What changed in this filing

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Item 1A. Risk Factors

2021-10-28 compared with 2021-04-29 · 132 added, 121 removed, 360 unchanged (41% of the section changed)

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Risks related to the effects of COVID-19 and other potential future public health crises, pandemics or similar events.

Our financial condition and results of operations for fiscal 2021 and future periods may be adversely affected by the recent COVID-19 pandemic or other outbreak of infectious disease or similar public health threat.

Although vaccines are becoming increasingly available, COVID-19 continues to spread globally and has resulted in authorities implementing numerous measures to try to contain the virus and the variants of the virus that cause COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns.

These measures have impacted and may continue to impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers.

We have significant manufacturing operations in the United States which has been affected by the pandemic and have taken measures to try to contain it.

We have experienced some limited disruptions in supply from some of our suppliers, although the disruptions to date have not been significant.

Additionally, we have experienced a shift in customer demand.

Our financial condition and results of operations for fiscal 2022 and future periods may be adversely affected by the COVID-19 pandemic or other outbreak of infectious disease or similar public health threat.

We have significant manufacturing operations in the United States and contract manufacturing agreements in Asia, which were affected by the COVID-19 pandemic and the measures to try to contain it.

We initially experienced some limited disruptions in supply from some of our suppliers, although the disruptions to date have not been significant.

At some of our contract manufacturers in Asia, which include captive lines, we are currently experiencing, and may continue to experience, some disruptions in supply from containment measures.

In the United States, previously enacted restrictions were gradually lifted as vaccinations became increasingly available and the portion of vaccinated individuals increased.

However, despite significant declines in the number of new cases, COVID-19 cases, including so called 'breakthrough' cases involving individuals that were previously vaccinated, started to increase during the first quarter of fiscal 2022.

Vaccine resistance, coupled with the emergence of fast-spreading variants and the potential waning effectiveness of vaccines have introduced renewed uncertainty into whether additional measures will be implemented to combat the spread of COVID-19.

There is considerable uncertainty regarding such measures and potential future measures.

Restrictions on access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit our capacity to meet customer demand, lead to increased costs and have a material adverse effect on our financial condition and results of operations.

The pandemic has significantly increased economic and demand uncertainty.

Restrictions on access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit our ability to meet customer demand, lead to increased costs and have a material adverse effect on our financial condition and results of operations.

The COVID-19 pandemic has significantly increased economic and demand uncertainty.

These uncertainties also make it more difficult for us to assess the quality of our product order backlog and to estimate future financial results.

The COVID-19 pandemic initially caused an economic slowdown, and the continued spread of COVID-19 and its variants could lead to a global recession, which could have a material adverse effect on demand for our products and on our financial condition and results of operations.

The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events, and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.

In addition, in light of concerns about the spread of COVID-19 (including the increasing prevalence of its variants), our workforce has at times been operating at reduced levels at our manufacturing facilities, which may continue to have an adverse impact on our ability to timely meet future customer orders.

The duration of the business disruption and related financial impact cannot be reasonably estimated at this time.

However, it may materially affect our ability to obtain raw materials, manage customer credit risk, manufacture products or deliver inventory in a timely manner, and it also may impair our ability to meet customer demand for products, result in lost sales, additional costs, or penalties, or damage our reputation.

The extent to which COVID-19, its variants or any other health epidemic will further impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19, the efficacy and effectiveness of vaccines, and the actions to contain COVID-19 or treat its impact, among others.

The spread of COVID-19 and its variants has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events, and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus and its variants, and our ability to perform critical functions could be harmed.

In addition, in light of concerns about the spread of COVID-19 and its variants, our workforce has at times been operating at reduced levels at our manufacturing facilities and at the facilities of some of our contract manufacturers, which may continue to have an adverse impact on our ability to timely meet future customer orders.

The duration of the business disruption and related financial impact of the COVID-19 pandemic cannot be reasonably estimated at this time.

However, it may materially affect our ability to obtain raw materials, manage prices, manage customer credit risk, manufacture products or deliver inventory in a timely manner, and it also may impair our ability to meet customer demand for products, result in lost sales, additional costs, or penalties, or damage our reputation.

The extent to which COVID-19, its variants or any other health epidemic will further impact our operations and results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of

COVID-19 and its variants, the efficacy and effectiveness of vaccines, and the actions to contain the virus or treat its impact, among others.

