Silicon Carbide is common in stardust. But to create it here on earth, you must grow it in a furnace operating at half the temperature of the sun, 2500 degrees Celsius. In this environment it can form in more than 200 crystal structures of which only one is ideal for semi-conductors. You then have to slice the Silicon Carbide, the second hardest material on earth, into wafers.
That is what ending the reign of the internal combustion engine era (ICE) takes, according to the CEO of semi-conductor manufacturer Wolfspeed, Gregg Lowe. Silicon Carbide, in which Wolfspeed has approximately a 60% market share, is an alternative to silicon in the semi-conductor industry. This synthetic mineral is playing an increasingly important part of the high-efficiency power systems driving electrical vehicles and renewable energy technologies.
“We are in the early phase of a transition from silicon to Silicon Carbide,” says Lowe to North American CEO. “Technology changes like this don’t come along that often in semi-conductors. The last time this happened was about 50 years ago. It is a major transition and we are in the driver’s seat in terms of this technology that we founded the company on thirty-five years ago.”
Silicon Carbide is ten times more efficient than silicon, meaning that with the enormous pressure for greater energy efficiency due to climate change, Wolfspeed, found itself perfectly positioned in an exploding market.
“A big server farm will use a lot less energy if it uses Silicon Carbide products to power those servers. An electric car you requires 5% to 15% less battery power with silicon carbide to get the same mileage range as silicon,” adds Lowe. “If takes a lot less time to charge an electric car and there is a lot less waste of energy.”
Betting on Silicon Carbide
Wolfspeed was founded in 1987 in Durham North Carolina, as Cree, becoming the first company to successfully commercialize Silicon Carbide. But when Lowe became CEO in 2017, Silicon Carbide was the smallest of the company’s business lines.
“When I joined the company it was very clear to me that the gold nugget in the company was actually its smallest business, the silicon carbide business,” says Lowe. “The company was doing other things such as a lighting business and a LED business which were not core business. So we sold those off to focus ourselves on Silicon Carbide.”
After four years of transformation Cree changed its name to Wolfspeed in October 2021, moving its listing from Nasdaq to the New York Stock Exchange under the WOLF ticker. The company had shed two-thirds of the business to dedicate itself to Silicon Carbide, the crystal structure on which Cree had been founded.
“Today officially marks a transformative milestone for Wolfspeed as we are now a pure-play global semiconductor powerhouse,” said Lowe at the time. “The next generation in power semiconductors will be driven by Silicon Carbide technology, with superior performance that unleashes new possibilities and positive changes to the way we live. As the original champion of this technology, we couldn’t be more excited for what lies ahead.”
A widening pipeline of opportunity
The company’s prospects are growing explosively. In October 2021 its product pipeline totaled $15 billion, by February 2022 $20 billion seemed like a more realistic estimate. In hard number revenues, which were at $500 million in fiscal 2021 are targeted to be $1.5 billion in 2024.
“Just in the last quarter alone we have had design wins, in which customers commit to using our platform, worth $1.6 billion,” notes Lowe, who is also a board member of the Rock & Roll Hall of Fame. “Part of this growth is because we have a strong position due to our market share. But another part of it is that we started investing in production capacity three years go and that capacity is starting to come online.”
Spring 2022 Wolfspeed will open the world’s first, largest and only 200 mm Silicon Carbide wafer plant, the fully automated Mohawk Valley Fab in Marcy, New York. The plant will increase the maximum wafer size from 150 mm to 200 mm, which will result in an increase of 70% in the number of chips per wafer.
“We have laid a plan to be at 2.1 billion dollars in revenue by 2026 and in our last earnings call we mention there is upward pressure on that number right now based on the success that we have,” explains Lowe. “It is pretty amazing.”
Three forces are coming together to create this growth. More electric vehicles are being bought, Silicon Carbide is increasingly replacing silicon and semi-conductor firms in general are winning more business than expected.
“This growth is fueled by the desire of consumers and manufacturers to use less energy and have a cleaner environment,” notes Lowe.
Globally the semiconductor industry has grown strongly the last twenty years. If in the early 2000s profit margins were low at many companies, semi-conductor manufacturing was the 4th most profitable industry of 24 different industries by 2020, according to McKinsey. The same study sees the industry occupying third place in profitability among global industries in the long-term.
Global supply chains snarls with a silver lining
“Because of the supply shortages of chips during the pandemic, Tier 1 investor and car companies are looking very closely at who is investing in capacity,” says Lowe. “We don’t point to a plan that we are going to increase capacity, we point to a building that is going to be running wafers pretty soon.”
The industry is coming off sharp supply shortages due to insufficient capacity at semiconductor fabs and complications arising due to the COVID-19 pandemic leading to shutdowns of automobile production lines in 2021.
Wolfspeed procures raw materials for its production and equipment for its wafer fabs with a long-term partnership approach with its suppliers. The company has approximately a dozen suppliers it considers mission critical, among whom strategic engineering solutions providers Applied Materials and XSight Labs.
“The suppliers have really appreciated the fact that we recognized them and that it has been a tough year with COVID-19 and supply chain issues, but they came through for us,” remembers Lowe. “Our approach is that we understand you are going to have challenges. When there is an issue our suppliers know that we are going to work with them and they go the extra mile.”
In an unexpected silver lining, recent supply shortages led Congress to pass the CHIPs for America act in 2021, which includes a provision of $52 billion in federal investments for domestic semiconductor research, design and manufacturing.
“A very positive step for the U.S. industry,” notes Lowe. “Primarily because the number of wafer fabs in the world, the percentage of wafer fabs has been declining in the U.S. for many decades.”
Motivated to make an impact
Wolfspeed has a pretty unique position because of the difficulty of producing Silicon Carbide. The furnaces for the production themselves are made by the company, there is no supplier. A large part of the people who are experts in silicon carbide are employed by the company. The factors make it difficult for new competitors to arise, the barriers for entry are high and expensive, making it difficult for rivals to fill supply shortages.
“We didn’t know three years ago that there would be a semi-conductor supply shortage,” muses Lowe. “It makes us look really good to our customers when we talk to them about our plans for capacity expansion, because two years ago we put a shovel in the ground for a new fab and its coming online right now during this supply crisis.”
This leaves the company uniquely positioned to profit from the explosive growth of the semi-conductor market as it transitions from silicon to silicon carbide.
“We are creating opportunities for whole industries to improve efficiency, use less energy be more environmentally friendly, be less polluting,” says Lowe. “That means a lot to our employees. We tell them that the internal combustion engine (ICE) is going away. We are creating the end of the ice age.”
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