What changed in this filing

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Item 1A. Risk Factors

2024-05-02 compared with 2024-02-01 · 30 added, 29 removed, 475 unchanged (11% of the section changed)

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The descriptions below include any material changes to and supersede the description of the risk factors affecting our business previously disclosed in "Part I, Item 1A.

Risk Factors" of the 2023 Form 10-K.

Risk Factors" of the 2023 Form 10-K and subsequent reports filed with the SEC.

If any of the risks described below actually occurs, our business, financial condition or results of operations could be materially and adversely affected.

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• If we fail to evaluate and execute strategic opportunities successfully, our business may suffer.

• 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.

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

– Risks associated with cybersecurity, intellectual property and litigation

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Our operations and performance depend significantly on worldwide economic and geopolitical conditions.

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, 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.

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, higher interest rates 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, 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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trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a potential trade war.

Furthermore, if the conflict between Russia and Ukraine continues for a prolonged period of time, or if other countries, including the U.S., become involved in the conflict, we could face significant adverse effects to our business and financial condition.

Furthermore, if the current conflicts between Russia and Ukraine and in the Middle East continue for a prolonged period of time, or if other countries, including the U.S., become involved in these conflicts, we could face significant adverse effects to our business and financial condition.

For example, if our supply or customer arrangements are disrupted due to expanded sanctions or involvement of countries where we have operations or relationships, our business could be materially disrupted.

Further, the use of cyberattacks could expand as part of the conflict, which could adversely affect our ability to maintain or enhance our cyber-security and data protection measures.

Although we believe we have adequate liquidity and capital resources to fund our operations for at least the next 12 months, we expect to need additional funding to fully complete all of our intended expansion initiatives, which we may seek to obtain through, among other avenues, government funding in both the United States or Europe, public or private equity offerings, and debt financings (which may involve retiring some of our existing debt).

Although we believe we have adequate liquidity and capital resources to fund our operations for at least the next 12 months, we expect to need additional funding to fully complete all of our intended expansion initiatives, which we may seek to obtain through, among other avenues, government funding in both the United States and Europe, public or private equity offerings, and debt financings (which may involve retiring some of our existing debt).

If unfavorable capital market conditions exist, we may not be able to raise sufficient capital on favorable terms and on a timely basis, if at all.

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We are subject to risks related to international sales and purchases.

In fiscal 2023, 80% of our revenue was from outside the United States and we expect that revenue from international sales will continue to represent a significant portion of our total revenue.

In fiscal 2023, approximately 80% of our revenue was from outside the United States and we expect that revenue from international sales will continue to represent a significant portion of our total revenue.

As such, a significant slowdown or instability in relevant foreign economies or lower investments in new infrastructure could have a negative impact on our sales.

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• protection of intellectual property and trade secrets;

• tariffs, customs, trade sanctions, trade embargoes and other barriers to importing/exporting materials and products in a cost-effective and timely manner, or changes in applicable tariffs or custom rules, such as the additional customs duties accrued related to our former Lighting Products business unit;

• the burden of complying with and changes in United States or international taxation policies;

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• disruptions in or inadequate infrastructure of the countries where we operate;

• the impact of public health epidemics on employees and the global economy, such as COVID-19;

• the impact of public health epidemics on employees and the global economy;

• difficulties in collecting accounts receivable;

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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 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 renovation 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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This could result in lower margins and adversely impact our business and results of operations.

Additionally, if product demand decreases or we fail to forecast demand accurately, our results may be adversely impacted due to higher costs resulting from lower factory utilization, causing higher fixed costs per unit produced.

Additionally, if product demand decreases or if we fail to forecast demand decreases or changes accurately, which could lead to a mismatch between current product demand and manufactured product mix, our results may be adversely impacted, including due to higher costs resulting from lower factory utilization, causing higher fixed costs per unit produced.

For example, in fiscal 2024, we and other semiconductor companies have been experiencing softer demand for power products in industrial and energy applications than we expected, causing us to shift capacity to products for automotive applications.

Changes in product demand from our customers' forecasts may also cause variability in our supply costs if significant adjustments are needed to our forecasted or committed procurement and supply plans.

Further, we may be required to recognize impairments on our long-lived assets or recognize excess inventory write-off charges, or excess capacity charges, which would have a negative impact on our results of operations.

With the opening of the Mohawk Valley Fab, we will experience increased pressure on margins during the period when production begins but before the facility is at full utilization, and in the initial periods we expect these underutilization costs to be substantial as we ramp up the facility.

With the opening of the Mohawk Valley Fab, we have experienced and will continue to experience increased pressure on margins during the period when production begins but before the facility is at full utilization, and in the initial periods we expect these underutilization costs to be substantial as we ramp up the facility.