Risks related to sales, product development and manufacturing

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In order to manage our growth and business strategy effectively relative to the uncertain pace of adoption, we must continue to:

• maintain, expand, construct and purchase adequate manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to meet customer demand, including specifically the expansion of our silicon carbide capacity with the construction of a state-of-the-art, automated 200mm capable silicon carbide device fabrication facility and a large materials factory;

• manage an increasingly complex supply chain that has the ability to supply an increasing number of raw materials, subsystems and finished products with the required specifications and quality, and deliver on time to our manufacturing facilities, our third-party manufacturing facilities, our logistics operations, or our customers;

• expand the capability of our information systems to support a more complex business, such as our current initiative to implement a new company-wide ERP system;

• be successful in the qualification and acceptance of our new product and systems designs, including those entering into automotive applications which require even more stringent levels of qualification and standards;

• maintain, expand, construct and purchase adequate manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to meet customer demand, including specifically the expansion of our Silicon Carbide capacity with the construction of a state-of-the-art, automated 200mm capable Silicon Carbide device fabrication facility and an expansion of our materials factory;

• manage an increasingly complex supply chain (including managing the impacts of ongoing supply constraints in the semiconductor industry) that has the ability to supply an increasing number of raw materials, subsystems and finished products with the required specifications and quality, and deliver on time to our manufacturing facilities, our third-party manufacturing facilities, our logistics operations, or our customers;

• expand the capability of our information systems to support a more complex business, such as our current initiative to implement a new company-wide enterprise resource planning (ERP) system;

• be successful in securing design-ins across our end markets, including automotive applications;

• expand research and development, sales and marketing, technical support, distribution capabilities, manufacturing planning and administrative functions;

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Such investments take time to become fully operational, and we may not be able to expand quickly enough to exploit targeted market opportunities.

In connection with our efforts to cost-effectively manage our growth,

we have increasingly relied on contractors for production capacity, logistics support and certain administrative functions including hosting of certain information technology software applications.

If our contract manufacturers, original design manufacturers (ODMs) or other service providers do not perform effectively, we may not be able to achieve the expected cost savings and may incur additional costs to correct errors or fulfill customer demand.

In connection with our efforts to cost-effectively manage our growth, we have increasingly relied on contractors for production capacity, logistics support and certain administrative functions including hosting of certain information technology software applications.

If our contract manufacturers (including those at which we maintain captive lines) or other service providers do not perform effectively, we may not be able to achieve the expected cost savings and may incur additional costs to correct errors or fulfill customer demand.

Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, the loss of or damage to intellectual property through security breach, or an impact on employee morale.

Our operations may also be negatively impacted if any of these contract manufacturers, ODMs or other service providers do not have the financial capability to meet our growing needs.

There are also inherent execution risks in starting up a new factory or expanding production capacity, whether one of our own factories or that of our contract manufacturers or ODMs, or moving production to different contract manufacturers or ODMs, that could increase costs and reduce our operating results.

In September 2019, we announced the intent to build the new fabrication facility in Marcy, New York to complement the factory expansion underway at our United States campus headquarters in Durham, North Carolina.

Our operations may also be negatively impacted if any of these contract manufacturers or other service providers do not have the financial capability to meet our growing needs.

There are also inherent execution risks in starting up a new factory or expanding production capacity, whether one of our own factories or that of our contract manufacturers, as well as risks to moving production to different contract manufacturers, that could increase costs and reduce our operating results.

In September 2019, we announced the intent to build a new Silicon Carbide device fabrication facility in Marcy, New York to complement the factory expansion underway at our United States campus headquarters in Durham, North Carolina.

The establishment and operation of a new manufacturing facility or expansion of an existing facility involves significant risks and challenges, including, but not limited to, the following:

• design and construction delays and cost overruns;

• issues in installing and qualifying new equipment and ramping production with 200mm silicon carbide;

• issues in installing and qualifying new equipment and ramping production;

• poor production process yields and reduced quality control;

• insufficient personnel with requisite expertise and experience to operate a fabrication facility.

• insufficient personnel with requisite expertise and experience to operate a Silicon Carbide device fabrication facility.

We are also increasingly dependent on information technology to enable us to improve the effectiveness of our operations and to maintain financial accuracy and efficiency.

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We are continually taking steps to address our manufacturing capacity needs for our products.

If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels, we may not be able to achieve our financial targets when our factories are underutilized.

Currently, we are focusing on increasing production capacity.

If we are not able to increase our production capacity at our targeted rate, if there are unforeseen costs associated with increasing our capacity levels, or we are unable to obtain advanced semiconductor manufacturing equipment in a timely manner, we may not be able to achieve our financial targets.

We may be unable to build or qualify new capacity on a timely basis to meet customer demand and customers may fulfill their orders with one of our competitors instead.

In addition, as we introduce new products and change product generations, we must balance the production and inventory of prior generation products with the production and inventory of new generation products, whether manufactured by us or our contract manufacturers, to maintain a product mix that will satisfy customer demand and mitigate the risk of incurring cost write-downs on the previous generation products, related raw materials and tooling.

Significant or prolonged shortages of our products could delay customer manufacturing and affect our relationships with these customers.

Due to the proportionately high fixed cost nature of our business (such as facility costs), if demand does not materialize at the rate forecasted, we may not be able to scale back our manufacturing expenses or overhead costs to correspond to the demand.

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A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter net revenue and operating results.

We operate in industries that are subject to significant fluctuation in supply and demand and ultimately pricing that affects our revenue and profitability.

