Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the power semiconductor first quarter 2020 results conference call all participants.
Following management's prepared statements instructions will be given for the question answer session for operator systems. During the conference. Please press Star zero.
This conference is being recorded May 13, 2001.
Joining us today are mr. falling or power semiconductor CEO and Mr. Orange Rodney CFO.
I'd like to turn the conference over to Mr. Levine, Vice President Investor Relations at corporate Communications.
But.
Thank you and welcome to towers.
Financial results conference call for the first.
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Before I begin I would like.
Such statements made during this quarter.
And are subject to uncertainties and risks factors could cause actual results.
Different from those currently expected.
Second season.
Hello.
20, Oh.
Okay.
Securities and Exchange Commission.
Filings with Securities Authority.
I don't know website.
No obligation to update any such forward looking statements.
Now that the first walked off Twentytwenty financial results have been done in accordance with you again, the financial tables and data into <unk> earnings release ending earnings for.
Certain adjusted financial information that maybe you can see them non-GAAP financial measure.
Sure.
And the related violence and established with the Securities and Exchange Commission [laughter] the financial type of in through the full explanation of these measures and the reconciliation of these non-GAAP measures with a good financial measures.
Now I'd like to trying to caused our CEO mr. rapid and longer Russell. Please go ahead.
Thank you know.
Thank you everyone for joining our call today discussing our first quarter 2020 business and financial results.
First quarter revenues met our guidance at $300 million, resulting in EBITDA of $73 million.
Net profit of $17 million.
During the quarter, we began to implement the capacity expansion plan or 300 millimeter facility as evidenced by the higher level investment in equipment to $63 million.
This activity supports existing and future demand, which we see from our customers for various 300 millimeter platforms, which exceeds our current capacity expected increasing shipments beginning in the third quarter of this year.
We have maintained our strong balance sheet.
Financial position later Oren Shirazi, our CFO will provide an in depth review of our first quarter financial results balance sheet at main financial activities.
We began twentytwenty with a pandemic that has grown worldwide vastly impacting the global business and economic environment.
Coven 19 has created new and considerable hurdles, forcing us together with the entire world.
To modify and implement a new multiply.
With that a different motive work.
As responsible world citizens, but factories employees and customers spending many geographic regions.
Continuously track the Corona buyers pandemic offerings.
Proactive smart on all fronts to ensure the health and safety of our employees, while maintaining seamless operational supply chain.
Committed to provide reliable state of the our technology and uninterrupted manufacturing solutions to answer all our customer needs.
Each of our sites corporate wide is taking measures and action in alignment with the regional governments instructions.
And for which in many cases, we have gone well beyond with additional precautionary steps in order to ensure the health and safety of our employees and the success of our business.
Within these activities, we implemented or work from home policy for all functions that can be performed remotely.
For on site, we implemented multiple protocols, including social distancing.
Minimizing frequency and attendance of in person face to face meetings.
Frequent bleeding of all public areas, including intense comprehensive clean of all heavy traffic areas before and after ship changes.
Hygiene education wearing masks, while being at the facilities implementing automated temperature measurement upon entering the facilities.
Conferencing with customers and business partners, rather than face to face meaningless. In addition.
All employee travel had been suspended.
Supply chain performance has been flawless, we have increased inventory of in direct materials and silicon.
While supply chain materials are without interruption, there are certain challenges, but all happen and continue to be mitigated well.
Of course, we will continue to monitor assess and focus on appropriate actions as needed.
From a business demand perspective, the first months of the year were stable and even growing.
Recently, we saw decreases in customer forecasts for some end markets Boston demand for other end market growth.
I will now provide detailed overview of our different business unit activities.
To begin with the analog IC business unit.
Our mobile RF business experienced very strong growth through 2019.
And remained on the same growth trajectory for the first quarter of Twentytwenty.
Due to a combination of increased market share ramp of our 300 millimeter RFS III technology.
The overall market content growth with state of the art Fiveg handset rollouts.
As has been well published coven 19 has slowed the mobile market.
We're seeing this reflected in customer forecasts.
Present customer demand profile dictates, a lesser degree of mobile growth for 2020.
And our beginning of the your expectations.
We maintain our technology leadership and market share increases.
Well as our increasing utilization levels of the 300 millimeter capacity.
Different than our RF multiple business, our infrastructure silicon germanium optical business was weak through 2019.
The data center market was undergoing and inventory correction so.
Starting late in 2019 reported a resurgence of orders driven primarily by optical fiber communication used in fiveg infrastructure.
We are happy to report that this trend is accelerating.
And we now also see data center orders rebounding.
Based on customer forecasts, we anticipate strong quarter over quarter growth in this market through the remainder of Twentytwenty.
Helping to offset other covert 19 related weaknesses.
We also continue to invest in new technology, and when tier one customers.
An example announced in our first quarter as our partnership with Renaissance.
In bringing to market it fast satellite terminals with our silicon germanium technology.
Also we continue to make progress with prototyping next generation optical Transceivers at 200, 400 uneven 800 gigabit per second.
