What changed in this filing

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Item 1A. Risk Factors

2024-02-01 compared with 2023-11-02 · 28 added, 28 removed, 476 unchanged (11% of the section changed)

26 unchanged sentences

Uncertainty about global economic conditions could result in customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition.

For example, current global financial markets continue to reflect uncertainty, including, among other things, recent bank failures in the United States, the ongoing military conflicts between Russia and Ukraine and the recent conflict between Hamas and Israel.

For example, current global financial markets continue to reflect uncertainty, including, among other things, bank failures in early 2023 in the United States, the ongoing military conflicts between Russia and Ukraine and the ongoing conflicts in the Middle East.

Given these uncertainties, there could be further disruptions to the global economy, financial markets and consumer confidence.

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For example, our customers, including our distributors and their customers, may experience difficulty obtaining the working capital and other financing necessary to support historical or projected purchasing patterns, which could negatively affect our results of operations.

Recent global economic slowdowns could continue and potentially result in certain economies dipping into economic recessions, including in the United States.

Various global economic slowdowns could occur and potentially result in certain economies dipping into economic recessions, including in the United States.

Additionally, increased inflation around the world, including in the United States, applies pressure to our costs.

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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 opening and ramping of a state-of-the-art, automated 200mm capable silicon carbide device fabrication facility in New York, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, the recent purchase of an epitaxy facility in Farmers Branch, Texas, and the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany;

• 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 opening and ramping of a state-of-the-art, automated 200mm capable silicon carbide device fabrication facility in New York, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, the purchase of an epitaxy facility in Farmers Branch, Texas, and the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany;

• meet our production capacity and delivery commitments to our customers, including those customers who provide us with capacity reservation deposits or similar payments;

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• attract and retain qualified employees;

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

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

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

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As competition increases, we need to continue to develop new products that meet or exceed the needs of our customers.

Therefore, our ability to continually produce more efficient and lower cost power and RF products that meet the evolving needs of our customers will be critical to our success.

Therefore, our ability to continually produce more efficient and lower cost power and RF products that meet the evolving needs

of our customers will be critical to our success.

Competitors may also try to align with some of our strategic customers.

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Our revenue depends on getting our products designed into a larger number of our customers’ products and in turn, our customers’ ability to produce, market and sell their products.

For example, we have current and prospective customers that create, or plan to create, power and RF products or systems using our substrates, die, components or modules.

For example, we have current and prospective customers that create, or plan to create, power products or systems using our substrates, die, components or modules.

Even if our customers are able to develop and produce products or systems that incorporate our substrates, die, components or modules, there can be no assurance that our customers will be successful in marketing and selling these products or systems in the marketplace.

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

response, our customers may reduce or discontinue their orders for our substrate materials.

In response, our customers may reduce or discontinue their orders for our substrate materials.

This reduction in or discontinuation of orders could occur faster than our sales growth in these new markets, which could adversely affect our business, results of operations or financial condition.

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

• the inability to realize the expected benefits, both from a timing and amount perspective, from our ongoing and planned capacity expansions, including the construction of a new materials manufacturing facility in Siler City, North Carolina and the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany;

• the inability to realize the expected benefits, both from a timing and amount perspective, from our ongoing and planned capacity expansions, including the construction of a new materials manufacturing facility in Siler City, North Carolina, the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany and the purchase of an epitaxy facility in Farmers Branch, Texas;

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

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

On August 22, 2023, we entered into a definitive agreement (the RF Purchase Agreement) with MACOM Technology Solutions Holdings, Inc.

(MACOM) with respect to the RF Business Divestiture.

On December 2, 2023, we completed the sale of our former RF product line (the RF Business) to MACOM Technology Solutions Holdings, Inc.

(MACOM) pursuant to the Asset Purchase Agreement dated August 22, 2023 (the RF Purchase Agreement).

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

• the failure to satisfy, on a timely basis or at all, the closing conditions set forth in the RF Purchase Agreement;

• the separation of the RF product line (the RF Business), and related information technology, from the businesses we are retaining and the operation of our retained business without the RF Business;

• issues, delays or complications in completing required transition activities to allow the RF Business to operate under MACOM after the closing, including incurring unanticipated costs to complete such activities;

• unfavorable reaction to the sale by customers, competitors, suppliers and employees;

• the disruption to and uncertainty in our business and our relationships with our customers, including attempts by our customers to terminate or renegotiate their relationships with us or decisions by our customers to defer or delay purchases from us;

• difficulties in hiring, retaining and motivating key personnel during this process or as a result of uncertainties generated by this process or any developments or actions relating to it;

• issues, delays or complications in completing required transition activities to allow the RF product line (the RF Business) to operate under MACOM after the closing, including incurring unanticipated costs to complete such activities;

• the diversion of our management’s attention away from the operation of the business we are retaining;

• the need to incur significant transaction costs in connection with the transaction, regardless of whether it is completed;

• the restrictions on and obligations with respect to our business set forth in the RF Purchase Agreement and, following closing, the RF master supply agreement and the transition services agreement, in each case between us and MACOM;

• the need to provide transition services in connection with the transaction, which may result in the diversion of resources and focus;

• the restrictions on and obligations with respect to our business set forth in the RF master supply agreement and the transition services agreement, in each case between us and MACOM;

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

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

• our failure to realize the full purchase price anticipated under the RF Purchase Agreement, including due to fluctuations in the market price of the 711,528 shares of MACOM’s common stock that constitute a portion of the purchase price under the RF Purchase Agreement (the MACOM Shares) before we are able to sell the MACOM Shares following MACOM's assumption of control of the Company's 100mm gallium nitride wafer fabrication facility in Research Triangle Park, North Carolina approximately two years following the closing of the transaction (the RTP Fab Transfer) and the forfeiture of one-quarter of the MACOM Shares in the event that the RTP Fab Transfer is not completed within four years following the closing of the transaction.

