Wolfspeed - Q2 2026

Transcript

Operator (participant)

Thank you for standing by, and welcome to the Wolfspeed Inc. Second Quarter Fiscal Year 2026 Earnings Call. At this time, all participants are in a listen-only mode. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number two. During the Q&A session, we ask that you limit yourself to one question and one follow-up. Thank you. Please note today's call is being recorded, and I would now like to hand the conference over to your first speaker today, Tyler Gronbach, Vice President of Investor Relations. Please go ahead.

Tyler Gronbach (VP of Investor Relations)

Thank you, operator. Good afternoon, everyone. Welcome to Wolfspeed's Chief Executive Officer, Robert Feurle, and Chief Financial Officer, Gregor van Issum, will report on the results for the second quarter of fiscal year were published on the IR website today, as we will be referring to them during the call today. Please note that we will be presenting non-GAAP financial results during today's call, which we believe provide useful information to our investors. Non-GAAP results are not in accordance with GAAP. Non-GAAP information should be considered as a supplement to, and not a substitute for, financial statements prepared in accordance with GAAP. Reconciliation to the most directly comparable GAAP measures is in our press release and posted to the investor relations section of our website, along with a historical summary of our other key metrics.

Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially. Now, I'll turn the call over to Robert.

Robert Feurle (CEO)

Thank you, Tyler, and good afternoon, everyone. We appreciate you joining us on today's call. As you can see on slide three, we've continued to build solid momentum across the business since reporting our fiscal first quarter results. From achieving 50% quarter-over-quarter growth in AI data center revenue, to producing a 300 mm silicon carbide wafer, securing key customer wins, and most recently, completing CFIUS's clearance, we've been moving the business forward on multiple fronts. Under our refreshed leadership team, Wolfspeed has sharpened its operational discipline and strategic focus to ensure consistent execution. Since I've joined the company, we've brought in top-tier talent from across the semiconductor industry, people who recognize our unique position in the silicon carbide market and helping us scale execution to better serve our customers and meet future market demands.

As we outlined on our last call and cover on slide 4, we're concentrating in a few key areas: strict financial discipline, advancing our technology leadership, and driving operational excellence. Essential theme across these priorities is diversifying our revenue base, particularly in industrial and energy, including application, by continuing to support our broad base of automotive and other device and material customers. During Q2, we continued to fortify our sales, marketing, and product teams, adding experienced leaders with deep semiconductor knowledge and strong customer relationships. These hires are already helping us extend our reach into emerging power device opportunities. More on this later. First and foremost, we are making solid progress in applying strict financial discipline across the organization. Following our financial restructuring, Wolfspeed has a stronger capital structure.

Net debt, approximately $600 million, annual cash interest by approximately 60%, and a strong liquidity, which includes approximately $748 million cash tax refunds we recently secured. Our cash position is $1.3 billion. As we move forward, we are operating with strict financial discipline, aiming to maintain our balance sheet strength and stability through diligent execution across the entire silicon carbide value chain. As you can see on slide 5 of our presentation, we've positioned the company to win in both devices and materials, leveraging our vertically integrated 200 millimeter footprint. Central to extending our technology leadership is our approach to deploying our R&D resources. We streamlined R&D to focus exclusively on high-return programs in the highest growth markets. Our third priority centers on our commitment to driving operational excellence.

We're focused on differentiating through quality, customer responsiveness, time to market, and supply chain resilience. As shown on slide 6 of our presentation, the secure and scalable infrastructure remains a core differentiator for the company as we execute our strategy and support growing customer demand. We remain focused on driving costs out of our footprint, processes, and products, even as we navigate underutilization headwinds. We have officially completed the shutdown of all 150mm ahead of schedule, transitioning our entire device platform to a higher efficiency, 200mm manufacturing. We continue to improve production efficiency and speed to optimize the earnings potential of the business. The result of these efforts will be even more apparent when demand accelerates, and we begin to increase fab utilization.

