Wolfspeed's Financial Uncertainty Amid Chapter 11 Proceedings and Margin Challenges: Analyst Maintains Hold Rating

Wolfspeed's financial uncertainty persists due to negative gross margins and Chapter 11 bankruptcy proceedings. Analyst Christopher Rolland maintains a Hold rating, citing concerns over the company's ability to meet future gross margin targets and the sustainability of its business model amidst competitive pressures. Despite some optimism from cost control measures and better-than-expected operating expenses, Rolland remains cautious due to the lack of clarity on profitability.

Wolfspeed Inc. (NYSE: WOLF) continues to grapple with financial uncertainty, as highlighted by recent earnings reports and ongoing bankruptcy proceedings. Analyst Christopher Rolland from Susquehanna has reiterated a Hold rating on the company, citing concerns over its ability to meet future gross margin targets and the sustainability of its business model amidst competitive pressures.

Rolland noted that Wolfspeed's recent 2Q earnings release showed a slight top-line beat, primarily due to better performance in Mohawk Valley. However, this was overshadowed by negative gross margins, largely attributed to underutilization costs. The company reported a GAAP gross margin of -13% and an adjusted gross margin of -1%, reflecting significant operational challenges [1].

The ongoing Chapter 11 bankruptcy proceedings add a layer of uncertainty. Wolfspeed has not provided any forward-looking guidance pending court approval of its restructuring plan. The company aims to reemerge from bankruptcy as a going concern, but the restructuring process could lead to significant dilution for existing shareholders. Management has expressed concerns about potential macroeconomic and financial challenges post-bankruptcy [2].

Despite some optimism due to cost control measures and better-than-expected operating expenses, Rolland remains cautious. The lack of clarity on profitability and the sustainability of Wolfspeed's business model in the face of competitive pressures are significant concerns. The company's financial position is further strained by underutilization costs, which have significantly impacted its gross margins.

Wolfspeed's financial results for the fourth quarter and full fiscal year 2025 showed continued challenges. The company reported a GAAP gross margin of -13% and a non-GAAP gross margin of -1% for the fourth quarter, and a GAAP gross margin of -16% and a non-GAAP gross margin of 2% for the full year. Underutilization costs, primarily at the Mohawk Valley Fab, have been a major contributor to these margins [3].

Wolfspeed's financial position is such that management has indicated substantial doubt that the firm can continue as a going concern for one year following the release of the FY25 10-K. The company closed FY25 with $955.4mm in cash and equivalent and short-term investments on the balance sheet. Following the bankruptcy proceedings, Wolfspeed is expected to receive $301mm in new financing as part of its second-lien convertible notes [2].

Given the risks involved, Rolland maintains a Neutral stance, reflecting these uncertainties and potential risks. The best-case scenario is that Wolfspeed turns into a major turnaround play, while the worst-case scenario is that assets are liquidated, and bondholders are made whole. However, the current outlook for Wolfspeed shares remains highly speculative and risky [2].

References:
[1] https://www.tipranks.com/news/ratings/wolfspeeds-financial-uncertainty-amid-chapter-11-proceedings-and-margin-challenges-ratings
[2] https://seekingalpha.com/article/4817205-wolfspeed-is-walking-the-tightrope-turnaround-and-liquidity-in-question
[3] https://investor.wolfspeed.com/news/news-details/2025/Wolfspeed-Reports-Financial-Results-for-the-Fourth-Quarter-and-Full-Fiscal-Year-2025/default.aspx