NC chipmaker Wolfspeed to close Durham factory as company seeks more cost savings

The Durham semiconductor manufacturer Wolfspeed plans to shut its 150-millimeter production facility near Research Triangle Park as the chipmaker faces capital constraints amid a rough year on Wall Street.

“We believe these actions can deliver meaningful cost reductions,” Wolfspeed CEO Gregg Lowe told investors during a call Wednesday.

Wolfspeed said it “will be providing more detail” around the planned factory closure at its next earnings call in November. The company employs around 4,500 people worldwide, most based in North Carolina.

Formerly called Cree, Wolfspeed is the world’s leading producer of a unique type of semiconductor chip made from silicon carbide. The factory it plans to shutter is located at its headquarters just outside RTP. President Joe Biden toured the location during a visit in March 2023. The company says its headquarters will remain on the campus.

At this site, Wolfspeed makes 150-millimeter substrates, the standard wafer size in the industry. These substrates are then cut into tiny square “die,” which once fabricated power electric vehicles and solar converters, among other applications.

But Wolfspeed has pioneered production of a larger 200-millimeter substrate, which Lowe said offers “significant die cost advantages.” The company finalizes this bigger substrate at its fabrication factory in New York State’s Mohawk Valley and plans to produce more 200-millimeter wafers at its incoming materials factory near Siler City. Wolfspeed says it will also keep its smaller 200-millimeter materials facility, called Building 10, open in Durham.

Construction continues to progress in Siler City, Lowe told investors, noting the promised 1,800-job facility is on schedule to deliver 200-millimeter wafers to the Mohawk Valley site by next summer.

Wolfspeed previously discussed closing its 150-millimeter facility during its Investor Day event in 2021. Yet citing high demand, the company had elected to keep it operating.

“This was always a part of our plan to shift from 150mm to 200mm,” company spokesperson Kris Camacho told The News & Observer.

Wolfspeed declined to share how many positions could be impacted when it closes the Durham factory.

Market responses to closure, CHIPS Act update

Despite progress toward a larger wafer, Wolfspeed has seen its stock price tumble in 2024, down nearly 70% since Jan. 1 (as the overall market has risen). Its shares closed Wednesday at $13.50, well below Wolfspeed’s $120 share price in September 2022. Since then, the company has battled supply delays and concerns over weakening demand for electric vehicles.

On Wednesday, Lowe said “the market is clearly not valuing the company consistent with our technology, the business we built, or the strategic potential of the business.”

Investors appeared to respond favorably to Wolfspeed’s decision to close its Durham production factory as the company’s share price rose 9% after the market closed even though Wolfspeed missed its consensus revenue target.

In another bit of optimistic news for the company, Lowe said Wolfspeed is negotiating final terms to receive federal funding through the CHIPS Act , which set aside $52 billion in grants for domestic producers of semiconductors and created a federal tax credit to subsidize projects like the new Siler City factory.

Under the CHIPS Act, eligible manufacturers could receive an investment tax credit to cover 25% of project costs. Wolfspeed has committed to invest $5 billion at its new facility in western Chatham County, nicknamed “the JP” after the company’s late cofounder John Palmour.

Out of the more than $1 billion Wolfspeed could receive through this tax credit, Lowe said Wednesday the company has already accrued roughly $640 million.

Wolfspeed addresses liquidity concern

After making initial statements, Lowe and Wolfspeed chief financial officer Neill Reynolds took investor questions Wednesday.

Joesph Cardoso, an analyst for J.P. Morgan, noted closing the Durham factory “would be quite a shift in strategy” and asked for the company’s thinking behind the decision. Cardoso estimated the Triangle facility could generate close to $400 million in revenue “when it’s fully loaded.”

Lowe reiterated the Mohawk Valley site presents economic advantages to Durham and that future prospects are brighter for 200-millimeter substrates than 150-millimeter.

Several investors inquired about a major equipment incident at the Durham facility, which Wolfspeed had reported in June. The company noted this event added costs and lowered the factory’s yield, though Lowe said, “It’s been rectified and repaired and it’s behind us.” He didn’t share specific details on what had occurred.

Harsh Kumar, an analyst for the investment firm Piper Sandler, asked what he deemed “the loaded question that’s on every investor’s mind.”

“I think the market has sort of liquidity concerns about Wolfspeed and it’s kind of evident in the stock price decline here,” he said.

In response, Lowe highlighted Mohawk Valley’s expanding output. He also said fixed costs associated with constructing the Siler City plant should be finished by the end of this year.

To Kumar’s liquidity question, Reynolds pointed out the company expects to receive hundreds of millions from its CHIPS Act investment tax credit by 2026. Before then, he said, Wolfspeed will continue to seek to cut capital expenditures and find “operating efficiencies within the business.”