As I mentioned earlier, a central theme across these three priorities is diversifying our revenue base in key verticals, where I believe we can extend our leadership position, particularly in mid to high voltage applications... To accomplish this, we have organized our go-to-market strategy around four verticals that we believe will drive growth in our business in the near to mid-term: auto, industrial and energy, aerospace and defense, and materials. We are already seeing strong traction from these early efforts. Our first vertical, automotive, remains a core market despite muted EV demand due to a mix of macro and structural sectors, which include higher interest rates in the U.S. and Europe, the elimination of certain government incentives in the U.S., excess supply across the market, and intensifying competition globally. Our portfolio is aligned with OEMs that prioritize efficiency, range, and power density.

A great example of this is our recently announced partnership with Toyota, one of the most respected and quality-driven automakers in the world, to power the onboard charging systems for their BEVs. Thanks to the efforts of our leadership team, we are strengthening our relationship with the top global EV OEMs, and we are now sampling across several key strategic programs. While these headwinds are creating a softer demand environment in the near term, silicon carbide remains a foundational technology for EV and other platforms. As highlighted on slide 7, silicon carbide continues to capture share in high-voltage applications, where performance, reliability, and system-level efficiency are critical, positioning it as the preferred technology over both silicon and GaN. In I&E, our second vertical, we are leveraging our expertise to expand our reach, concentrating on AI data center power, grid storage, solid-state transformers, and broader grid modernization applications.

We have the expertise to extend our knowledge into the AI data center opportunity, which operates at significantly higher voltages than legacy data centers. As I mentioned, as voltages increases, we believe an increasingly larger portion of this addressable market will be better served through silicon carbide technology than legacy silicon-based solutions from grid to rack. As you can see on slides 8 and 9 of our presentation, Wolfspeed has a strong momentum in this area. The AI revolution is fundamentally reshaping data center requirements and accelerating the shift from general-purpose facilities to purpose-built AI infrastructure that demands unprecedented power density and efficiency, playing directly into Wolfspeed's strength. Our devices are already embedded in critical AI data center power systems, and we have doubled our data center revenue in the last three quarters, with 50% quarter-over-quarter growth from Q1-Q2.

Further, we are actively collaborating with a broad ecosystem of partners to support the industry transition from legacy 40-volt architectures to next-generation 800-volt AI platforms. Data center build-outs and widespread electrification have driven a surge in global energy demand. There are two key solutions to rising energy needs. The first involves bringing online new energy sources like wind and solar. We're already seeing silicon carbide adoption across wind and solar applications, as evidenced by our recently announced collaboration with Hopewind to advance the next generation of wind power solutions. Turning to our third vertical, aerospace and defense, we believe there is a growing opportunity due to the tailwinds from defense modernization and electrification, including direct energy platforms.

U.S. government has already recognized silicon carbide as strategically significant to national security, with both the Department of War and the Department of Energy designating it as a critical material. Additionally, the U.S. government has emphasized the strategic importance of secure domestic semiconductor supply chains for national security applications, and we believe Wolfspeed is best positioned to support those needs. As you can see on slide 10, Wolfspeed is not only entrenched in established high-voltage markets like 800-volt automotive, solar, and industrial, but we believe we are also positioned to lead in the next wave of emerging high-growth applications from AI data centers and grid modernization to aerospace and heavy equipment. These opportunities demand material innovation that silicon carbide can deliver, which brings us to our fourth vertical, materials.

In materials, we're executing a clear two-pronged strategy: scale and strengthen 200 millimeter leadership for power devices today, while advancing 300 millimeter capabilities to expand our long-term addressable opportunities. First, on 200 millimeter, material quality is increasingly critical as customers push into higher voltage, higher power density application. Substrate performance influences everything that matters downstream: device yield, reliability, and system efficiency. So our priority is delivering high-quality 200 millimeter wafers at commercial scale. Because Wolfspeed moved early to commercialize 200 millimeter in a scaled manufacturing environment, we believe we're best positioned to support not only our internal device roadmap, but also merchant demand as the market continues to mature. Second, we are very proud to have recently produced a single crystal 300 millimeter silicon carbide wafer, a meaningful milestone that clearly demonstrates Wolfspeed's long-standing materials innovation.