We operate in industries that are subject to significant fluctuation in supply and demand and ultimately pricing, which affects our revenue and profitability.

The industries we serve are in different stages of adoption and are characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards and fluctuations in product supply and demand.

The power, and RF industries have experienced, and may in the future experience, significant fluctuations, often in connection with, or in anticipation of, product cycles and changes in general economic conditions.

The semiconductor industry is characterized by rapid technological change, high capital expenditures, short product life cycles and continuous advancements in process technologies and manufacturing facilities.

As the markets for our products mature, additional fluctuations may result from variability and consolidations within the industry’s customer base.

These fluctuations have been characterized by lower product demand, production overcapacity, higher inventory levels and increased pricing pressure.

These fluctuations have been characterized by lower product demand, production overcapacity, higher inventory levels and aggressive pricing actions by our competitors.

These fluctuations have also been characterized by higher demand for key components and equipment used in, or in the manufacture of, our products resulting in longer lead times, supply delays and production disruptions.

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In addition, as we diversify our product offerings and as pricing differences in the average selling prices among our product lines widen, a change in the mix of sales among our product lines may increase volatility in our revenue and gross margin from period to period.

If we are unable to effectively develop, manage and expand our sales channels for our products, our operating results may suffer.

We sell a substantial portion of our products to distributors.

We rely on distributors to develop and expand their customer base as well as anticipate demand from their customers.

If they are not successful, our growth and profitability may be adversely impacted.

Distributors must balance the need to have enough products in stock in order to meet their customers’ needs against their internal target inventory levels and the risk of potential inventory obsolescence.

The risks of inventory obsolescence are especially relevant to technological products.

The distributors’ internal target inventory levels vary depending on market cycles and a number of factors within each distributor over which we have very little, if any, control.

Distributors also have the ability to shift business to different manufacturers within their product portfolio based on a number of factors, including new product availability and performance.

Similarly, we have the ability to add, consolidate, or remove distributors.

We typically recognize revenue on products sold to distributors when the item is shipped and title passes to the distributor (sell-in method).

Certain distributors have limited rights to return inventory under stock rotation programs and have limited price protection rights for which we make estimates.

We evaluate inventory levels in the distribution channel, current economic trends and other related factors in order to account for these factors in our judgments and estimates.

As inventory levels and

product return trends change or we make changes to our distributor roster, we may have to revise our estimates and incur additional costs, and our gross margins and operating results could be adversely impacted.

Additionally, our distributors have in the past and may in the future choose to drop our product lines from their portfolio to avoid losing access to our competitors’ products, resulting in a disruption in the project pipeline and lower than targeted sales for our products.

Our distributors have the ability to shift business to different suppliers within their product portfolio based on a number of factors, including customer service and new product availability.

If we are unable to effectively penetrate these channels or develop alternate channels to ensure our products are reaching the intended customer base, our financial results may be adversely impacted.

In addition, if we successfully penetrate or develop these channels, we cannot guarantee that customers will accept our products or that we will be able to manufacture and deliver them in the timeline established by our customers.

We face risks relating to our suppliers, including that we rely on a number of key sole source and limited source suppliers, are subject to high price volatility on certain commodity inputs, variations in parts quality, and raw material consistency and availability, and rely on independent shipping companies for delivery of our products.

We depend on a number of sole source and limited source suppliers for certain raw materials, components, services and equipment used in manufacturing our products, including key materials and equipment used in critical stages of our manufacturing processes.

Although alternative sources generally exist for these items, qualification of many of these alternative sources could take up to six months or longer.

Where possible, we attempt to identify and qualify alternative sources for our sole and limited source suppliers.

We generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers.

Some of our sources can have variations in attributes and availability which can affect our ability to produce products in sufficient volume or quality.

We do not control the time and resources that these suppliers devote to our business, and we cannot be sure that these suppliers will perform their obligations to us.

Additionally, general shortages in the marketplace of certain raw materials or key components may adversely impact our business.

In the past, we have

experienced decreases in our production yields when suppliers have varied from previously agreed upon specifications or made other modifications we do not specify, which impacted our cost of revenue.

Additionally, the inability of our suppliers to access capital efficiently could cause disruptions in their businesses, thereby negatively impacting ours.

This risk may increase from unpredictable and unstable changes in economic conditions, including recession, inflation, or other changes, which may negatively affect key suppliers or a significant number of our other suppliers.

Any delay in product delivery or other interruption or variation in supply from these suppliers could prevent us from meeting commercial demand for our products.

If we were to lose key suppliers, if our key suppliers were unable to support our demand for any reason or if we were unable to identify and qualify alternative suppliers, our manufacturing operations could be interrupted or hampered significantly.

We rely on arrangements with independent shipping companies for the delivery of our products from vendors and to customers both in the United States and abroad.

The failure or inability of these shipping companies to deliver products or the unavailability of shipping or port services, even temporarily, could have a material adverse effect on our business.

