What changed in this filing

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Item 1. Business

2023-08-23 compared with 2022-08-22 · 39 added, 38 removed, 148 unchanged (34% of the section changed)

Wolfspeed, Inc.

(Wolfspeed, we, our, or us) formerly known as Cree, Inc., is an innovator of wide bandgap semiconductors, focused on Silicon Carbide and gallium nitride (GaN) materials and devices for power and radio-frequency (RF) applications.

(Wolfspeed, we, our, or us) is an innovator of wide bandgap semiconductors, focused on silicon carbide and gallium nitride (GaN) materials and devices for power and radio-frequency (RF) applications.

Our product families include silicon carbide and GaN materials, power devices and RF devices, and our products are targeted for various applications such as electric vehicles, fast charging, 5G, renewable energy and storage, and aerospace and defense.

During and prior to fiscal 2021, we designed, manufactured and sold specialty lighting-class light emitting diode (LED) products targeted for use in indoor and outdoor lighting, electronic signs and signals and video displays.

On March 1, 2021, we completed the sale of certain assets and subsidiaries comprising our former LED Products segment (the LED Business) to SMART Global Holdings, Inc.

(SGH) and its wholly owned subsidiary CreeLED, Inc.

(CreeLED and collectively with SGH, SMART) (the LED Business Divestiture).

As a result, we have classified the results and cash flows of our former LED Products segment as discontinued operations in our consolidated statements of operations and consolidated statements of cash flows for all periods presented.

Unless otherwise noted, discussions within this Annual Report relate to our continuing operations.

Our materials products and power devices are used in electric vehicles, motor drives, power supplies, solar and transportation applications.

Our materials products and RF devices are used in military communications, radar, satellite and telecommunication applications.

On October 4, 2021, we changed our corporate name from Cree, Inc.

to Wolfspeed, Inc.

In addition, we transferred the listing of our common stock to the New York Stock Exchange (NYSE) from The Nasdaq Global Select Market (Nasdaq).

We ceased trading as a Nasdaq-listed company at the end of the day on October 1, 2021 and commenced trading as a NYSE-listed company at market open on October 4, 2021 under the new ticker symbol ‘WOLF’.

The majority of our products are manufactured at our production facilities located in North Carolina, California and Arkansas.

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We maintain captive lines at some of our contract manufacturers.

Additionally, we recently opened a Silicon Carbide device fabrication facility in New York.

Additionally, we recently opened a silicon carbide device fabrication facility in New York and started construction on a new materials manufacturing facility in North Carolina.

We operate research and development facilities in North Carolina, California, Arkansas, Arizona and New York.

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We also provide custom die manufacturing for GaN HEMTs and MMICs that allow a customer to design its own custom RF circuits to be fabricated by us, or have us design and fabricate products that meet their specific requirements.

As discussed more fully in Note 17, “Subsequent Events,” in our consolidated financial statements included in Item 8 of this Annual Report, on August 22, 2023, we entered into a definitive agreement (the RF Purchase Agreement) to sell certain assets comprising our RF products line (the RF Business) to MACOM Technology Solutions Holdings, Inc.

(MACOM) for approximately $75 million in cash, subject to a customary purchase price adjustment, and 711,528 shares of MACOM common stock (the Shares), valued at $50 million based on the trailing average closing price for MACOM’s common stock for the 30 trading days ending on August 21, 2023 (the RF Business Divestiture).

We will retain certain pre-closing liabilities associated with the RF Business.

In connection with the RF Business Divestiture, MACOM will assume control of the Company’s 100mm gallium nitride wafer fabrication facility in Research Triangle Park, North Carolina (the RTP Fab) approximately two years following the closing of the transaction (the RTP Fab Transfer).

The Company will continue to operate the RTP Fab and supply MACOM with Epi-wafers and fabrication services pursuant to a Master Supply Agreement (the RF MSA) between the date of the Closing and the date on which the RTP Fab Transfer is complete (RTP Fab Transfer Date).

Prior to the RTP Fab Transfer Date, the Shares will be subject to restrictions on transfer and we will forfeit one-quarter of the Shares if the RTP Fab Transfer has not occurred by the fourth anniversary of the closing.

The Company expects to close the transaction by the end of calendar 2023.

Research and Development

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When our customers participate in funding our research and development programs, we recognize the amount funded as a reduction of research and development expenses to the extent that our customers’ funding does not exceed our respective research and development costs.

For further information about our research and development costs, see “Research and Development” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Sales and Marketing

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Our sales, marketing and technical applications teams include personnel throughout North America, Asia and Europe.