Importantly, our view of 300 millimeter is not that it replaces 200 millimeter for power devices in the near term.... This helps lay the groundwork for silicon carbide beyond power. The different end markets can value material properties like thermal conductivity and optical performance. One example is optical-grade silicon carbide for next generation AR/VR systems. Their compact, lightweight design demand a high brightness and effective thermal management. Taking together this combination, industry-leading 200 millimeter materials for power today, but early validation of a 300-millimeter platform that can unlock emerging applications over time, reinforces our belief that Wolfspeed can maintain and extend its leadership in silicon carbide materials. Our efforts against our three strategic priorities, coupled with our vertical go-to-market strategy, enable Wolfspeed to capitalize on the incredible opportunity created by the transition from silicon to silicon carbide.

Now, I'd like to turn it over to Gregor, who will walk through our financial performance for the quarter and provide more details on our path forward.

Gregor van Issum (CFO)

Thank you, Robert, and good afternoon, everyone. I'll begin with a brief overview of our second quarter performance. Then I'll walk through the key financial impacts from our restructuring and the adoption of Fresh Start Accounting, and finally, I will share our outlook for the fiscal third quarter. Starting with an update on some highlights of our second quarter, which we've illustrated on slide 12 of our presentation as follows. We continue to make progress implementing strict financial discipline, focusing on the aspects of the business within our control. The closure of the Durham 150 millimeter device fab, one month ahead of schedule, is a good example of that. We upsized and collected the $700 million cash tax refunds in Q2.

We also improved $89 million in working capital management, excluding the headwinds for final payments linked to our restructuring, and further reduced both operating expenses and CapEx investments. Now, I'll review our quarterly financial results and speak to some of these updates in more detail, which you can see on slide 13 of our presentation. We generated $168 million of total revenue, in line with the midpoint of the guidance range we provided last quarter. Power revenue was $118 million, of which Mohawk Valley contributed approximately $75 million. This includes some of the last-time buy shipments from Durham campus are ahead of the closing I referenced earlier. As Robert mentioned, the revenue tracking is a mix between a weaker automotive market and fast-growing mid to high-voltage revenue. This is linked to the good traction in AI and data center space.

Materials revenue was $50 million, driven largely by a tightening demand environment and increased competition in the marketplace. Non-GAAP gross margin for the second quarter was -34%, which included several adverse effects. First of all, a $39 million drag related to Fresh Start Accounting, $23 million of which is related to inventory step-ups, which we digested in the quarter, as well as a recurring $60 million increase related to amortization for intangible assets. Furthermore, we recorded $14 million of costs related to specific inventory reserves, which further adversely affected the margins in Q2. The impact of underutilization in our manufacturing sites stood at approximately $48 million in Q2. As Robert noted, we completed the closure of the Durham 150-millimeter device fab at the end of November, one month ahead of schedule, which improved gross margins by $5 million in the quarter.

We'll continue to see benefits going forward as we focus on our 200-millimeter device manufacturing in Mohawk Valley. We've continued to reduce non-GAAP operating expenses, which are now $200 million lower on a run rate base versus last year. At the same time, we continue to invest in R&D to reestablish and extend our technology leadership. The GAAP operating expenses totaled $83 million in the quarter, including approximately $24 million of restructuring and transition-related items. Adjusted EBITDA for the second quarter was negative $82 million and included the impact of the previously discussed fresh start accounting implications, as well as the underutilization. Adjusted EBITDA is largely unaffected by fresh start accounting impacts on a go-forward basis. Now, turning to cash flow, which remains one of our top priorities.

