Wolfspeed (WOLF Quick QuoteWOLF - Free Report) and Renesas Electronics have entered into a 10-year wafer supply agreement, signaling a major step forward in the adoption of silicon carbide technology.

Renesas, a leading semiconductor solutions provider, has deposited $2 billion to secure a long-term commitment from Wolfspeed, the global leader in silicon carbide technology, for the supply of silicon carbide bare and epitaxial wafers.

Per the agreement, Wolfspeed will supply Renesas with 150-millimeter (mm) silicon carbide wafers initially, with plans to scale up to 200 mm wafers (1.7 times larger than 150 mm) in the future. This partnership will enable Renesas to expand its production of silicon carbide power semiconductors, a critical component in meeting the rising demand for more efficient power management solutions, particularly in the automotive and industrial sectors.

Silicon carbide devices offer several advantages over traditional silicon power semiconductors, including higher energy efficiency, greater power density and lower system costs. As the world increasingly prioritizes energy efficiency, the adoption of silicon carbide technology is becoming more prevalent across a range of applications, such as electric vehicles, renewable energy systems, industrial power supplies and more.

The $2 billion deposit made by Renesas will also contribute to Wolfspeed's capacity expansion plans, including the construction of the John Palmour Manufacturing Center for Silicon Carbide in Chatham County, NC. This state-of-the-art facility, expected to be the world's largest silicon carbide materials factory, will significantly increase (estimated to be 10-fold) Wolfspeed's production capacity and enable the manufacturing of larger 200 mm silicon carbide wafers, leading to improved cost efficiency.

Expanding Capacity Boosts Wolfspeed’s Prospects

Wolfspeed shares have declined 8.8% year to date against the Zacks Computer & Technology’s rise of 37%. The company has been suffering from weak demand for RF products and a challenging macroeconomic environment.

However, the growing demand for its power device products has been encouraging. Moreover, ramping up of Wolfspeed’s Mohawk Valley facility is expected to boost top-line growth and save costs. Mohawk Valley’s scale, automation and wafer size advantages are anticipated to lower overall die costs by more than 50%.

For fourth-quarter fiscal 2023, Wolfspeed expects revenues in the range of $212-$232 million.  It expects low single-digit revenues from Mohawk Valley. The Zacks Consensus Estimate for the quarter’s revenues is pegged at $223.36 million, indicating a decline of 2.25%.

Non-GAAP loss is expected to be 17-23 cents per share. The Zacks Consensus Estimate for the quarter’s loss stands at 20 cents per share.

Wolfspeed targets revenues between $1 billion and $1.1 billion for fiscal 2024, driven by an estimated 20% capacity utilization at Mohawk Valley by the fourth quarter of fiscal 2024.

Zacks Rank & Stocks to Consider

Wolfspeed currently has a Zacks Rank #3 (Hold).

Salesforce (CRM Quick QuoteCRM - Free Report) , Meta Platforms (META Quick QuoteMETA - Free Report) and NVIDIA (NVDA Quick QuoteNVDA - Free Report) are better-ranked stocks in the broader sector. All three sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Salesforce, Meta and NVIDIA stands at 19.25%, 21.93% and 23.02%, respectively.

Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.