In fiscal 2022, 2021 and 2020, we had two, three, and two customers that represented more than 10% of our consolidated revenue, respectively.

In fiscal 2023, 2022 and 2021, we had two, two, and three customers that represented more than 10% of our consolidated revenue, respectively.

These customers, in the aggregate, accounted for 35%, 38%, and 41% of our total consolidated revenue in fiscal 2023, 2022 and 2021, respectively.

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instead, their customers place orders directly with us or through distributors.

Our backlog at June 26, 2022 was approximately $2.2 billion, compared with a backlog of approximately $763.9 million at June 27, 2021.

Our backlog at June 25, 2023 was approximately $2.9 billion, compared with a backlog of approximately $2.2 billion at June 26, 2022.

Because of changes in a number of factors, including manufacturing lead times and customer order patterns, we do not believe that our backlog, as of any particular date, is necessarily indicative of actual revenue for any future period.

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Government exercises its rights to terminate our government contracts.

Design-ins for the fiscal year ended June 25, 2023 were $8.3 billion, compared with design-ins of approximately $6.4 billion for the fiscal year ended June 26, 2022.

For further information about our design-ins, see “Research and Development” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Annual Report.

Manufacturing

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Our substrate and wafer fab manufacturing facilities are certified to ISO 9001, IATF 16949 (automotive), and ISO 14001 (environmental).

Our silicon carbide device fabrication facility in Marcy, New York is certified to ISO 9001 and is in the process of being certified for IATF 16949 and ISO 140001.

ISO 9001 is the international standard that specifies requirements for a quality management system and focuses on the ability to consistently provide products and services that meet customer requirements.

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

In select cases, we have purchase contracts with suppliers in place to help insure our supply.

In select cases, we have purchase contracts with suppliers in place to help ensure our supply.

In other cases, we purchase items pursuant to discrete purchase orders.

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However, shortages have occurred from time to time and could occur again.

For raw materials used in semiconductor production, the global semiconductor shortage has put pressure on the ability to obtain some raw materials.

We have focused on forecasting demand further out in time in order to secure raw materials that may have extended lead times and we have been working with suppliers to develop purchase agreements that provide supply over extended time periods.

We are starting to experience higher prices on our raw materials as a result of inflation pressures, including base price increases and price surcharges.

Additionally, we have continued to experience impacts with logistics, including increased freight costs and lower shipping capacities.

We are closely following logistical impacts as they happen and are working closely with suppliers to prepare shipping arrangements in advance of departure dates to ensure we secure logistics slots.

We have and may continue to experience isolated issues with our suppliers related to the COVID-19 pandemic.

These issues usually relate to extensions of lead times or impacts due to work force restrictions imposed at a regional level.

When these occur, we closely monitor deliveries with suppliers to help us have the opportunity to decrease or eliminate any future delays.

We have been successful in managing through these issues and we believe our operations are currently not materially impacted by our ability to source raw materials, components and equipment used in manufacturing our products.

We are focused on forecasting demand with sufficient time necessary to secure raw materials that may have extended lead times and we continue to work with suppliers to develop purchase and capacity agreements that secure supply over extended time periods, including accommodating our suppliers' need for capital investment when needed.

We continue to experience higher prices on our raw materials as a result of inflation pressures, including base price increases and price surcharges.

We have mitigated these increases by leveraging our growth to negotiate efficiencies and productivity-based cost reductions.

China recently announced an export restriction of gallium and germanium, two metals mined from the earth and used in the manufacturing of semiconductors and electronics.

We do not purchase these metals directly.

While we do purchase two products containing gallium, these products are not within the current export restrictions.

We will continue to monitor our exposure but at this time we do not expect to be materially affected by China's current export restriction.

We have continued to be successful in managing through these current issues and have shown the ability to navigate through significant supply challenges, including multiple COVID-19 pandemic supply chain constraints and natural gas supply limitations forced upon some of our European suppliers.

We believe our operations are currently not materially impacted by our ability to source raw materials, components and equipment used in manufacturing our products.

Silicon Carbide and GaN Materials

We have continued to maintain a well-established leadership position in the sale of silicon carbide wafer and silicon carbide and GaN epitaxy products.

As market adoption of the technology grows with rapidly expanding power and RF device designs, we have experienced increased competition from companies such as II-VI Advanced Materials/Coherent, Inc., SiCrystal GmbH, IQE plc and Showa Denko K.K.

As market adoption of the technology grows with rapidly expanding power and RF device designs, we have experienced increased competition from companies such as Coherent, Inc., SiCrystal GmbH, IQE plc and Showa Denko K.K (now Resonac Holdings Corporation).