We are making strides in reducing our working capital by contributing approximately $90 million to ending cash, partially offset by the final liability management payments of $64 million we made in Q2. Our operating cash flow for Q2 successor period was negative $43 million. As you can see on slide 14, we have also continued to reduce CapEx, which was just $31 million in the second quarter, which were primarily linked to prior commitments. This is a substantial improvement from the approximately $400 million of CapEx in the second quarter of last year. Looking ahead, we remain committed to a disciplined capital allocation strategy and drive CapEx further down over time as prior commitments start to fall off. As announced earlier, we have received $700 million of 48D tax credit in the quarter.

We have used a part of our cash to reduce $175 million of our first lien debt. In addition to retiring some of our first lien debt, approximately 1.5 million shares have been converted from our second lien convert, resulting into a debt reduction of approximately $80 million. Together, these form a first step to further improve our balance sheet post-emergence, and will deliver $25 million in annual interest savings. We ended the quarter with $1.3 billion in cash and short-term investments. This stronger liquidity position enables us to pursue our strategic priorities with confidence. We have made significant progress in addressing our capital structure thus far, and we recognize that we have further work to do in this area.

We believe our results in Q2 reflect meaningful progress in improving our operations, enhancing capacity, and improving our earnings potential, but there is still work ahead of us to improve further with factory utilization as one of the main levers. Next, I'll review the impacts on the financials as a result of the adoption of Fresh Start Accounting. I would also encourage you to reference our press release, slide 15 and 16 of our presentation, and Form 10-Q for additional details on this topic. As you know, over the past year, we took important steps to strengthen our capital structure. Positioning Wolfspeed to emerge as part of these efforts is required that we adopt Fresh Start Accounting, which marks a true reset for Wolfspeed.

With Fresh Start Accounting, our income statement for the second fiscal quarter of 2026 is split between the predecessor period ending on September 29th, 2025, which reflects activity up to and including our emergence from Chapter 11, and a successor period beginning September 30th, 2025, which reflects our results after emergence. We were able to emerge, so our successor period effectively includes all operating income for the quarter. Unless I say otherwise, the details that I will outline in a moment pertain to the successor period only. Because Fresh Start Accounting requires that fair values are estimated for a company's assets, liabilities, and equity as of the date of emergence. Certain pre- and post-emergence financial and operating results will not be comparable. All adjustments related to Fresh Start Accounting are non-cash.

As part of the Fresh Start process, we remeasure our assets and liabilities to fair value, anchored to the court-approved enterprise value at the midpoint of $2.6 billion. Our new debt, measured at fair value, replaced the legacy debt. We also recorded a $1.1 billion gain from emergence, which reflects approximately $3.7 billion in debt forgiveness, offset by approximately $2.6 billion of net adjustments to assets, primarily property, plant, and equipment. Looking ahead, we expect a net reduction of approximately $30 million per quarter in depreciation and amortization compared to pre-emergence Wolfspeed, due to the lower property, plant, and equipment on the balance sheet, partially offset by the step-up in intangibles. The application of Fresh Start accounting also results in fair value adjustments to step-up work in progress and finished goods and step downs in our raw materials.

The $23 million during the second quarter, resulting in a one-time headwind, as I mentioned earlier in my gross margin comments. The favorability from the $17 million step down related to raw materials will only be realized in the P&L over the next several quarters. While Fresh Start Accounting limits comparison across the predecessor and successor period, I want to reiterate that adjusted EBITDA is largely unaffected by Fresh Start Accounting impacts, except for this quarter. Lastly, we received final clearance from CFIUS to allocate equity shares to Renesas in connection with our previously approved restructuring agreement. This regulatory approval enabled the release of approximately 16.85 million shares of new common stock to Renesas. In addition, we completed the distribution of the final 2% equity recovery, representing approximately 871,000 shares to our legacy pre-petition shareholders.

