Silicon Carbide’s Champion Stumbles: Wolfspeed’s Path to Bankruptcy

Welcome to the 157th Pari Passu newsletter,

Over the past few years, the rising adoption of electric vehicles (EVs), AI data center infrastructure buildout, and the renewable energy transition have exploded the demand for semiconductors. However, despite high expectations for many well-positioned manufacturing and power application companies to benefit tremendously from these tailwinds, 2024 saw a record number of these "expected beneficiaries” going bankrupt globally, and this trend has persisted into 2025 with big-name petitions such as Sunnova Energy and Marelli. 

In today’s write-up, we will explore Wolfspeed’s path from a $12bn market cap silicon carbide pioneer to bankruptcy, its execution missteps, and why creditors ultimately chose to support a prepackaged Chapter 11 that balances value preservation with creditor recoveries. Let’s dive in.

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Silicon Carbide Genesis: From Blue LEDs to Commercial Wafer Pioneer

The story of Wolfspeed (NYSE: WOLF), formerly Cree Research, begins in 1987 at North Carolina State University, where a group of visionary scientists founded Cree Research with an ambitious goal: to harness the untapped potential of silicon carbide (SiC) for revolutionary LED applications. This marked the beginning of a decades-long odyssey to commercialize one of the semiconductor industry's most challenging yet transformative materials: silicon carbide. 

The breakthrough came in 1989 when Cree Research introduced the world's first blue light-emitting diode (LED), a technological marvel that enabled the development of large, full-color video and billboards that we see today. However, the true paradigm shift occurred in 1991 when the company launched the first commercial silicon carbide wafer, marking silicon carbide's transition from a laboratory curiosity to a manufacturing reality. Silicon carbide is a special compound used as a semiconductor substrate (the base material upon which circuits or devices are built). In semiconductors, the substrate (base layer of electronic devices) usually takes the form of a wafer. A silicon carbide wafer is a thin, round slice of crystal silicon carbide; we will later discuss why it is so special. Previously, silicon carbide had been confined to research labs, making this commercial wafer a breakthrough that would unlock adoption in high-voltage electronics and establish the foundation for an entirely new semiconductor category. For clarification, the rest of the write-up will refer to silicon carbide as SiC. [1]

Wolfspeed went public in 1993 through an IPO, and for the next two decades, Wolfspeed’s trajectory was shaped by a dual-track strategy: the LED business drove top-line growth, recognition, and cash flow, while the SiC crystal-growth business advanced slowly in the background, requiring patience and heavy R&D.

Silicon Carbide as Strategic Differentiator

Before diving into Wolfspeed’s history, it is important to understand the technological benefits of SiC. Silicon carbide’s superiority stems from its classification as a wide-bandgap semiconductor, enabling it to handle higher voltages, temperatures, and switching speeds than traditional silicon. A bandgap is like the “energy wall” an electron must climb to make the material conduct electricity. Silicon carbide, unlike small-bandgap semiconductors like traditional silicon, has a much higher bandgap, allowing it to handle more power (higher voltages) and operate at higher temperatures. These intrinsic properties translate into lower conduction losses, faster switching, and superior thermal performance, making SiC a natural choice wherever power density and efficiency are critical. As a result, SiC would become indispensable for the electrification revolution beginning in the 2010s, powering EV drivetrains, renewable energy infrastructure, and industrial systems. So, how is silicon carbide made? To clarify, SiC is not a naturally occurring material, so Wolfspeed grows the material (crystals) synthetically and designs it into a wafer format so it can run through conventional semiconductor fabs. A crystal means the atoms are arranged in an ordered pattern (like a brick wall), which is crucial for semiconductors because electrons move more predictably in a perfect lattice. When we refer to SiC crystal growth, we are describing the process of synthetically growing a large, high-quality chunk of SiC crystal in the lab. These SiC crystals are then sliced and polished into wafers, forming SiC wafer substrates that are used as the foundation of all additional layers for electronic devices. So to sum up, SiC crystals are grown in labs synthetically and then sliced into thin disks (wafers), which are the substrates in the semiconductor world that are used as the foundation for building electronic devices. [2] [10]