We may also be adversely affected by an increase in freight surcharges due to rising fuel costs, oil costs and added security.

The risks mentioned above, including our sole source or limited source suppliers' ability to produce products and adequately access capital, and our ability to arrange effective shipping arrangements, may further increase due to the ongoing COVID-19 pandemic.

In our fabrication process, we consume a number of precious metals and other commodities, which are subject to high price volatility and the potential impacts of increased inflation.

Our operating margins could be significantly affected if we are not able to pass along price increases to our customers.

In addition, production could be disrupted by the unavailability of the resources used in production such as water, silicon, electricity and gases.

Future environmental regulations could restrict supply or increase the cost of certain of those materials.

The markets in which we operate are highly competitive and have evolving technical requirements.

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Competitors continue to offer new products with aggressive pricing, additional features and improved performance.

Competitive pricing pressures remain a challenge and continue to accelerate the rate of decline in our sales prices.

Aggressive pricing actions by our competitors in our businesses could reduce margins if we are not able to reduce costs at an equal or greater rate than the sales price decline.

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We depend on a limited number of customers, including distributors, for a substantial portion of our revenue, and the loss of, or a significant reduction in purchases by, one or more of these customers could adversely affect our operating results.

We receive a significant amount of our revenue from a limited number of customers and distributors, two of which represented more than 10% of our consolidated revenue from continuing operations in fiscal 2020.

We receive a significant amount of our revenue from a limited number of customers and distributors, three of which individually represented more than 10% of our consolidated revenue from continuing operations in fiscal 2021.

Many of our customer orders are made on a purchase order basis, which does not generally require any long-term customer commitments.

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If our customers alter their purchasing behavior, if our customers’ purchasing behavior does not match our expectations or if we encounter any problems collecting amounts due from them, our financial condition and results of operations could be negatively impacted.

Although alternative sources generally exist for these items, qualification of many of these alternative sources could take up to six months or longer.

Where possible, we attempt to identify and qualify alternative sources for our sole and limited source suppliers.

We generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers.

Some of our sources can have variations in attributes and availability which can affect our ability to produce products in sufficient volume or quality.

We do not control the time and resources that these suppliers devote to our business, and we cannot be sure that these suppliers will perform their obligations to us.

Additionally, general shortages in the marketplace of certain raw materials or key components may adversely impact our business.

In the past, we have experienced decreases in our production yields when suppliers have varied from previously agreed upon specifications or made other modifications we do not specify, which impacted our cost of revenue.

Additionally, the inability of our suppliers to access capital efficiently could cause disruptions in their businesses, thereby negatively impacting ours.

This risk may increase if an economic downturn negatively affects key suppliers or a significant number of our other suppliers.

Any delay in product delivery or other interruption or variation in supply from these suppliers

could prevent us from meeting commercial demand for our products.

We rely on arrangements with independent shipping companies for the delivery of our products from vendors and to customers both in the United States and abroad.

The failure or inability of these shipping companies to deliver products or the unavailability of shipping or port services, even temporarily, could have a material adverse effect on our business.

We may also be adversely affected by an increase in freight surcharges due to rising fuel costs and added security.

In our fabrication process, we consume a number of precious metals and other commodities, which are subject to high price volatility.

Our operating margins could be significantly affected if we are not able to pass along price increases to our customers.

In addition, production could be disrupted by the unavailability of the resources used in production such as water, silicon, electricity and gases.

Future environmental regulations could restrict supply or increase the cost of certain of those materials.

Our revenue is highly dependent on our customers’ ability to produce, market and sell more integrated products.

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Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products.

Brand value could diminish significantly due to a number of factors, including adverse publicity about our products (whether valid or not), a failure to maintain the quality of our products (whether perceived or real), the failure of our products to deliver consistently positive consumer experiences, the products becoming unavailable to consumers or consumer perception that we have acted in an irresponsible manner.

Brand value could diminish significantly due to a number of factors, including adverse publicity about our products (whether valid or not), our corporate name change from "Cree, Inc." to "Wolfspeed, Inc.", a failure to maintain the quality of our products (whether perceived or real), the failure of our products to deliver consistently positive consumer experiences, the products becoming unavailable to consumers or consumer perception that we have acted in an irresponsible manner.

In the event our name change is not widely accepted by customers or if it proves to be less popular than anticipated, our brand may suffer.

Damage to our brand, reputation or loss of customer confidence in our brand or products could result in decreased demand for our products and have a negative impact on our business, results of operations or financial condition.

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Increased warranty claims could result in significant losses due to a rise in warranty expense and costs associated with customer support.

If we are unable to effectively develop, manage and expand our sales channels for our products, our operating results may suffer.

We sell a portion of our products to distributors.

We rely on distributors to develop and expand their customer base as well as anticipate demand from their customers.

If they are not successful, our growth and profitability may be adversely impacted.

The risks of inventory obsolescence are especially relevant to technological products.

The distributors’ internal target inventory levels vary depending on market cycles

and a number of factors within each distributor over which we have very little, if any, control.

