Activist investor buys stake in Durham chipmaker Wolfspeed. What that could mean.

The Durham semiconductor chipmaker Wolfspeed has a new shareholder that could seek to change how the company operates.

Last week, the New York-based activist firm Jana Partners disclosed a $35.6 million investment in Wolfspeed, representing a roughly 0.75% stake in the company. In contrast to passive investors, activist investors typically take minority ownership of public firms to advocate for reforms to their corporate direction or management.

The move comes as Wolfpseed’s stock price has fallen considerably in the past 12 months — from more than $85 a share last November to below $35 this week.

Founded in 2001, Jana Partners is one of the most prominent U.S. activist shareholders; the finance outlet Investopedia ranks it as the ninth largest based on assets under management and number of portfolio companies. Past companies Jana has targeted include Whole Foods, Tiffany & Co., and Conagra Brands (maker of Birds Eye and Reddi-wip).

“(Jana is) extremely experienced, and respected for this,” said Kevin Kaiser, who teaches corporate finance at the Wharton School of the University of Pennsylvania.

Taking even a small stake in a company, Kaiser explained, gives activists credibility as they rally support from larger shareholders like pension funds, endowment funds or big asset managers.

“They buy shares first, hopefully at a low price,” he said. “Then they reveal the concerns they have for the company but in a positive way because they want the share price to go up because they have an investment in the company.”

Asked if the company has communicated with Jana Partners, Wolfspeed said it does not “comment on our conversations with investors.”

With less than 1% of shares, Jana might lack the leverage to inspire reforms says Alon Brav, a finance professor at the Duke Fuqua School of Business.

“It’s kind of strange that they have such a small stake,” he said. “Even if all other shareholders would agree with what Jana wants to do, they’re going to make a very small profit.”

Wolfspeed’s big chip change

In recent years, Wolfspeed has transformed its operations. Until 2021, it went by Cree and was better known for making LED lights. Under the leadership of CEO Gregg Lowe, who took over in 2017, the company sold its lighting divisions and funneled resources toward manufacturing a specific type of semiconductor chip.

Today, Wolfspeed’s silicon carbide chips power appliances like electric vehicles and energy storage equipment. Unlike traditional silicon, silicon carbide is a unique material the company champions as more efficient. It grows silicon carbide crystals and converts them into blank wafers at facilities in Durham before sending them to a fabrication facility in New York’s Mohawk Valley.

But delays in production — first at the Durham site and then the Mohawk “fab” plant — have left some investors weary.

“We are focused on extending our leadership in silicon carbide and driving long-term investor value while executing our strategic plan and growth initiatives,” company spokesperson Tyler Gronbach said in an email. He added Wolfspeed is “continuing to ramp our device capacity” in Mohawk Valley while it constructs a new materials site near Siler City.

Performance below potential?

Jana Partners did not respond to questions about its plans as a Wolfspeed minority shareholder.

Kaiser said the objectives of activist shareholders vary. Some occasionally hold passive positions though that is not the norm. They may seek short-term gains and a quick exit or harbor multi-year plans. They sometimes push for a company sale or adjustments in dividend payouts, ESG policies, or who sits on the board of directors.

“They think the operating performance of a company is below what its potential is,” he said. “It probably requires some change in strategy, which may include a change in board membership or changes in management.”

Shareholders do not have to officially inform federal regulators if they will take active or passive roles until they assume a 5% ownership share.

In recent years, activist investors have targeted multiple semiconductor producers, including On Semiconductors and Marvell Technologies. Kaiser said the sector has drawn interest from activist shareholders who feel executives and boards of directors are overly focused on science and engineering rather than on what is financially best for the company.

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