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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.

For example, in the first quarter of fiscal 2024, we recorded an impairment to assets held for sale associated with the pending RF Business Divestiture of $144.6 million.

For example, in the first quarter of fiscal 2024, we recorded an impairment to assets held for sale associated with the then-pending RF Business Divestiture of $144.6 million.

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.

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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.

Many new materials that we are evaluating for use in our operations may be subject to regulation under existing or future environmental laws and regulations that may restrict our use of one or more of such materials in our manufacturing, assembly and test processes or products.

Many new materials that we are evaluating for use in our operations may be subject to regulation under existing or future environmental laws and regulations that may restrict our use of

one or more of such materials in our manufacturing, assembly and test processes or products.

Any of these restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter our manufacturing processes.

New climate change laws and regulations could require us to change our manufacturing processes or procure substitute raw materials that may cost more or be more difficult to procure.

Various jurisdictions in which we do business have implemented,

or in the future could implement or amend, restrictions on emissions of carbon dioxide or other greenhouse gases, limitations or restrictions on water use, regulations on energy management and waste management, and other climate change-based rules and regulations, which may increase our expenses and adversely affect our operating results.

Various jurisdictions in which we do business have implemented, or in the future could implement or amend, restrictions on emissions of carbon dioxide or other greenhouse gases, limitations or restrictions on water use, regulations on energy management and waste management, and other climate change-based rules and regulations, which may increase our expenses and adversely affect our operating results.

We expect increased worldwide regulatory activity relating to climate change in the future.

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

As of September 24, 2023, our indebtedness consisted of $575.0 million aggregate principal amount of our 1.75% convertible senior notes due May 1, 2026 (the 2026 Notes), $750.0 million aggregate principal amount of our 0.25% convertible senior notes due February 15, 2028 (the 2028 Notes), $1,750.0 million aggregate principal amount of our 1.875% convertible senior notes due December 1, 2029 (the 2029 Notes) (collectively, the Outstanding Convertible Notes) and $1,250.0 million aggregate principal amount of the 2030 Senior Notes.

As of December 31, 2023, our indebtedness consisted of $575.0 million aggregate principal amount of our 1.75% convertible senior notes due May 1, 2026 (the 2026 Notes), $750.0 million aggregate principal amount of our 0.25% convertible senior notes due February 15, 2028 (the 2028 Notes), $1,750.0 million aggregate principal amount of our 1.875% convertible senior notes due December 1, 2029 (the 2029 Notes) (the 2026 Notes, the 2028 Notes and the 2029 Notes collectively, the Outstanding Convertible Notes) and $1,250.0 million aggregate principal amount of the 2030 Senior Notes.

In addition, on July 5, 2023, we entered into the CRD Agreement with Renesas Electronics America Inc.

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The Indenture governing the 2030 Senior Notes (the 2030 Senior Notes Indenture) includes a liquidity maintenance financial covenant requiring us to have an aggregate amount of unrestricted cash and cash equivalents maintained in accounts over which the trustee and collateral agent for the 2030 Senior Notes has been granted a perfected first lien security interest of at least $500,000,000 as of the last day of any calendar month, which amount will be reduced over time upon the fulfillment of certain conditions.

In addition, the 2030 Senior Notes Indenture contains certain restrictions that could limit our ability to, among other

In addition, the 2030 Senior Notes Indenture contains certain restrictions that could limit our ability to, among other things:

incur additional indebtedness, dispose of assets, create liens on assets, make acquisitions or engage in mergers or consolidations, and engage in certain transactions with our subsidiaries and affiliates.

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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 New York Stock Exchange ranged from a low of $35.93 to a high of $117.72 during the twelve months ended September 24, 2023.

For example, the closing price per share of our common stock on the New York Stock Exchange ranged from a low of $27.72 to a high of $86.54 during the twelve months ended December 31, 2023.

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

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

In addition, we currently hold shares in MACOM Technology Solutions Holdings, Inc.

that we acquired in connection with the sale of the RF Business.

These shares are subject to risks inherent in the business of that company and to trends affecting the equity markets as a whole.

As more fully discussed further in Note 2, "Discontinued Operations," in our unaudited financial statements in Part I, Item 1 of this Quarterly Report, the shares are also subject to restrictions on transfer prior to the RTP Fab Transfer and one quarter of the shares are subject to the risk of forfeiture in the event that the RTP Fab Transfer is not completed within four years following the closing of the transaction.

Should the value of these shares decline, the related write-down in value could have a material adverse effect on our financial condition and results of operations.

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

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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.

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.

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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