WOLF - Wolfspeed Applied Materials rise as William Blair analyzes silicon carbide sector

Wolfspeed ( NYSE: WOLF ), ON Semiconductor ( NASDAQ: ON ) and Applied Materials ( AMAT ) were among the semiconductor companies that rose on Monday as investment firm William Blair initiated coverage on the silicon carbide industry, noting it appears poised to disrupt significant parts of the power analog segment of the chip market.

Analyst Jed Dorsheimer started coverage on Wolfspeed ( WOLF ), On Semiconductor ( ON ) and Aehr Test Systems ( NASDAQ: AEHR ) with outperform ratings, while STMicroelectronics ( STM ), Coherent ( NASDAQ: COHR ) and Applied Materials ( AMAT ) received market perform ratings. The analyst noted that $21B of the $78B power analog segment is likely to be disrupted by silicon carbide, with the aforementioned companies set to play a role in some shape or form.

"We believe that Wolfspeed ( WOLF ), ON Semi ( ON ), and Aehr Test Systems ( AEHR ) will enjoy an outsized benefit relative to peers as the S-curve adoption of SiC semiconductors begins," Dorsheimer wrote.

The analyst added that while STMicroelectronics ( STM ), Coherent ( COHR ) and Applied Matierals ( AMAT ) will play a role in the silicon carbide supply chain, the positive impact "will not be enough in each case to offset risks in other segments of the business."

Wolfspeed ( WOLF ): Dorsheimer said that the company has a "significant advantage" in silicon carbide crystal growth technology and capacity, as it holds roughly 60% of supply.

"In our opinion, Wolfspeed’s lead in 200 mm scale provides a multiyear competitive advantage in the market that has yet to be fully realized," Dorsheimer wrote.

The analyst added that Wolfspeed ( WOLF ) is transitioning towards silicon carbide and may see some near-term volatility as it moves away from being CREE, but the volatility should be used to build or add to positions.

ON Semiconductor ( ON ): Dorsheimer called ON Semiconductor ( ON ) a "well-established supplier" in a diverse ranges of markets, including electric vehicles and automotive in general.

"We believe that ON Semi is positioned to leverage its extensive customer base and existing  product portfolio to employ bundle pricing to quickly win design-ins." the analyst explained.

Dorsheimer also noted that ON Semi ( ON ) acquired GT Advanced Technologies, which should help the company as it expands into silicon carbide and though the expansion may be longer and cost more than some believe, it will create opportunities over the medium-to-long term.

Aehr Test Systems ( AEHR ): Dorsheimer only has one product line, FOX-XP, selling to silicon carbide device manufacturers, but it is likely to keep benefiting from large purchase orders, especially as ON Semiconductors ( ON ) attempts to achieve its $1B revenue target of 2023.

STMicroelectronics ( STM ): Dorsheimer noted that STMicroelectronics ( STM ) is the leader in silicon carbide device by market share, largely due to its relationship with Tesla ( TSLA ).

"The supply agreement with Tesla is the key to the ST story, and although we believe that Tesla has secured secondary sourcing with onsemi, its near-50% vehicle production growth year-over-year will likely outpace ST’s ability to ramp up supply without losing any business," Dorsheimer explained.

The analyst added that STMicroelectronics ( STM ) is on track to generate $700M in silicon carbide revenue this year and $1B next year.

Coherent ( COHR ): Coherent, formally known as II-VI, recently partnered with GE ( GE ) to develop higher-voltage industrial silicon carbide devices and help it expand further in the space.

"The recent acquisition and name change to Coherent increases industrial and networking exposure while diluting the SiC business further," Dorsheimer wrote.

Applied Materials ( AMAT ): Dorsheimer noted that Applied Materials ( AMAT ) is the world's largest semiconductor capital equipment company and though silicon carbide-related revenues are "negligible," it has products for the market.

Last month, Wolfspeed ( WOLF ) said it would build a multi-billion-dollar materials manufacturing facility in Chatham County, North Carolina .

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