Our total shares outstanding are now 45.1 million. Finally, let's turn to our outlook on slide 17 of our presentation. While the automotive end market remains volatile in the near term, we are encouraged by the growing momentum in key strategic areas such as AI data centers and other industrial and energy applications. These emerging opportunities represent meaningful long-term growth drivers, but they will take time to scale and offset the continued softness in EVs. During the third quarter of fiscal 2026, we expect revenues between $140 million and $160 million. The decline is driven primarily by accelerated customer purchases in our first fiscal quarter, as certain customers build up inventory by placing orders from the Durham fab prior to its planned closure. Certain customers pursuing second sourcing of products during Wolfspeed and weaker EV demand.

The company expects OpEx to be flat to slightly down sequentially, as we remain confident in controlling operating costs through actions already implemented. Lastly, due to the ongoing Fresh Start Accounting impacts, Wolfspeed will not yet provide a numeric gross margin guide, but does expect further quarter-over-quarter improvements driven by ongoing operational actions. However, gross margin is expected to remain negative in fiscal Q3. As we mentioned on last quarter's call, we expect to provide an update on our long-range plan in the first half of calendar 2026, where we will give an update on the long-term financial targets and capital allocation plans. With that, I'll return the call back over to Robert.

Robert Feurle (CEO)

Thank you, Gregor. Across the business, our team is working tirelessly to drive progress against our strategic priorities and to mobilize our scale and technology advantages. All of these efforts are intended to strengthen our ability to capture the next wave of growth in silicon carbide. But the near-term demand picture remains dynamic. Two trends remain clear. First, electrification is happening across new markets every day. Second, voltages will continue to increase, necessitating a stronger, more resilient Wolfspeed. With an improved financial foundation, experienced leadership team, and our vertically integrated platform, we're strategically positioned to drive long-term growth and value as we define the future of silicon carbide technology. Operator, we are now ready to take questions.

Operator (participant)

Thank you. We will now begin the Q&A session. If you would like to ask a question, please press Star, followed by one on your telephone keypad. If you'd like to remove your question, press Star followed by two. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. During the Q&A session, we ask that you please limit your questions to one question and one follow-up. The first question comes from the line of Brian Lee with Goldman Sachs. You may proceed.

Brian Lee (Chief Risk Officer)

Hey, guys. Good afternoon. Thanks for the updates here. Appreciate the slide deck as well. Lot of new information. So maybe the first question, just thinking about the key segments like A and D, grid modernization, AI, you know, data centers, maybe just walk through a little bit of how that's gonna work, and then what it requires for you to change how you go to market and maybe the timeline involved. And then I had a follow-up.

Robert Feurle (CEO)

Yeah, thanks, Brian. At the end of the day, look, what we're doing is we're pretty much looking to pivoting away from being a one-trick pony focused on EVs. So this means here, when I started, I kind of turned the organization, the go-to-market organization, to be application-oriented, yeah, and coming from a product-oriented setup, which means we're really looking into now automotive, industrial energy, and aerospace and defense, and pretty much take these application requirements into what does it take to build these products. And I think what you can see here with our progress quarter-over-quarter in AI data centers, that revenue growth here is really starting to pay off. In addition to that, it's also to get the right sales organization and the right channel strategy in place, right?

This means a clear tiering of what are the key accounts in this respective application segment, but also especially I&E segments. These are. It's a large number of customers. So really getting a channel strategy around distribution and specifically for the U.S., a rep structure in place. This is all in progress, yeah, as we've brought in some really good new talent from the outside, from other big semiconductor companies.

Brian Lee (Chief Risk Officer)

Great, that's helpful color. And then maybe just a follow-up on the financials and the balance sheet. You know, a lot's changed, and maybe more is gonna change, but could you guys remind us, is there any expected interest rate step up on the first lien this year or next year? And then I think, you know, until recently, the 2031 converts were sort of in the money, but are you contemplating doing any sort of additional financing, strategic maneuvers, with respect to the first lien and the converts, just given, you know, the equity and where it's been trading? Thank you.

