Why The Silicon Carbide Business Could Be A Big Growth Driver For Cree

Semiconductor producer Cree (NYSE:CREE) has been steadily reducing its reliance on the competitive and commoditized lighting market while pivoting to power and RF products under its Wolfspeed segment. Sales from Wolfspeed recorded robust growth over the last quarter (Q2 FY’19) expanding by 50% year-over-year on an organic basis to $135.3 million. Within the power products space, the company’s silicon carbide (SiC) products appear to be very promising considering their significant value addition in the electric vehicle ecosystem. In this note, we take a look at why the SiC business is important to Cree.

Our interactive dashboard analysis on What Will Drive Cree’s Growth In The Coming Years details our forecasts and estimates for the company, as well as our valuation estimate. You can change our key drivers and forecasts to arrive at your own earnings estimates for the company, and see more Information Technology company data here.

Why SiC Products Are Gaining Traction 

Silicon carbide semiconductors are compound semiconductors that offer multiple advantages over traditional silicon-based semiconductors, including higher switching efficiency and the ability to handle higher voltages. They are particularly useful for electric vehicles, as they allow EV manufacturers to maximize the range of their batteries, reduce cooling requirements and minimize the footprint of the inverter and battery in the vehicle. Although SiC-based components are more expensive, the value proposition is strong for vendors. While the market for SiC products is currently small (the SiC power device business stood at about $300 million in 2017), Cree expects the market size for SiC EV components to grow to about $2.4 billion by 2022 and to as much as $6 billion by 2027, as sales of EVs potentially approach the 10 million mark. The longer-term prospects could be stronger still, as automakers have announced plans to spend at least $300 billion on their electrification projects over the next decade.

Cree’s Position In The SiC Market

Cree is the market leader in silicon carbide (SiC) products, and the company has a wide range of products that include a variety of components and packages at various voltages. Cree has also been signing multiple deals to produce and supply SiC wafers to various companies. For instance, in early January, the company signed a deal to produce and supply SiC wafers to  STMicro, while forging a long-term supply agreement with Infineon in early 2018. The company has noted that it has a pipeline in excess of $1 billion for various applications associated with EVs, including silicon carbide MOSFETs, diodes and power modules. Cree is also expanding its market reach by tying up with Arrow Electronics – which will be its largest global distributor – enabling the company to reach more markets and customers in an efficient manner.