wolfspeed faces potential bankruptcy amid chip act uncertainty

2025-05-21 general

Durham, Wednesday, 21 May 2025.
wolfspeed, a leading us silicon carbide chip manufacturer, is on the brink of filing for bankruptcy protection. the company’s stock plummeted over 60% after hours due to a staggering $6.5 billion debt. wolfspeed, a major tesla supplier, struggled with low production yield of only 30%, while the industry standard sits at 70%. adding to the turmoil, uncertainty surrounding the us chips act and the potential loss of a $750 million grant further crippled the company’s financial prospects. analysts suggest that wolfspeed’s downfall highlights the risks of high capital expenditure in the silicon carbide sector.

market overview and wolfspeed’s decline

The news of Wolfspeed’s potential bankruptcy sent shockwaves through the stock market [8]. On May 20, 2025, the announcement that the silicon carbide manufacturer was preparing to file for chapter 11 bankruptcy due to its insurmountable debt led to an almost 59% plunge in after-hours trading [8]. This decline reflects growing investor concerns regarding high debt levels and increasing competition within the semiconductor industry [8]. While other tech stocks, such as Tesla and Nvidia, maintained high trading volumes, Wolfspeed’s crisis underscores the risks of investing in companies with precarious financial health [8].

financial struggles and strategic missteps

Wolfspeed’s financial woes are substantial. The company faces a staggering $6.5 billion in debt [8][1]. Its CFO, Neil Reynolds, had previously indicated the possibility of needing court intervention to renegotiate debt during an earnings call on May 9 [8]. Over the past year, Wolfspeed’s stock has plummeted nearly 88%, dropping from $25.7 to $3.13, signaling significant investor doubt about its ability to continue operations [8]. Strategic moves, including the closure of a 150 mm factory in Durham, North Carolina, and expansion in Mohawk Valley, New York, have failed to alleviate financial strain [8].

industry context and competitive pressures

Carbon carbide (SiC) is a next-generation semiconductor material that is highly valued for its efficiency in electric vehicles, data centers, and renewable energy [8]. However, increased competition and high production costs pose significant challenges. Once a leader in the SiC sector, Wolfspeed has been hampered by debt and operational expenses [8]. While its third-quarter revenue saw a slight increase of 2.2% to $185.4 million, the company’s net losses have widened, with negative free cash flow of $168 million [8]. Competitors such as Infineon Technologies and ON Semiconductor have maintained stronger market positions through diversified product lines and more stable financial management [8].

expert opinions and market analysis

Analysts are weighing in on Wolfspeed’s precarious position. Harsh Kumar from Piper Sandler noted on May 20, 2025, that Wolfspeed’s potential bankruptcy reflects the high capital expenditure risks inherent in the silicon carbide industry, viewing restructuring as the only viable short-term solution [8]. Vivek Arya from Bank of America suggested investors shift focus to more stable competitors like Infineon, citing Wolfspeed’s financial difficulties and high-risk valuation [8]. Tristan Gerra from Robert W. Baird believes that while Wolfspeed’s Mohawk Valley factory could improve production and reduce costs by 2026, the current debt pressures necessitate a capital restructuring through bankruptcy [8].

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bankruptcy silicon carbide