By the early 2000s, Wolfspeed had become the main producer of high-quality, low-defect SiC substrates that underpinned its LED lighting business. Over time, as Wolfspeed refined its crystal-growth expertise in terms of quality and scale for its growing LED lighting business, it launched various versions of SiC power transistors (basically an electronic switch that can control the flow of electricity) that proved the material could revolutionize power electronics, not just LED lighting. By 2015, Wolfspeed’s substrates would be considered the industry gold standard, and industry consultants estimated that Wolfspeed controlled 95% of the high-end silicon carbide substrate market, with competitors still dependent on purchasing the SiC substrate wafers from Wolfspeed to build their power applications. In 2016, the shift to electric vehicles, renewable energy, and fast-charging infrastructure elevated SiC to a high-demand strategic technology. Governments now label SiC devices as “critical to national security” because they underpin clean-energy and advanced-mobility systems. Today, SiC wafers and the power applications built on top of the substrates sit at the heart of EV drivetrains, solar inverters, industrial motor drives, and AI data-center power supplies. [2] [3]

To briefly reiterate, although SiC began as the enabler of breakthrough LEDs, its electrical and thermal attributes have made it indispensable for the high-power, high-efficiency technologies that define today’s electrification revolution. Wolfspeed mastered the SiC fabrication and crystal-growing process that differentiated the business as a supplier of SiC substrates and fabricator of high-power electronic applications.

Wolfspeed’s Legacy Business: The Rise-and-Fall of LEDs

Wolfspeed had been founded on SiC crystal growth and initially used SiC wafers as the substrate (base layer for devices) for its blue/green LEDs. Its business model centered around sourcing the raw materials for silicon carbide crystal growth, wafering to form the SiC substrates, and fabricating LED devices/components. Throughout the 1990s and 2010s, Wolfspeed’s SiC-based LED products dominated revenue under the LED lighting “revolution”. As a vertically integrated SiC player, Wolfspeed had customers throughout the supply chain under the LED lighting business umbrella: the SiC wafer substrates sold to other semiconductor manufacturers, LED components (like LED chips, not lightbulbs) sold to lighting OEMs, and the commercial LED bulbs/fixtures sold to consumer, enterprise, and municipal customers. Nonetheless, while Wolfspeed’s core sales centered around the LED lighting business, the core value of Wolfspeed’s business is the SiC crystal-growth substrate business embedded inside the LED division, the first stage of the process. Wolfspeed’s early LED work on SiC gave the company a decades-long head start in crystal quality and manufacturing scale for SiC wafers, advantages that Wolfspeed would leverage exclusively for its future bet on power electronics. [2]

Leading up to the 2010s, Wolfspeed’s LED business drove significant revenues supported by strong LED lighting adoption tailwinds [4] and in-house technological breakthroughs [5]. By owning the entire vertical lighting model stack from SiC materials (growing the crystals and designing the wafer substrates) to packaged systems, Wolfspeed benefited from enormous leverage. By 2010, the global lighting market was approximately $100bn, while LED penetration was only in the HSD, leaving an abundant runway for Wolfspeed’s growth. As a result, in 2011, Wolfspeed doubled down on lighting by purchasing Ruud Lighting at a premium purchase price of $525mm at ~3x revenue. This deal was meant to extend its early success in LEDs from components into fully-fledged fixtures and lamps, strengthening Wolfspeed’s product portfolio by giving it a more comprehensive product offering that covered both indoor and outdoor LED applications. Following the acquisition in FY2012, Wolfspeed created a new “Lighting Products” segment that immediately added roughly $200mm in annualized revenue to a base of ~$1bn total revenues in FY2011, but at a slightly lower gross margin than Wolfspeed’s legacy business of LED-based lighting operations. The acquisition reflected Wolfspeed’s ambition to become not just a LED component supplier but a vertically integrated player in the growing LED lighting market. With the revenue synergies of the Ruud acquisition, Wolfspeed’s total revenue exploded at an ~11% CAGR from FY2010 to FY2014, and Wolfspeed’s top-line tripled over the past decade. Notably, Wolfspeed operates on a 52/53-week retail calendar that ends in June of each year (i.e., FY2012 goes from July 2011 to June 2012) because its end-markets are cyclical and seasonal (consumer electronics, automotive, energy). [6]