Additionally, our large upfront investment in the facility, or any other new facility, to increase capacity does not guarantee we will need the capacity and we may experience lower than expected capacity once the facility is in production, which could result in further margin pressures.

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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 materials 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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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.

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.

Risks associated with our strategic transactions

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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, 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 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 renovation 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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• 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;

• diversion of management's attention;

• difficulty separating the operations, personnel and financial and operating systems of a spin-off or divestiture from our current business;

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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 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.

As of March 31, 2024, 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 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.

(Renesas America) pursuant to which Renesas America provided the Company an initial deposit in an aggregate principal amount of $1 billion with a commitment to provide additional deposits in an aggregate principal amount of up to an additional $1 billion at our discretion in calendar year 2024, in connection with our entry into a wafer supply agreement with Renesas Electronics Corporation, an affiliate of Renesas America.

Our ability to pay interest and repay the principal for any outstanding indebtedness under the Outstanding Convertible Notes, the 2030 Senior Notes and the CRD Agreement (if applicable) is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.

(Renesas America) pursuant to which Renesas America has provided the Company deposits in an aggregate principal amount of $1.5 billion with a commitment to provide additional deposits in an aggregate principal amount of up to an additional $500 million at our discretion in calendar year 2024, in connection with our entry into a wafer supply agreement with Renesas Electronics Corporation, an affiliate of Renesas America.

Our ability to pay interest and repay the principal for any outstanding indebtedness under the Outstanding Convertible Notes, the 2030 Senior Notes and the CRD Agreement is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.

There can be no assurance that we will be able to manage any of these risks successfully.

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• increasing our interest expense if interest rates increase.

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.

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 million 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 things:

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The Indentures governing the Outstanding Convertible Notes (the Convertible Notes Indentures) require us to repurchase the Outstanding Convertible Notes upon certain fundamental changes relating to our common stock, and also prohibit our consolidation, merger, or sale of all or substantially all of our assets except with or to a successor entity assuming our obligations under the Indentures.

The CRD Agreement contains certain restrictions on our ability to incur debt and liens, consummate non-arm’s-length transactions with affiliates, mergers and consolidations whereby obligations under the CRD Agreement are not assumed, and change the nature of our business.

The CRD Agreement contains certain restrictions on our ability to incur debt and liens, consummate non-arm’s-length transactions with affiliates, consummate mergers and consolidations whereby obligations under the CRD Agreement are not assumed, and change the nature of our business.

The restrictions imposed by the 2030 Senior Notes Indenture, the Convertible Notes Indentures, and the CRD Agreement could limit our ability to plan for or react to changing business conditions, or could otherwise restrict our business activities and plans.

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The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2028 Notes and 2029 Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of the converted 2028 Notes and 2029 Notes, as the case may be, upon conversion of the 2028 Notes and 2029 Notes.

If, however, the market price per share of our common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions (currently $212.04 for the 2028 Notes and $202.538 for the 2029 Notes), there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the capped call transactions.

If, however, the market price per share of our common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions (currently $212.04 for the 2028 Notes and $202.538 for the 2029 Notes), there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in either case, to the extent that such market price exceeds the cap price of the capped call transactions.

Catastrophic events and disaster recovery may disrupt business continuity.

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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 $27.72 to a high of $86.54 during the twelve months ended December 31, 2023.

For example, the closing price per share of our common stock on the New York Stock Exchange ranged from a low of $23.77 to a high of $67.94 during the twelve months ended March 31, 2024.

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, 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 on our business, may have a dramatic effect on our stock price.

In addition, competition in some of the markets we address such as electric vehicles or the industrial and energy markets, the ramp up of our business, and the effect of tariffs on our business, may have a dramatic effect on our stock price.

Additionally, actions taken by the option counterparties in the capped call transactions entered into in connection with the 2028 Notes and the 2029 Notes may affect our stock price, including the potential modifications of their hedge positions by entering into or unwinding various derivatives with respect to our common stock.

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

We may be subject to volatility and uncertainty in customer demand, supply chains, worldwide economies and financial markets resulting from the outbreak of infectious disease or similar public health threat, such as the COVID-19 pandemic.

We have significant manufacturing operations in the United States and contract manufacturing agreements in Asia, which may be affected by the outbreak of infectious diseases or other similar public health threats and the measures to try to contain it.

At the beginning of the COVID-19 pandemic, 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 and contract packaging facilities, we experienced some disruptions in supply from containment measures in connection with the COVID-19 pandemic and may experience similar disruptions in the future from additional outbreaks of COVID-19 or other infectious diseases.

For example, during the COVID-19 pandemic, we experienced some limited disruptions in our supply chain and may experience similar disruptions in the future in the event of a pandemic.

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 in connection with future outbreaks of infectious diseases or similar public health events 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.

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 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.

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.

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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