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Wolfspeed is a semiconductor company that specializes in silicon carbide technologies. The company’s focus is on providing solutions for efficient energy consumption and a sustainable future. With a stock market value of $3.3 billion and a variety of product families targeting applications such as electric vehicles, fast charging, renewable energy, and storage, Wolfspeed is positioned as a key player in the industry.

Jana’s Activist Commentary

Jana, an experienced activist investor founded by Barry Rosenstein, has made a name for itself by taking deeply researched activist positions with well-conceived plans for long-term value. While the firm initially employed a “V cubed” strategy focused on value, votes, and variety of ways to win, it has since shifted to a “three Ss” strategy emphasizing stock price, strategic activism, and star advisors/nominees. In April, Jana urged Wolfspeed to engage in a comprehensive review of strategic alternatives, including a possible sale of the company.

Challenges Faced by Wolfspeed

Despite its leading position in the silicon carbide market and strong demand for its products, Wolfspeed has faced challenges related to execution and expansion. Delays in the rollout of new manufacturing facilities have hindered the company’s ability to meet capacity targets, leading to concerns among investors. Additionally, the announcement of further expansion plans in Germany has raised questions about the company’s execution capabilities and capital allocation strategy.

Jana has outlined a series of recommendations for Wolfspeed to address its current challenges. These include prioritizing execution at existing manufacturing facilities, earning an acceptable return on capital, setting realistic targets, and outlining a clear plan for capital expenditures to avoid the need for dilutive capital raises. By implementing these recommendations and creating a credible forward-looking plan, Wolfspeed can regain investor confidence and potentially see a rebound in its stock price.

Potential Strategic Alternatives

While Jana has suggested that Wolfspeed explore strategic alternatives, including a possible sale of the company, the current stock price of around $25 per share makes a premium sale unlikely. Instead, management is encouraged to focus on addressing operational issues and potential future partnerships or investments from strategic investors. Jana points to recent investments in other companies at high revenue multiples as potential indicators of Wolfspeed’s undervaluation in the market.

Jana’s experience with Freshpet, a company facing similar supply shortages and operational challenges, serves as a potential roadmap for Wolfspeed. By implementing operational fixes and making strategic capital allocations, Freshpet was able to see significant stock price growth over time. The involvement of experienced industry executives as board nominees also played a crucial role in driving the company’s turnaround. Similarly, Wolfspeed could benefit from a similar approach to addressing its current issues.

Wolfspeed faces significant challenges in terms of execution and expansion, as highlighted by Jana’s recent activist campaign. By heeding Jana’s recommendations and focusing on operational improvements, capital allocation, and strategic partnerships, Wolfspeed can overcome its current obstacles and unlock its true potential in the market.

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