Through the mid-2010s, however, commoditization began to erode the LED segment. While Wolfspeed still shipped industry-leading LED products (bulbs/fixtures, chips, etc), the market had shifted from differentiation (most efficient) to volume as Chinese competitors adopted lower-cost substrates to build LEDs rather than high-power (but more expensive) SiC substrates. Over the decade, Wolfspeed’s LED gross margins collapsed from ~48% in FY2011 to ~26% gross margins in FY2018, while the LED business declined from ~91% to ~40% of total revenue over the same period as price competition intensified from lower-power LED manufacturers. By FY2015-FY2017, management’s reviews increasingly flagged the weakening economics of the LED business, with profitability falling behind expectations even as volumes rose. Then, by 2018, the problems were undeniable, and Wolfspeed publicly acknowledged that “the LED business had been experiencing weakness,” opting to realign toward applications with higher profitability. Management made the conscious trade-off to sacrifice revenues for long-term margins by pivoting away from their LED business to become a pure-play SiC company, resulting in (28%) Y/Y revenues but a ~7% gross margin uplift to 36% (back to pre-commoditization levels in FY2011) in FY2019.

To summarize, Wolfspeed’s declining LED business had become commoditized from lower-cost LED products of Chinese manufacturers, causing Wolfspeed to focus on its silicon carbide business (crystal-growth & wafering) that underpinned its lighting business. [2] [7]

In an attempt to focus on its higher-margin differentiated SiC substrate business, Wolfspeed sold its once-profitable lighting products division in 2019, which had become a capital drag and a value-destructive segment of the business. [8] The division was viewed as non-core and depreciating by 2019, leading to the divestiture. Over the next 18 months, the company disentangled residual lighting lines while redirecting resources into silicon carbide. In 2021, Wolfspeed turned into a pure-play SiC company by selling the remaining of its LED business. Ultimately, while the SiC-based LEDs business had turned sour, the decades-long history of developing SiC crystal growth activity at scale strongly positioned Wolfspeed for its next business focus on power semiconductors. SiC crystal growth embedded in the LED business had been historically central as the substrate for Wolfspeed’s high-power LEDs and, after the 2010s, the foundation for Wolfspeed’s power semiconductors. 

Business Model

Wolfspeed stands at the forefront of the transition to silicon carbide technology. Wolfspeed is the world’s only pure-play, vertically integrated silicon carbide (SiC) company, focusing 100% of its resources on capitalizing on the industry’s migration from traditional silicon to SiC power semiconductors. Wolfspeed’s differentiation rests on a fully-integrated vertical value chain and its critical technological moat. Firstly, the company has created a one-stop supply chain: growing the SiC crystal, polishing and slicing crystals into wafer substrates, thermal packaging, and application into power devices. To clarify this vertical value chain, Wolfspeed sells its internally-produced SiC substrates (the semiconductor starting materials) to third parties for their respective power device manufacturing because most companies prefer to focus on device design rather than the crystal growth step, which is very capital-intensive and an extremely difficult process to refine. However, Wolfspeed also uses the internally produced SiC substrates for its own power device line (discussed more later), completing the value chain from crystal growth to power device design using SiC wafer substrates. Therefore, while most of their competitors are missing some pieces of this vertical integration, Wolfspeed is able to secure an internal wafer supply. Given substrates can account for more than 50% of a SiC power device’s cost, controlling wafer yields directly influences device economics. Secondly, Wolfspeed maintains a meaningful technological moat for its SiC substrate technology, synthetic crystal-growth process, and power-device fabrication technology (requires SiC wafers as “base”). [9] [41]

Wolfspeed’s business model hinges on monetizing the entire SiC value chain (as shown in Figure 2): selling high-margin substrates to third parties while driving even higher value through power devices built using internally produced SiC wafers. This creates a dual market approach between (i) using SiC wafers to build internal power devices and (ii) external wafer sales to third parties. Although Wolfspeed increasingly consumes wafers in-house for its power devices segment, it remains the largest merchant supplier of SiC substrates, holding roughly a 53% share as of August 2025. 