Distributors also have the ability to shift business to different manufacturers within their product portfolio based on a number of factors, including new product availability and performance.

Similarly, we have the ability to add, consolidate, or remove distributors.

We typically recognize revenue on products sold to distributors when the item is shipped and title passes to the distributor (sell-in method).

Certain distributors have limited rights to return inventory under stock rotation programs and have limited price protection rights for which we make estimates.

We evaluate inventory levels in the distribution channel, current economic trends and other related factors in order to account for these factors in our judgments and estimates.

As inventory levels and product return trends change or we make changes to our distributor roster, we may have to revise our estimates and incur additional costs, and our gross margins and operating results could be adversely impacted.

Our distributors have the ability to shift business to different suppliers within their product portfolio based on a number of factors, including customer service and new product availability.

If we are unable to effectively penetrate these channels or develop alternate channels to ensure our products are reaching the intended customer base, our financial results may be adversely impacted.

As a result of our continued expansion into new markets, we may compete with existing customers who may reduce their orders.

Through acquisitions and organic growth, we continue to expand into new markets and new market segments.

Many of our existing customers who purchase our Wolfspeed substrate materials develop and manufacture products using those wafers, die and components that are offered into the same power and RF markets.

Through organic growth and acquisitions, we continue to expand into new markets and new market segments.

Many of our existing customers who purchase our Silicon Carbide substrate materials develop and manufacture devices, die and components using those wafers that are offered in the same power and RF markets.

As a result, some of our current customers perceive us as a competitor in these market segments.

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Export Administration Act.

The U.S Government has imposed, and in the future may impose, restrictions on shipments to some of our current customers.

Government has imposed, and in the future may impose, restrictions on shipments to some of our current customers.

Government restrictions on sales to certain foreign customers will reduce company revenue and profit related to those customers in the short term and could have a potential long-term impact.

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Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors, including those which may result from the Biden administration and Democratic control of Congress, if any, may have a material adverse effect on our business in the future, or may require us to exit a particular market or significantly modify our current business practices.

For example, President Biden has suggested the reversal or modification of a number of provisions in the Tax Cuts and Jobs Act of 2017 (TCJA) and certain of these proposals, if enacted, would result in a higher U.S.

For example, President Biden has proposed, among other changes to the tax code, an increase in the U.S.

corporate income tax rate from 21% to 28% and an increase of the U.S.

tax rate on foreign income from 10% to 21%.

In addition, the U.S.

Treasury Department recently proposed the adoption of a global minimum corporate tax rate of at least 15%, which has been largely supported by the international community.

Such proposals, if enacted, would result in a higher U.S.

corporate income tax rate than is currently in effect.

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Risks associated with our strategic transactions

We are subject to a number of risks associated with the sale of our LED Products segment, and these risks could adversely impact our operations, financial condition and business.

On March 1, 2021, we completed the sale of our former LED Products segment to SMART pursuant to the Asset Purchase Agreement dated October 18, 2021 (the Purchase Agreement).

We are subject to a number of risks associated with the sale of our former LED Products segment, and these risks could adversely impact our operations, financial condition and business.

On March 1, 2021, we completed the sale of our former LED Products segment to SMART pursuant to the Asset Purchase Agreement dated October 18, 2020 (the LED Purchase Agreement).

We are subject to a number of risks associated with this transaction, including risks associated with:

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• the need to provide transition services in connection with the transaction;

• any required payments of indemnification obligations under the Purchase Agreement for retained liabilities and breaches of representations, warranties or covenants;

• our failure to realize the full purchase price anticipated under the Purchase Agreement, including the ability of the LED Business to generate revenue and gross profit in the first four full fiscal quarters following the closing (the Earnout Period) sufficient to result in payment of the targeted earnout payment;

• any required payments of indemnification obligations under the LED Purchase Agreement for retained liabilities and breaches of representations, warranties or covenants;

• our failure to realize the full purchase price anticipated under the LED Purchase Agreement, including the ability of the LED Business to generate revenue and gross profit in the first four full fiscal quarters following the closing (the Earnout Period) sufficient to result in payment of the targeted earnout payment;

• the ability of SMART to pay the unsecured promissory note issued to us at the closing of the transaction and the additional unsecured promissory notes to be issued following the end of the Earnout Period.

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Our failure to realize the anticipated benefits of the transaction would adversely impact our operations, financial condition and business and could limit our ability to pursue additional strategic transactions.

We are subject to a number of risks associated with the sale of the Lighting Products business unit, and these risks could adversely impact our operations, financial condition and business.

On May 13, 2019, we closed the sale of our former Lighting Products business unit to IDEAL Industries, Inc.

We are subject to a number of risks associated with the sale of our former Lighting Products business unit, and these risks could adversely impact our operations, financial condition and business.

On May 13, 2019, we closed the sale of our former Lighting Products business unit to IDEAL.

