Wolfspeed is the world’s third-generation semiconductor leader with leading technology, and the market share of silicon carbide substrate is in a leading position. Wolfspeed, formerly known as Cree company, is mainly engaged in LED, third-generation semiconductor materials / devices, RF, lighting products, etc. with the rapid growth of power semiconductor market, it gradually divests other businesses and focuses on silicon carbide materials and devices. The size of silicon carbide substrate is expanded from 4 inches to 8 inches. In 2023, it is planned to expand the production to about 100000 pieces, and the monthly production capacity of 6-inch pieces. In 2021, the global market share of the company’s substrate exceeded 60%, leading in technology and technology. It is a benchmark enterprise in the field of silicon carbide. Its production expansion, pricing strategy, profitability and valuation level are important references for silicon carbide research.
Demand side: because silicon carbide has the properties of high voltage resistance, high temperature resistance and high frequency, it has considerable application scenarios in the fields of new energy vehicles, new energy power generation, charging piles and so on. As a wide band gap semiconductor, silicon carbide has excellent physical properties and can improve the switching frequency. In recent years, it has opened the application market with the decline of cost. According to yole data, the global silicon carbide Market in power electronics is expected to exceed US $3 billion in 2025, of which new energy vehicles will contribute more than half of the increment; According to our calculation, silicon carbide has a large growth space in new energy vehicles / photovoltaic / rail transit / charging piles and other fields.
Supply side: technological barriers are high, and the domestic supply chain continues to expand production. Substrate materials and devices are the key links of silicon carbide industry chain, and PVT method is the current mainstream production method. The gap between domestic manufacturers and European and American manufacturers is generally more than 5-8 years. Chinese projects are put into operation one after another, and the production capacity is expected to be released quickly. We believe that we need to closely track the verification of downstream customers and judge the effective capacity.
Cost reduction: the cost reduction rate of silicon carbide is closely related to the permeability, and the cost reduction rate of substrate is greater than that of device. As for the substrate, the cost reduction factor can be disassembled into long crystal efficiency improvement, chip loss reduction, yield improvement, wafer size expansion, productivity improvement, etc. According to our calculation, the improvement of long crystal efficiency is the most important factor.
Discussion on Profitability: We dismantle the links of the industrial chain, and the output of single furnace and the overall yield are the core influencing factors of profitability. Wolfspeed’s gross profit margin in fiscal year 2021 was 31.3%. With the vertical integration of the industrial chain and the increase of the proportion of device revenue, the company’s forward gross profit margin is expected to reach more than 50%. For domestic manufacturers, with the improvement of yield, it is expected to achieve a gross profit margin of 30% – 40% in the long term.
Discussion on competition pattern: the silicon carbide industry is similar to the first generation semiconductor. Cr5 maintains a high market share, but it shows a downward trend as a whole. As the market cake becomes bigger, domestic manufacturers are expected to grow large companies. The localization rate is expected to increase, and the long-term share is expected to increase by more than 10%. The later stage of industry development is expected to witness the tide of M & A.
Discussion on market value space: wolfspeed’s share price resumed trading. The industry demand continued to improve, and the superimposed performance exceeded expectations, driving the company’s share price to record highs. At present, the technology and products of domestic manufacturers are not mature, subject to the production capacity, and the volume of revenue is small. Combined with the benchmarking of analog chips and semiconductor equipment, we found that the PE and PS valuation multiples of Chinese companies are generally more than 4 times that of overseas leaders, and the higher valuation level indicates optimistic expectations for growth. Wolfspeed, as the leader of silicon carbide industry, its market value has benchmarking significance. Domestic manufacturers are expected to open the market value ceiling in the future with the growth of overall industry demand and their own revenue and profit.
Investment advice: look at the incremental opportunities brought by downstream developments such as car rules and other downstream developments and the expansion of domestic productive capacity, and the incremental opportunities brought by the expansion of domestic productive capacity, such as car rules, and so on investment advice: recommend Zhuzhou Crrc Times Electric Co.Ltd(688187) \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\ / China Resources Microelectronics Limited(688396) etc.
Risk tip: the cost reduction rate of silicon carbide is lower than expected; The progress of vehicle specification level verification of domestic manufacturers is less than expected; The improvement progress of yield rate of domestic manufacturers is less than expected.