The company reports two primary business segments:

Materials Products Segment

Firstly, the Materials Products segment (SiC wafers) represents ~45% of total revenues in FY2025 and involves the process of synthetic silicon carbide crystal growth in labs, slicing and polishing of crystals into wafers, and formation of SiC substrates. Then, these wafers are either sent for internal use for Power Products (whose sales represent the second business segment) or sold externally as part of the Materials Product segment to Integrated Device Manufacturers like Infineon Technologies, STMicro, onsemi, and Renesas Electronics (IDMs; semiconductor companies designing the chips from the SiC substrate). The Materials segment has existed since the 1990s, first embedded inside the LED division and now operating independently to supply Wolfspeed’s power fabs and other IDMs. In the SiC wafer market, Wolfspeed maintains a dominant position with 53% market share, while COHR trails behind at 19% share. Currently, WOLF largely operates as the primary supplier to its customers, supplying ~75% of customers’ desired capacity. Wolfspeed has been responsible for 90% of SiC wafers ever produced globally and ~40% of the total SiC wafers produced in 2024. [11] [9fin]

In SiC substrate production, Wolfspeed has historically manufactured 150 millimeter (150mm) SiC wafers, but it is now leading the transition to new 200 millimeter (200mm) wafers. In semiconductor manufacturing, 200mm silicon (not SiC) wafers were introduced in the 1990s, but for SiC, it is much more recent, in 2021. The wafer’s diameter determines how many chip devices can be fabricated on its surface; the larger the surface area, the more chips each wafer can hold. To clarify the manufacturing economics, the larger 200mm wafers at Mohawk Valley Fab (discussed later) have approximately 78% more surface area than their 150mm counterparts and, thus, can produce more chips per wafer. Because making a wafer at scale, whether 150mm or 200mm, costs roughly the same in time, energy, and machine usage, larger wafers translate to more chips produced per process run. The caveat is that yield matters as well, since defective chips can offset the cost advantages. Fortunately, Wolfspeed’s 200mm wafers have demonstrated high yields, enabling the company to achieve greater chip output, improved efficiency, and lower cost per device compared with its 150mm wafers.

The explanation for 200mm SiC wafers provides relevant background for Wolfspeed’s construction of new semiconductor fabs focused on 200mm SiC wafer and power device production (more on this later). Previously, WOLF did everything at the Durham Fab: production of its SiC 150mm diameter wafers (crystal-growth & polishing) and manufacturing of power devices, which is represented in Wolfspeed’s second business segment. However, Wolfspeed’s operational shift from producing 150mm to 200mm wafers has completely revamped the entire process for the materials product segment. In FY2025, Wolfspeed’s 200mm wafers are now manufactured in its new JP Siler City Fab following the completion of its construction, which began in the middle of FY2023. As a result, the Durham Fab, which produced the 150mm SiC wafer substrates and has existed since the 1990s, shut down in FY2025. The 200mm SiC substrate wafers from JP fab would feed into power device manufacturing. 

Historically, supply for SiC substrates has remained tight. Wolfspeed has multi-year wafer long-term agreements with all major power IDMs. Most of these agreements have been expanded or extended in the past two years. Renesas, a Tokyo-based Japanese semiconductor company, signed a landmark 10-year supply agreement in FY2023 as a customer of Wolfspeed’s 150mm and new 200mm SiC substrate wafers. In the agreement, Renesas submitted a capacity-reservation deposit of $2bn paid over the course of FY2024; the deposit is treated as a loan with interest and represents an upfront payment by an IDM customer to secure guaranteed production capacity. Here, Renesas is an example of a third-party semiconductor company purchasing Wolfspeed’s SiC substrate capacity to focus on its own development of device design rather than crystal growth. In response to the historically tight supply, Wolfspeed’s material franchise began being scaled aggressively in 2019, amidst rising global competition, especially from Chinese suppliers adding lower-cost capacity. Nonetheless, Wolfspeed’s decades of process expertise, higher yields, and first-mover 200mm capability give it cost and quality advantages that competitors are still chasing. [16]

Power Products Segment

The Power Products segment represents ~55% of total revenues in FY2025 and has emerged as the dominant revenue contributor as the company transitions from its legacy materials-focused business model to a vertically integrated semiconductor powerhouse. The power devices are manufactured using SiC substrates from the materials segment and are sold in three distinct forms: raw chips for OEMs (i.e., General Motors, Tesla) who want to design their own systems/end products, individual packaged parts that can be used directly, and complete power modules that are ready to drop into larger systems such as EV traction inverters. Wolfspeed’s SiC devices are now designed into more than 125 vehicle models across 30+ OEMs globally. 

In contrast to WOLF’s dominance in the SiC substrates material market, the SiC power device market is led by STMicro at 37% (key supplier to Tesla) and Infineon at 18% with WOLF trailing at 18% as the third largest competitor in an increasingly competitive market as of 2024.[10] [12] [41] 

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