Shares of Wolfspeed (WOLF), a maker of silicon carbide semiconductors, plunged nearly 20% after the company provided disappointing guidance. The fallout would have been even worse if not for a year-old accounting change the company credited for propping up gross margins.

In Q1FY22 (the quarter ended September 26, 2021), Wolfspeed extended the useful lives of certain machinery and equipment from two to five years. The move reduced depreciation expense by $8.4 million, the bulk of which reduced inventory and would be recognized in Cost of Sales in future periods.

In the latest quarter (Q1FY23), Wolfspeed’s gross margins jumped 160 bps to 33.1%, in large part, due to the useful life accounting change.

In November 2021, we published an Exclusive Report, available only to paid members of DuDil+, revealing that Wolfspeed corrected accounting errors in six of its last ten quarterly filings, was intentionally understating accounts payable, and without explanation gave its auditor a 65% raise after making $49.2 million in accounting errors.

Wolfspeed shares have fallen 36.4% since our Exclusive was published and returned 43.6% since we suggested closing the position in May 2022.