Robert Feurle (CEO)

Yeah, Gregor, you-

Gregor van Issum (CFO)

Yeah, maybe, Robert, I can take that one. Yeah. Yeah. So, you're right. So we took obviously first big steps with emerging from Chapter Eleven and restructuring the balance sheet in that process. And then we focused very much on collecting the cash from the 48D and using a first pay down of the L1s. But that's just the first step, and we are very much aware of the situation and opportunity potential in the convert area, which we're deeply looking into at the moment, alongside other options that we have. So as I mentioned in the script earlier, we realize there's more work to be done, and over the next period, we will be very actively looking at that.

Very concretely, the interest rate will step up, and at that moment, also, some of the make whole premiums step down. So in our view, that is definitely a very high cost of capital there and something to be looked at. For the rest, we continue to focus a lot on the strict financial discipline. So you've seen we focus a lot on getting more cash out to working capital. I hope to make some further improvements there as well. And we believe that with the long maturity and the strong cash balance, we do have the time to look into this refinancing topic in a structured and good way.

Brian Lee (Chief Risk Officer)

Appreciate the color. Thank you.

Operator (participant)

The next question comes from the line of Christopher Rolland with Susquehanna. Christopher, the line is now open.

Christopher Rolland (Senior Equity Analyst of Semiconductors)

Excellent. Thanks, guys. Appreciate the question. So I also wanted to dig in in some of these other opportunities, particularly AI data center. I think from a power perspective, it's, it's pretty interesting right now. If you guys can talk about kind of what your, AI data center revenue consists of today, that was up 50% quarter-over-quarter. And then going forward, kind of your top sockets, is it gonna be SSTs or in the power supply or, we're hearing even potentially for substrates? Would love to, to, to know about your competitive position there and, how, how big this thing, this thing could be, for you guys eventually.

Robert Feurle (CEO)

Yeah. Thanks, Chris. I mean, really very, very good question. So let me kind of take them one step at a time. I think so what's happening in the AI data center space, especially in the rack side, is that today you're around about the 100 kW-ish per rack, yeah? That's kind of moving in 2 years from now to, like, 600 kW per rack into, like, 1 MW per rack, like in the 2029, 2030 timeframe. This means you have to go figure out how do you power these racks, and how do you get the energy from the energy generation to that rack? And I think this is where exactly Wolfspeed can play to the full advantages coming from the energy generation, which is pretty much really going into the in from the kilowatts, stepping that voltage down.

And then as more and more renewables come into the mix, you need also a lot of energy storage systems in between to kind of buffer glitches and these type of things. So that's kind of the next portion where we are focused on. And then, of course, you need to get this energy into the data center with, you know, with transformers, right? And there is a transition happening from traditional transformers to solid-state transformers, where also silicon carbide is the perfect, perfect solution, I would say. That transition is starting to happen here. So we're really playing in terms of energy generation, energy storage system, solid-state transformers. But then also you look into, in the data center, there is the UPS, so the uninterruptible power supply is a big application.

And then again, 40% of the energy in the data center is, let's say, consumed for cooling devices. Another way to say, "Hey, can you build these systems more effective?" So you see, this is not just one application, these are multiple applications spanning across the whole power range. I think this is something what we're very actively working on, and we got multiple excellent customer engagements and partner engagements on that. So this topside cooling package, you're really looking, you know, to build specific products for that application. Coming to your questions on the substrate. So what we are seeing is that silicon carbide, from a materials perspective, has unique properties. And one unique property is thermal conductance, right?

I mean, it is one of the best materials for thermal conductance and has great optical properties. And I think here there's clear interest to explore now to see, is there a way to use this thermal conductance in some type of improvement for the system architecture?

This is why we've also kind of pioneered the space on developing a single crystal, 300-millimeter wafer here, and we have very early, ongoing discussions with key partners in the industry to say, "Hey, you know, with us now being able to produce really large-scale SiC single crystal silicon carbide here, kind of what could be a potential solution?" I mean, this is something where I cannot give you an exact timeline on revenue coming into the company, but this is something where we, again, have very good interest and with various partners in the industry.