We believe our leading technology and leveraged production scale position us to reliably supply production volumes to the device manufacturers in the market.

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Our power products compete in the power semiconductor market on the basis of performance, reliability and overall system price.

Our RF devices compete with Ampleon Netherlands B.V., M/A-COM Technology Solutions Inc., BOWEI Integrated Circuits Co., Ltd., Mitsubishi, NXP Semiconductor N.V., RFHIC, Qorvo, Inc.

and Sumitomo, which all offer competing RF products and solutions.

Our RF devices compete with Ampleon Netherlands B.V., MACOM Technology Solutions Inc., BOWEI Integrated Circuits Co., Ltd., Mitsubishi Electric Corporation, NXP Semiconductor N.V., RFHIC, Qorvo, Inc.

and Sumitomo Corporation, which all offer competing RF products and solutions.

Our products also compete with a variety of companies offering silicon and GaAs-based products.

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We are also subject to import-export controls, tariffs and other trade-related regulations and restrictions in countries in which we have operations or otherwise do business.

These controls, tariffs, regulations, and restrictions (including those related to, or affected by, United States-China relations, as discussed below in Item 1A of this Report) may have a material impact on our business, including our ability to sell products and to manufacture or source components.

These controls, tariffs, regulations, and restrictions (including those related to, or affected by, United States-China relations, as discussed below in Item 1A, "Risk Factors," of this Annual Report) may have a material impact on our business, including our ability to sell products and to manufacture or source components.

Working Capital

For a discussion of our working capital practices, see “Liquidity and Capital Resources” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations."

For a discussion of our working capital practices, see “Liquidity and Capital Resources” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report.

Human Capital

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We believe that our future success largely depends upon our continued ability to identify, attract, motivate and retain qualified personnel.

Core to our ability to attract and retain talent is our high-performance culture, which is based on our three central values of (1) integrity and respect, (2) ownership and accountability, and (3) ingenuity and passion.

Core to our ability to attract and retain talent is our high-performance culture, which is based on our three central values of (1) safety, integrity and respect, (2) ownership and accountability, and (3) ingenuity and passion.

We are committed to creating and sustaining a culture where all employees are engaged and can contribute to their full potential.

We aim to provide our employees with competitive compensation, as well as opportunities for equity ownership and developmental programs that enable continued learning and growth.

We aim to provide

our employees with competitive compensation, as well as opportunities for equity ownership and developmental programs that enable continued learning and growth.

We endeavor to utilize recruiting practices that yield qualified and dedicated employees who are driven to achieve our vision.

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We are focused on offering competitive compensation and comprehensive benefit packages designed to promote the physical and emotional well-being and financial health of our employees.

Our total compensation package includes base pay, bonuses, stock-based compensation, employee stock purchase plans, employee referral bonuses, adoption assistance and a family care program.

In addition to base pay, our total compensation package includes items such as bonuses, stock-based compensation, employee stock purchase plans and employee referral bonuses.

Our benefits package includes employee learnings, health and welfare, tuition reimbursement, student loan repayment, several wellness and emotional support options, adoption assistance and a family care program.

Additionally, we sponsor a 401(k) employee benefit plan for our U.S.

based employees and we match a defined percentage of employee contributions.

Health and Safety

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We aim to provide a safe and healthy work environment through various measures, including accountability for health and safety performance with line management, setting acceptable levels of risk based on government regulation or industry best practice, and evaluating health and safety incidents to prevent recurrence, among other programs.

In response to the COVID-19 pandemic, we implemented safety protocols and new procedures to protect our employees, customers and suppliers.

In line with guidance from the World Health Organization, Center for Disease Control, local health authorities and other governmental authorities, we have implemented numerous preventative hygiene and safety measures at our facilities, and moved to a fully remote work model for employees who were able to perform their job duties from an off-campus location.

As the pandemic continues, the health and well-being of our workforce remains a top priority while we work to ensure productivity for those employees working from home.

Recently, some employees have returned to working in the office, however, we also offer a 'work where it works' arrangement that allows certain employees to continue to have the option of working remotely part-time or full-time.

Diversity and Inclusion

We continue to maintain certain safety protocols and procedures put in place in response to the COVID-19 pandemic, including an extensively used 'work where it works' arrangement that allows employees who are able to perform their job duties from an off-campus location to continue to have the flexibility of working remotely full-time or part-time.

Diversity, Equity and Inclusion

We believe diversity, equity, and inclusion drives better business results and makes all of us better employees and people.

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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-K

Item 1. Business