We are subject to a number of risks associated with this transaction, including risks associated with:

• any required payments of indemnification obligations under the Purchase Agreement with IDEAL for retained liabilities and breaches of representations, warranties or covenants;

• our failure to realize the full purchase price anticipated under the Purchase Agreement, including the ability of the Lighting Products business unit to generate adjusted EBITDA in the third year post-closing sufficient to result in payment of the targeted earnout or any earnout payment.

• our failure to realize the full purchase price anticipated under the Purchase Agreement with IDEAL, including the ability of the Lighting Products business unit to generate adjusted EBITDA in the third year post-closing sufficient to result in payment of the targeted earnout or any earnout payment.

We do not currently expect to receive any of the targeted earnout payment.

As a result of these risks, we may be unable to realize the anticipated benefits of the transaction, including the total amount of cash we expect to realize.

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From time to time, including the present, we evaluate strategic opportunities available to us for product, technology or business transactions, such as business acquisitions, investments, joint ventures, divestitures, or spin-offs.

For example, in the fourth quarter of fiscal 2019, we completed the sale of our Lighting Products business unit to IDEAL and in the third quarter of fiscal 2021, we completed the sale of our LED Business segment to SMART.

If we choose to enter into such transactions, we face certain risks including:

If we choose to enter into such strategic transactions, we face certain risks including:

• the failure of an acquired business, investee or joint venture to meet our performance and financial expectations;

• identification of additional liabilities relating to an acquired business;

• loss of existing customers of our current and acquired businesses due to regulatory actions taken by governmental agencies;

• loss of customers due to perceived conflicts or competition with such customers or due to regulatory actions taken by governmental agencies;

• that we are not able to enter into acceptable contractual arrangements with the significant customers of an acquired business;

• difficulty integrating an acquired business's operations, personnel and financial and operating systems into our current business;

• that we are not able to develop and expand customer bases and accurately anticipate demand from end customers, which can result in increased inventory and reduced orders as we experience wide fluctuations in supply and demand;

• that we are not able to develop and expand customer bases and accurately anticipate demand from end customers, which can result in increased inventory and reduced orders if we experience wide fluctuations in supply and demand;

• diversion of management attention;

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Any failure to successfully evaluate strategic opportunities and address risks or other problems that arise related to any such business transaction could adversely affect our business, results of operations or financial condition.

We are exposed to fluctuations in the market value of our investment portfolio and in interest rates, and therefore, impairment of our investments or lower investment income could harm our earnings.

We are exposed to market value and inherent interest rate risk related to our investment portfolio.

We have historically invested portions of our available cash in fixed interest rate securities such as high-grade corporate debt, commercial paper, municipal bonds, certificates of deposit, government securities and other fixed interest rate investments.

The primary objective of our cash investment policy is preservation of principal.

However, these investments are generally not Federal Deposit Insurance Corporation insured and may lose value and/or become illiquid regardless of their credit rating.

From time to time, we have also made investments in public and private companies that engage in complementary businesses.

Risks associated with cybersecurity, intellectual property and litigation

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Our security measures may be breached as the result of industrial or other espionage actions of outside parties, employees, employee error, malfeasance or otherwise, and as a result, an unauthorized party may obtain access to our systems.

The risk of a security breach or disruption, particularly through cyber-attacks, or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as cyber-attacks have become more prevalent and harder to detect and fight against.

The risk of a security breach or disruption, particularly through cyber-attacks, ransomware, or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as cyber-attacks have become more prevalent and harder to detect and fight against.

Additionally, outside parties may attempt to access our confidential information through other means, for example by fraudulently inducing our employees to disclose confidential information.

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In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures.

The theft and/or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position, result in a loss of confidence in the adequacy of our threat mitigation and detection processes and procedures, cause us to incur significant costs to remedy the damage caused by the incident, divert management's attention and other resources, and reduce the value of our investment in research and development.

In addition, as a result of the COVID-19 pandemic, the increased prevalence of employees working from home may exacerbate the aforementioned cybersecurity risks.

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Our existing patents are subject to expiration and re-examination and we cannot be sure that additional patents will be issued on any new applications around the covered technology or that our existing or future patents will not be successfully contested by third parties.

Also, since issuance of a valid patent does not prevent other companies from using alternative, non-infringing technology, we cannot be sure that any of our patents, or patents issued to others and licensed to us, will provide significant commercial protection, especially as new competitors enter the market.

Also, since issuance of a valid patent does not prevent other companies from using alternative, non-infringing

technology, we cannot be sure that any of our patents, or patents issued to others and licensed to us, will provide significant commercial protection, especially as new competitors enter the market.

We periodically discover products that are counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights.

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Risks related to legal, regulatory, accounting, tax and compliance matters

We may be required to recognize a significant charge to earnings if our goodwill or other intangible assets become impaired.

Goodwill is reviewed for impairment annually and when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

We assess the recoverability of the unamortized balance of our finite-lived intangible assets when indicators of potential impairment are present.

