Wolfspeed: A Former LED Maker's Bet on Next-Gen Chip Manufacturing Amidst Bankruptcy and Debt

Wolfspeed, a former LED lighting maker, rebranded in 2021 and invested billions in next-gen chip manufacturing for EVs and AI data centers. However, with mounting losses and heavy debt, the company filed for Chapter 11 bankruptcy protection in June. Despite this, management insists on the business's potential, drawing speculative investors hoping for a turnaround.

Wolfspeed, a former LED lighting manufacturer, rebranded in 2021 to focus on next-generation semiconductor manufacturing for electric vehicles (EVs) and AI data centers. The company, formerly known as Cree, has invested billions in expanding its manufacturing capacity, particularly in upstate New York and North Carolina. However, mounting financial losses and heavy debt have led Wolfspeed to file for Chapter 11 bankruptcy protection in June 2025 [1].

The company's financial performance has been challenging. Over the past nine months ending March 30, 2025, Wolfspeed's net revenue declined by 8% to $560.6 million, while its net cost of revenue rose by 24%. The company reported a net loss of $940 million during the same period, and as of the third quarter of fiscal year 2025, Wolfspeed was sitting on nearly $3.5 billion in long-term debt and $6.7 billion in total long-term liabilities [1].

Despite these financial struggles, Wolfspeed management insists on the business's potential. The company has been investing heavily in expanding its manufacturing capacity, particularly in upstate New York and North Carolina. Wolfspeed's infrastructure investments are a big bet on electric vehicles, which are expected to drive most of the near-term demand for silicon carbide chips [1].

However, a recent slowdown in EV adoption has been a major headwind for the company. Wolfspeed's net revenue has declined in the past nine months, and the company's net loss has widened significantly [1].

Wolfspeed has taken steps to shore up its balance sheet and recalibrate for the future. The company recently struck a deal with vendors that will cut its overall debt by $4.6 billion and reduce its annual cash interest payments by 60%. Wolfspeed has also reduced its workforce and closed factories that produce smaller wafers, focusing instead on larger 200-millimeter wafers [1].

C-suite shakeups are common when businesses struggle. Since March, Wolfspeed has appointed a new CEO, CFO, COO, and vice president of automotive. When Wolfspeed appointed industry veteran Robert Feurle as CEO in March, he expressed optimism that the company would be able to "refresh the operating plan, improve financial performance and accelerate our path to positive free cash flow" [1].

Despite the company's efforts, Wolfspeed's shares are down 98% since the company began trading under the WOLF ticker in 2021. Even if you believe in Wolfspeed's long-term potential, the current shares will become worthless under the company's restructuring plan. Instead of keeping your full investment, you'll only get 3% to 5% of the new company that emerges after the restructuring. This is a common outcome in Chapter 11 reorganizations [1].

The company has said it expects to conclude bankruptcy proceedings in the next month or two. Unless you're betting on a miraculous turnaround between now and then, it's better to wait until after Wolfspeed completes its restructuring to consider starting a position.

References:
[1] https://www.fool.com/investing/2025/08/11/is-wolfspeed-a-buy/