is one of the few companies globally that can mass-produce 8-inch silicon carbide substrates, was among the first to commercialize 2-inch to 8-inch substrates, and was also the first to introduce 12-inch silicon carbide substrates. Its latest market value exceeds 26 billion RMB.
In February of this year, the STMicroelectronics silicon carbide wafer factory, a joint venture between Sanan Optoelectronics and STMicroelectronics in Chongqing, officially commenced operations. The project is expected to achieve mass production in the fourth quarter of 2025 and will become the first domestic 8-inch automotive-grade silicon carbide power chip mass production line.
In addition to these listed leaders, a batch of silicon carbide unicorns are also queuing up to emerge.
In October 2024, Xinyue Neng announced the completion of approximately 1 billion RMB in Series A funding, co-led by Guangdong Integrated Circuit Fund Phase II managed by Guangdong Financial Holdings Fund and SDIC Venture Capital Fund, with joint participation from Social Security Greater Bay Area Sci-Tech Innovation Fund, Shenzhen Capital Group, Guangzhou Industrial Investment Fund, Kexin Holdings Group, Volkswagen Juding, Boyuan Capital, Fupu Investment, and Xichen Capital.
Earlier, Tongguang Co., Ltd. announced the completion of a 1.5 billion RMB Series F funding round, led by Shenzhen Capital Group’s Manufacturing Transformation and Upgrade New Materials Fund and Beijing-Tianjin-Hebei Coordinated Development Industrial Investment Fund, with joint investment from Baoding High-tech Zone Venture Capital Co., Ltd. and Hebei Industrial Investment Strategic Emerging Industries Development Center.
As multiple investors have expressed in unison: third-generation semiconductors carry the hope of our semiconductor industry achieving a “corner overtake.”
Moreover, global advanced manufacturing is ushering in a “China moment.” DeepSeek’s sudden emergence has shocked European and American tech circles; lithium batteries, photovoltaics, and new energy vehicles have become China’s “new three major exports”; once upon a time, we were “short of chips and screens,” but now the wave of domestic substitution is in full swing… So much so that The New York Times recently exclaimed: “China is likely to ultimately dominate high-end manufacturing entirely.”
The reasons behind this are self-evident. On one hand, China’s manufacturing added value and manufacturing scale have both ranked first globally for 14 consecutive years, making it the only country with all industrial categories and the longest industrial chain; at the same time, it possesses a huge domestic market that can provide sufficient orders and profit support for enterprises. On the other hand, China is transitioning from a “demographic dividend” to an “engineer dividend,” providing ample talent reserves for the development of advanced manufacturing.