Factors that may indicate that the carrying value of our goodwill or other intangible assets may not be recoverable include a decline in our stock price and market capitalization and slower growth rates in our industry.

The recognition of a significant charge to earnings in our consolidated financial statements resulting from any impairment of our goodwill or other intangible assets could adversely impact our results of operations.

We review goodwill for impairment whenever events or circumstances indicate potential impairment.

In the first quarter of fiscal 2021, we determined we would more likely than not sell all or a portion of the assets comprising the LED Products segment below carrying value.

We may be required to recognize a significant charge to earnings if our goodwill or other assets become impaired.

Goodwill and other assets are reviewed for impairment annually and when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Factors that may indicate that the carrying value of our goodwill may not be recoverable include a decline in our stock price and market capitalization and slower growth rates in our industry.

In the first quarter of fiscal 2021, we determined we would more likely than not sell all or a portion of the assets comprising our former LED Products segment below carrying value.

As a result of this triggering event, we recorded an impairment to goodwill of $105.7 million as of September 27, 2020.

Additionally, in the second quarter of fiscal 2021, we recorded an additional impairment to goodwill of $6.9 million.

The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance, use or other aspects of our products could impact the demand for our products.

The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance or other aspects of our products may impact the demand for our products.

Demand for our products may also be impacted by changes in government and/or industry policies, standards or regulations that encourage energy efficiency or vehicle range.

For other assets such as finite-lived intangible assets and fixed assets, we assess the recoverability of the asset balance when indicators of potential impairment are present.

In the fourth quarter of fiscal 2021, we modified our long-range plan regarding a portion of our Durham, North Carolina campus originally intended for expanding our LED production capacity that we had considered using to expand the manufacturing footprint for our Silicon Carbide materials product line.

After we complete our current ongoing Silicon Carbide materials production capacity expansion in Durham, we plan on further expansion of our Silicon Carbide materials production capacity outside of the Durham campus.

As a result, we decided we will no longer complete the construction of certain buildings on the Durham campus.

Accordingly, an expense of $73.9 million was recorded upon an updated valuation of the property in the fourth quarter of fiscal 2021.

The recognition of a significant charge to earnings in our consolidated financial statements resulting from any impairment of our goodwill or other assets could adversely impact our results of operations.

The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance, vehicle range or other aspects of our products and the products in which they are utilized could impact the demand for our products.

For example, efforts to change, eliminate or reduce industry or regulatory standards could negatively impact our business.

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regulations issued as a result of the significant changes to the U.S.

tax law included within the TCJA and the Coronavirus Aid, Relief and Economic Security Act of 2020;

tax law included within the Tax Cuts and Jobs Act of 2017 (the TCJA) and the Coronavirus Aid, Relief and Economic Security Act of 2020;

• the imposition of the proposed global corporate minimum tax rate;

• the resolution of issues arising from tax audits with various authorities;

• changes in the valuation of our deferred tax assets and liabilities;

• the potential restructuring of our existing legal entities, including our Luxembourg holding company;

• adjustments to estimated taxes upon finalization of various tax returns;

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In addition, the determination of our income tax provision requires complex estimations, significant judgments and significant knowledge and experience concerning the applicable tax laws.

To the extent our income tax liability materially differs from our

income tax provisions due to factors, including the above, which were not anticipated at the time we estimated our tax provision, our net (loss) income or cash flows could be affected.

To the extent our income tax liability materially differs from our income tax provisions due to factors, including the above, which were not anticipated at the time we estimated our tax provision, our net (loss) income or cash flows could be affected.

Failure to comply with applicable environmental laws and regulations worldwide could harm our business and results of operations.

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• curtailment of our operations or sales.

In addition, our failure to manage the use, transportation, emission, discharge, storage, recycling or disposal of hazardous materials could subject us to increased costs or future liabilities.

In addition, our failure to manage the use, transportation, emission, discharge, storage, recycling or disposal of hazardous materials could subject us to significant costs or future liabilities.

Existing and future environmental laws and regulations could also require us to acquire pollution abatement or remediation equipment, modify our product designs or incur other expenses, such as permit costs, associated with such laws and regulations.

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Our results could vary as a result of the methods, estimates and judgments that we use in applying our accounting policies, including changes in the accounting standards to be applied.

The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results (see “Critical Accounting Policies and Estimates” in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the 2020 Form 10-K and the 2020 Form 10-K Recast).

Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to change our methods, estimates and judgments.

Changes in those methods, estimates and judgments could significantly affect our results of operations or financial condition.

Changes in those methods, estimates and judgments could significantly affect our results of operations or financial condition, such as the change in estimated useful lives of certain assets applied in the first quarter of fiscal 2022.

Likewise, our results may be impacted due to changes in the accounting standards to be applied, such as the increased use of fair value measurement standards and changes in revenue recognition requirements.

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As a result, in August 2012 the SEC established new annual disclosure and reporting requirements for those companies who may use “conflict” minerals mined from the DRC and adjoining countries in their products.

