Wolfspeed Stock Price (NYSE: WOLF) An Upside Mover Despite Mild Earnings Miss

Wolfspeed stock (NYSE: WOLF) is a big extended hours mover, as the price looks tobegin the pre-market session at$14.31, up 5.92%. This comes off the back of a mini rally in the stock that had seen a regular hours boost of 2.58% and a 5 day addition of 11.5%. After a year to forget for holders of WOLF, where prices remain down 69% YTD, the question on many lips is why the shift in momentum?

The extended hours move comes as Wolfspeed released earnings. The company reported revenues of $200.7 million, mildly missing estimates($201.4m), but slightly surpassing the midpoint of their guidance. This figure remains largely unchanged from the previous quarter, indicating a stabilization within the company's financial scope.

EPS also came in slightly below consensus, with -$0.89 off the mark expected of -$0.88 by $0.01.

Significantly, Wolfspeed’s power revenue stood at $105 million for the quarter, primarily fuelled by contributions from the Mohawk Valley facility. This reflects the company's strategic leaning towards bolstering its manufacturing capabilities within newer, more technologically advanced facilities.

Nevertheless, Wolfspeed is grappling with operational challenges, notably the downtime anticipated for the Durham Fab for the remainder of the calendar year. An equipment incident has prompted this downtime, which is factored into the guidance at an impact of $20 million. Recovery in Industrial & Energy (I&E) demand, as forecasted by CEO Gregg Lowe and CFO Neill Reynolds, is expected in the first half of the following calendar year—a glimmer of optimism in the midst of current setbacks.

Progress at Building 10 is redefining Wolfspeed's operational goals by supporting approximately 30% wafer start utilization at the Mohawk Valley facility. This reduces the urgency to ramp up The JP site and allows management to concentrate on diminishing capital expenditures. The focus is firmly on achieving positive free cash flow by the early fiscal year 2026.

A strategic shift is underway as Wolfspeed considers potentially closing the Durham Device Fab. This is notably attributed to the superior economics and higher yields offered by the 200-millimeter platform at Mohawk Valley Fab, coupled with a downturn in the industrial and energy business. As production transitions, revenue is expected to be absorbed by the Mohawk Valley Fab, evidencing a concerted effort to streamline operations for efficiency and profitability.

CFO Neill Reynolds noted the alignment of tax credits with the CHIPS Act, elucidating that to realize these benefits significantly by 2026, assets must be operational. The administrating process via the IRS tax return system remains straightforward without a focus on tradability. Additionally, profitability at Mohawk Valley significantly exceeds that of the Durham factory due to cutting-edge automation and facilities, though specific margin data is withheld.

The revenue cycle at Mohawk Valley is characterized by a two to three-quarter delay following wafer starts, with product mix, including automotive and industrial energy parts, influencing revenue timelines. Yet, a significant uptake in revenue is projected during the Durham transition period. Encouragingly, the electric vehicle (EV) sector has seen revenue doubling for the quarter, a fold increase annually, and now accounts for more than half of the Power Device revenue.

In summary, Wolfspeed persists in executing its strategic objectives under a challenging operational landscape. With a steady revenue base, a focus on advanced manufacturing efficiencies, and promising growth in certain sectors, the company is proactively charting its course towards fiscal stability.