Our latest side you technology H five.
As well as with our Silicon Photonics platform.
After a strong growth in 2019.
Power IC business remains good despite some coded 19 related market impact.
Typically in the automotive sector and battery management products.
New product ramps in the second half of 2020.
Our expected to mitigate such cobot impact as we continued to gain market share in the broader power IC market.
This quarter, we announced a breakthrough power IC technology Gen. Six that offers over 35% power efficiency improvement at or equivalent amount of die area reduction at 24, Volte operation through an innovative transistor side.
We have provided initial design kits to early adopters and are seeing very strong interest in this new 200 millimeter process.
This new technology complements our platform leadership positions at lower voltage with our previously announced 65 nanometer BCD 300 millimeter process.
At higher voltages with our recently announced 140 volt research and 200 bolt Esa life technologies.
This completes a revamp of our offerings across a wide range of voltages that covers most of the power IC market and should enable share gain in this very large portion of the analog market for years to come.
Moving to our sensors business units our development focus is on two major technologies, which should enter production this year and high volume production in 2021.
Optical fingerprint sensors for smartphones, both lens type for under LCD displays and one to one type for under OLED displays on are well established point when it micron eight inch wafer CS technology.
We are prototyping such projects with several customers.
To support the high volume required.
Especially in the one to one under OLED sensors, we are cost qualifying Rcs technology, among our eight inch fabs.
Our second focus as time the flight sensors based on our state of the art stacking wait for technology and global shutter pixels in our 65 nanometer 12 inch wafer CMBS platform.
We are working with two market leaders on this technology and we'll prototype early next year.
These sensors are targeted mainly for face recognition applications in the mobile markets as well as in payment points, but also as front looking cameras for gaming commercial and a our type applications.
In parallel we are engaged in several programs of large actually sensors.
Some already moved to production and next generation industrial sensors on 300 millimeter using our small state of the art global shutter pixels.
Our stacked copper copper bonding backside illumination wafer technology as the basis for many new and exciting products, including the time, a slight mentioned earlier global shutter industrial sensors at high end photography sensors, giving extremely low dark current volumes.
And enabling fast sensors of continuous 1000 frames per second.
Full resolution around 20 Mega pixel high end sensors.
As for end markets that are impacted by the krona virus within the last few weeks, we've seen a drop for x-ray sensors, serving the dental market.
Customer developments have not been impacted.
For the tops business unit, where the business model is flow transfer at customer co development activities.
The majority of activities serve the power discrete and market.
The year saw increases in demand forecast from some of our large MOSFET customers now expressed caution and reduced our forecast for the second time.
We continue with advanced Mosfets co developments and additional engagements with existing customers for both mosfets as well as.
Additional disruptive technologies.
Four discrete flows we continue to focus on.
Alignment on engagement and plans for 12 inch and releasing advanced New split gate Super Junction and advanced trench Boston platforms to production.
Enabling our customers a better positioned in the market offering more competitive product line.
We previously discussed several mid to long term market trends being addressed through the tops group with initial platform transfers of developments.
Such activities include advanced nano wire intrinsic RGB micro display on 200 millimeter and 300 millimeter.
Product utilization of innovative liquid crystal medis surface technology.
And expanding our partnerships with a leading TMR sensor provider.
These activities are great relevance to it thats been short industry and target high returns.
During the first quarter of 2020, we saw the following utilization rates.
They'll haemek, Israel fab, one or six and factory, we were at 60% utilization per previously discussed decreases and discrete demand.
That too is at 70% similar to last quarter.
Newport Beach, California, Fabthree was at about 55%.
Similar to last quarter with significant increases in utilization already seen in Q2.
To the large uptick in demand of silicon germanium for Fiveg interest infrastructure and for data centers.
Our San Antonio facility Fab nine was 65% utilization.
Which includes an eight point increase non Maxim business on top of the Q4 1910 point corresponding increase in non Maxim business.
Looking at our TPS go Fabs in Japan utilization for eight inch foundry business was at about 55% so much in the previous quarter.
Our 12 inch foundry business utilization was 80% of 10 point increase as compared to Q4 19, while noting that additional capacity is building business is being built presently to both eliminate nonfatal the graphic bottleneck constraints for our Thats 300 millimeter flows as well as adding additional follow lithography.
Pasadena.
We are progressing according to plan and should hit maximal start capabilities by the end of Q3 this year.
In summary.
According to current customer forecasts, we see quarter over quarter growth throughout the year.
However, there is uncertainty.
Customer, stating their own limited visibility.
We guide the second quarter of 2020 to be 310 million with an upward or downward range of 5%.
As a well experienced mature strong global company with an exceptional base of talented and most dedicated employees.
We remain committed to meeting all our customers short mid and long term needs.
Our best wishes to all of you for your welfare and the health of your loved ones.
We hope that at least one upside of this global pandemic would be greater actions of world citizenry and cooperation.
To recycle words, a former us president John F. Kennedy.
We all inhabit the small planet.