Christopher Rolland (Senior Equity Analyst of Semiconductors)

Excellent. Sounds very exciting. My second question is around just kind of stability moving forward, and then, you know, eventually growth. I think you guys talked about the fiscal first half customer purchasing, obviously, it sounded like a pull-in of orders. Where are we in digesting those orders and alleviating that overhang? And when do you think you have confidence in the bottom, and then building growth on top of that bottom, again? How should we think about these different dynamics?

Robert Feurle (CEO)

Yeah, I think they looked at various places, various topics playing into this. The one is what's clearly the kind of the transition from 150 millimeter devices to 200 millimeter devices. In such a step transition, you always have customer purchasing more for end-of-lifeing the parts, right? I think so that is pretty much the end-of-lifeing is done, right? The 150 millimeter factory is shut down. We took the cost out of the company, also the running cost of the company. And I believe here with that step also, we are really the first company in the Western world who's completely only manufacturing on 200 millimeter devices. And then, of course, it comes question to demand, right? And I think we talked about this also in the earnings call.

It's a very dynamic market environment, especially around the EV side here, and it's really hard to predict in terms of visibility, of kind of how that will develop. In the long run, I think, look, the electrification of the drivetrain is continuing, right? I mean, if you see, I just recently saw a market research forecast, right? Slightly over 90 million cars getting sold, around about 20% of these cars being, you know, EVs, yeah. And that portion of EVs is just gonna grow, right, towards end of the decade. I saw some forecasting around about 50% of the cars being sold end of the decade are EVs, right? And then in these EVs, you have kind of two dominant voltages for the batteries.

The one is an 800-volt platform, the other one is a 400-volt platform. And for the 800-volt platform, I mean, the primary solution is to do the traction and where those silicon carbide. So I think so the overall trend, long-term of adopting silicon carbide, using this in EVs, and also, again, we talked about the AI, there's an opportunity, it's real, right? Can I tell you exactly kind of short-term what will happen? No, with all the macroeconomic, you know, factors playing into this.

Christopher Rolland (Senior Equity Analyst of Semiconductors)

Excellent. Thank you for that color. Appreciate it.

Operator (participant)

The next question comes from the line of Jed Dorsheimer with William Blair. You may proceed.

Jed Dorsheimer (Group Head Energy Research)

Hey, thanks. Thanks for taking my questions, guys. I guess first one for you, Gregor. You know, just a follow-up to Brian's previous question is, it would seem-

Gregor van Issum (CFO)

Mm-hmm

Jed Dorsheimer (Group Head Energy Research)

... like, you know, dealing with the L1s in some capacity, might be the lowest hanging fruit. So I'm just curious, have you kind of looked at what the potential savings and interest could be? I'm just wondering, in terms of, you know, as you explore different options, are you talking about sort of a $50 million-$100 million annual savings, or are you talking $150 million? Like, what, what, what is the scope of that? And then I have a follow-up.

Gregor van Issum (CFO)

Yeah, I think it depends a little bit on how we would execute some portion of the refinance of the L1. As said, there are several options, and it depends a bit on what is available, given the specifics and nature of just emerging for Chapter 11. So we are very actively looking at that. You know, our cost of capital is right now very high, and there will be a further step up. So that is something that we are looking for to address head on. I think the exact amount of interest reduction will really depend on the instrument we will use and the size of the first step we can make. And I think it's a bit premature to indicate exactly how big that would be, but I'm looking for making, let's say, material first steps there.

But it's probably not gonna be in a one-go transaction, if that helps.

Jed Dorsheimer (Group Head Energy Research)

Got it. Thank you. It does, yeah. I mean, I think you addressed sort of, you know, scope. I guess second question would be for you, Robert. With respect to Siler City and, you know, just, I know you can't guide or, you know, it's premature to frame around the 300 millimeter for virtual lens opportunities, but that would seemingly be the fastest way to fill that fab. So I'm just wondering, is there any framework to think about how to timing of utilization should the AR, VR-type opportunity ramp? How should we be thinking? How should people be thinking about that?