Our most recent disclosure regarding our due diligence was filed in May 2020 for calendar year 2019.

Our most recent disclosure regarding our due diligence was filed on June 1, 2021 for calendar year 2020.

These requirements could affect the sourcing and availability of certain minerals used in the manufacture of our products.

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General risk factors

Catastrophic events may disrupt our business.

Catastrophic events and disaster recovery may disrupt business continuity.

A disruption or failure of our systems or operations in the event of a natural disaster, health pandemic, such as an influenza outbreak within our workforce, or man-made catastrophic event could cause delays in completing sales, continuing production or performing other critical functions of our business, particularly if a catastrophic event occurred at our primary manufacturing locations or our subcontractors' locations.

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Historically, our common stock has experienced substantial price volatility, particularly as a result of significant fluctuations in our revenue, earnings and margins over the past few years, and variations between our actual financial results and the published expectations of analysts.

For example, the closing price per share of our common stock on the Nasdaq Global Select Market ranged from a low of $31.45 to a high of $128.28 during the twelve months ended March 28, 2021.

For example, the closing price per share of our common stock on the Nasdaq Global Select Market ranged from a low of $62.46 to a high of $128.28 during the twelve months ended September 26, 2021.

If our future operating results or margins are below the expectations of stock market analysts or our investors, our stock price will likely decline.

Speculation and opinions in the press or investment community about our strategic position, financial condition, results of operations or significant transactions can also cause changes in our stock price.

In particular, speculation on our go-forward strategy, competition in some of the markets we address such as electric vehicles, the ramp up of our Wolfspeed business, and the effect of tariffs or COVID-19 on our business, may have a dramatic effect on our stock price.

In particular, competition in some of the markets we address such as electric vehicles and 5G, the ramp up of our business, and the effect of tariffs or COVID-19 on our business, may have a dramatic effect on our stock price.

We are exposed to fluctuations in the market value of our investment portfolio and in interest rates, and therefore, impairment of our investments or lower investment income could harm our earnings.

We are exposed to market value and inherent interest rate risk related to our investment portfolio.

The primary objective of our cash investment policy is preservation of principal.

However, these investments are generally not Federal Deposit Insurance Corporation insured and may lose value and/or become illiquid regardless of their credit rating.

From time to time, we have also made investments in public and private companies that engage in complementary businesses.

We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations.

As of March 28, 2021, our indebtedness consisted of $424.8 million aggregate principal amount of our 2023 Notes and $575.0 million aggregate principal amount of our 2026 Notes (collectively with the 2023 Notes, the Notes) and potential borrowings from our revolving line of credit.

As of September 26, 2021, our indebtedness consisted of $424.8 million aggregate principal amount of the 2023 Notes and $575.0 million aggregate principal amount of the 2026 Notes (collectively with the 2023 Notes, the Notes) and potential borrowings from our revolving line of credit.

Our ability to pay interest and repay the principal for any outstanding indebtedness under our line of credit and the Notes is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.

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The restrictions imposed by our line of credit and by the Indentures governing our Notes could limit our ability to plan for or react to changing business conditions, or could otherwise restrict our business activities and plans.

Our ability to comply with our loan covenants and the provisions of the Indentures governing our Notes may also be affected by events beyond our control and if any of these restrictions or terms is breached, it could lead to an event of default under our line

of credit or the Notes.

A default, if not cured or waived, may permit acceleration of our indebtedness.

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Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the state courts of North Carolina will be the sole and exclusive forum for substantially all disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees or agents.

Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for all litigation relating to our internal affairs, including without limitation (i) any derivative action or proceeding brought on behalf of Cree, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Cree to Cree or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the North Carolina Business Corporation Act (the NCBCA), our restated articles of incorporation, as amended, or our amended and restated bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine, shall be the state courts of North Carolina, or if such courts lack jurisdiction, a federal court located within the State of North Carolina, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.

Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for all litigation relating to our internal affairs, including without limitation (i) any derivative action or proceeding brought on behalf of Wolfspeed, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Wolfspeed to Wolfspeed or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the North Carolina Business Corporation Act (the NCBCA), our restated articles of incorporation, as amended, or our amended and restated bylaws, (iv) any action to interpret, apply, enforce, or determine the validity of our restated articles of incorporation, as amended, or our amended and restated bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine, shall be the state courts of North Carolina, or if such courts lack jurisdiction, a federal court located within the State of North Carolina, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.

Any such action filed in a North Carolina state court shall be designated by the party filing the action as a mandatory complex business case.

In any such action where the NCBCA specifies the division or county wherein the action must be brought, the action shall be brought in such division or county.

Our amended and restated bylaws also provide that, notwithstanding the foregoing, (x) the provisions described above will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction, and (y) unless we consent in writing to the selection of an alternative forum, the federal district courts shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action against Wolfspeed or any director, officer, employee, or agent of Wolfspeed and arising under the Securities Act.

If a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors