Deutsche Bank (ETR:DBKGn) adjusted its outlook on Wolfspeed (NYSE: NYSE:WOLF), lowering the price target on the semiconductor company's shares to $14 from $17, while maintaining a Hold rating. The revision follows Wolfspeed's announcement that it anticipates a substantial decrease in capital expenditures by fiscal year 2026, ending in June, to a range of $200 million to $600 million. This forecasted capex is significantly less than the $2.1 billion spent in fiscal year 2024.
The company has indicated that the reduced spending is due to "significant improvement in yield and efficiency in the 200mm materials and device facilities."
In a concurrent move, Wolfspeed is proceeding with the shutdown of its Durham 150mm fabrication facility. The production from this facility will be transitioned to the Mohawk 200mm facility. This closure is part of a strategy to adapt to the slowdown in industrial and energy markets. The Durham facility, known for high labor costs due to low automation levels, is being closed despite its potential to generate $400 million in sales per annum at full capacity.
The closure is anticipated to enhance EBITDA margins significantly, benefiting from a more efficient scale-up at the Mohawk Valley facility.
Nevertheless, Deutsche Bank notes the potential risks associated with issuing end-of-life notices for products, which could result in a temporary surge in orders but might also lead to the loss of customers who may decide to seek alternatives.
InvestingPro Insights
As Wolfspeed (NYSE: WOLF) navigates through its capital expenditure adjustments and facility shutdowns, InvestingPro data provides a deeper financial context. The company's market cap stands at $1.65 billion, reflecting a significant valuation in the semiconductor industry. However, Wolfspeed's price-to-earnings (P/E) ratio is currently negative at -1.95, with an adjusted P/E ratio for the last twelve months as of Q4 2024 at -3.05, indicating that the company is not generating profits relative to its share price. Moreover, the company's revenue has declined by 12.44% over the last twelve months as of Q4 2024, aligning with concerns about potential sales decline.
InvestingPro Tips highlight that Wolfspeed operates with a significant debt burden and is quickly burning through cash, which may have influenced the company's decision to reduce capital expenditures and close the Durham facility. Analysts have also revised their earnings downwards for the upcoming period and do not anticipate the company will be profitable this year. These insights are crucial for investors considering the stock's future performance and the semiconductor industry's current dynamics.
For a more comprehensive analysis, there are additional InvestingPro Tips available for Wolfspeed, offering nuanced perspectives on the company's financial health and market position. The InvestingPro product, which includes these tips, can be explored further for those seeking detailed investment strategies and assessments.
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