Robert Feurle (CEO)

Look, I mean, at the end of day, we're always adjusting, you know, kind of the production to the demand, right? And we're gonna be scaling this up as demand, you know, picks up. And at the end of day, this is really dependent on customer adoption of the technology, right? And then, of course, we are ready to scale. I mean, Look, the good thing is here with Wolfspeed here, we got really the facilities, we got the CapEx, which was spent here, pretty much in both the device step up in Mohawk Valley, and also in Siler City here. The factories are built, right?

So this means that at the end of the day, it is really now looking into how do we get customers, how do we get pretty much, you know, new applications, yeah, to drive that growth. Is this something we completely have in our hands? No, because we need to make the customer need to make an architectural choice, right? And then, of course, we need to go, we get this qualified and wrapped. And this is why I think, you know, diversifying here, the customer base, the go-to market, and also how we think about understanding the end application is such an important piece of getting more speed here into the right position.

Jed Dorsheimer (Group Head Energy Research)

Great. Thanks, guys.

Operator (participant)

The next question comes from the line of Samik Chatterjee with J.P. Morgan. You may proceed.

Joe Cardoso (VP of Equity Research)

Hi, good afternoon, and thanks for the question. This is Joe Cardoso on for Samik. Maybe for my first, I just wanted to follow up on the EV comments you made, but maybe less on the market itself. And just more curious how we should think about Wolfspeed's positioning in the market today, particularly following a somewhat turbulent 12 months or so. Like, how but also kind of on the heels of the recent announcements, like the one you mentioned with Toyota. Just curious what you're seeing across customer conversations and dialogues, and any incremental color you can provide on that front. And then I have a follow-up.

Robert Feurle (CEO)

Sure. So look, again, we announced the partnership with Toyota, right? Which is pretty much showing we're diversifying here also globally. And clearly, Toyota is a, you know, very well-known brand for quality. So I think, you know, this is an also testament to the great collaboration between the two companies, yeah. And then, of course, we're really here looking into, yeah, diversifying here globally, but also in terms of within the EV makers. As I said, right, I mean, really, the emergence of this 800-volt battery platform, it's really the perfect fit for the silicon carbide in the traction motor. And this is what we're really focused on, right? I mean, if you saw also what happened recently around, you know, rare earth, if you saw kind of what happened last year, also around gallium, yeah.

Pretty much all of a sudden, certain countries restricted these materials from being exported, right? A lot of customers are wondering, okay, Wolfspeed, you have the manufacturing capabilities, you have the capacity, and you have this right here in the United States, right? I mean, if you see kind of our footprint, it's pretty much, first of all, very lean, yeah, but it's also something which we have under our control. That is pretty much between North Carolina, Mohawk Valley, and our device and module site in Arkansas, right? I mean, we can really move very fast, and we have this all under one roof. This is really something where a lot of customers like it, and we have, again, here, a lot of, you know, sampling ongoing with various key customers here for programs.

Operator (participant)

That concludes today's Q&A. I would now like to pass the call back for any closing remarks.

Robert Feurle (CEO)

Oh, I thought you had a follow-on question still, or?

Tyler Gronbach (VP of Investor Relations)

Yeah. Yeah, I think Cameron, I think he did have a follow-on question. We can take that.

Robert Feurle (CEO)

Yeah, exactly.

Tyler Gronbach (VP of Investor Relations)

Perfect. Samik, if you can queue back up for a question, pressing star followed by one.

Robert Feurle (CEO)

If you want. Don't have to, but think you might today. Okay. Okay. Yeah, thanks, everybody, for joining us on the call today here. Thank you.

Thank you.

Operator (participant)

That concludes today's call.

Robert Feurle (CEO)

Bye-bye.

Operator (participant)

Thank you for your participation, and enjoy the rest of your day.