I appreciate the same there we all cherish our children's future.
With that I'd like to turn the call to our CFO Oren Shirazi or.
Sure.
Welcome everyone.
Thank you for joining us today.
As an asset introduction to capitalize on Russell description of our actions and related to Covidien Dino.
Im pleased to update that our manufacturing fabs.
Operated throughout this period without interruption and not Miss even loan production date, no shipments and successfully management.
We successfully management of our supply chain ongoing avoiding any supply shortage.
So I wouldn't show in my balance sheet analyses the companies in a very strong and stable financial and cash pollution.
Our balance sheet as of the end of Q1, Twentytwenty, reflecting current assets ratio of 3.86 cash, including short term deposits and investments in marketable securities exceeding.
The short and long term debt balance by $438 million.
And rental above and record chairman of the liquidity of $1.6 billion representing showed us equities.
Assets ratio of 70%.
I will start by providing the BNN highlights for the first what those Twentytwenty and then discuss all balance sheet.
Revenues for the first quarter of Twentytwenty with 310 to medium Dolev, that's always $300.2 million meeting guidance provided three months ago, reflecting 10% over $19 million you over the years unfold gunning growth.
Not organics of annual defined us revenues from Panasonic into the vehicle Fabs and revenue flow mcsteamy into San Antonio fit well oil by 29 million dollar ULA vilia, mostly due to the March 2019, previously announced Panasonic two in new England.
Gross and operating profits for the first quarter of Twentytwenty with 53 million dollar and $16 million, respectively, as compared to $65 million $19 million, respectively. In the previous quarter, that's compared to 60, certainly on the low in $27 million respectively. In the first quarter was 29 team.
EBITDA for the first quarter as Twentytwenty was $73 million as compared to $75 million into three or.
$79 million into first quarter of 29 team.
Net loss for the first quarter of Twentytwenty was $17 million or 16 cents below shale basic and diluted as compared to 21 million dollar or 19 cents basic and diluted earnings Belsher industrial quartile.
That's what we told the first quarter. Those 2019 was 26 million dollar over 25 cents.
Basic and diluted earnings per share.
Compared to the first quarter of 2019 that 10% Viewability and organic revenue growth and efficiency measures taken and EBITDA to mitigate 55% obtained Buck from Panasonic is in yield Contra revenue reduction over the gross and operating profit.
Compared to the fourth quarter Oftwenty 19.
Gross and operating broker flipped $3 million lower cost.
Beyond the alcoves line again.
$5.5 million lower revenue, which is aligned with our biggest we discuss the incrementals multi mode.
The financing that Inc. and other income beyond that line totaling 2 million dollar for Q1 Twentytwenty.
Reflect the impact of the decreased interest rates and bones event.
Then the policies and marketable securities investments.
The income tax benefit beyond airline totaling 1.7, maybe on.
For the first quarter Twentytwenty includes included a tax benefit resulting from the carryover CA are.
Our next.
Which was recently announced by.
The United States.
I will now provide the cash flow highlights for the first what those twentytwenty and our balance sheet analyses of mouse certainly long twentytwenty.
I will generate this long positions in the first quarter of Twentytwenty was 68 million pulled off as compared to 72 million in the quarter end to $75 million into first quarter Iltwenty 19 investments into fixed assets net was $63 million into first quarter was 22 NPM included payments related to depleted.
We announced sales millimeter FEV capex investments as compared to $44 million $42 million in that Breo.
Quarter, ending the first quarter of 219, respectively. In addition, we repaid $24 million all of our debt into first quarter of Twentytwenty, mainly bonds serious Angie.
Looking to the balance sheet, we presented the strong.
Stable financial position measured as follows.
Generally those equity reached articles of $1.6 billion, reflecting 70% ratio showed those equities with total assets of 1.9 diesel the young below.
Current assets ratio defined as current assets dividing that by short term liabilities of was 3.8 picks.
Cash, including short term before these any investments in marketable securities exceeded our short and long term debt by $438 million.
Moving onto it up always on the tax line into being there I would like to describe.
Think of it and the effective tax rate.
Our newest fixed or event affiliate are subject to approximately 21%.
As noted earlier have a tax benefit.
He is also the recently announced CA are.
In this space.
Escos bookings, let me jump on either operations are subject to an approximate 30% outlays.
Our pockets anyway in Fabless and fab two.
Operations was subject to a 7.5% separately are not expected to resulting in any tax payments for the foreseeable future yields will be approximately $1 billion at historical lows. That's maybe carries forward indefinitely.
With regards to the company is writing in Maine, Twentytwenty Sunbelt Bull Milo and these leveraging company that is fully owned by S&P global ratings.
Agency completed its.
Taking a view for the company and assumed a copel with credit rating and bone CSG writing off.
A minor with a stable horizon.
I would not ventral described our currency hedging activity in relation to Japanese yen seems the majority portion of Cps growth revenues is denominated in yen and the vast majority LTPS close close starting in we have on natural hedge over most of our Japanese business and operation.
That will mitigate part of the remaining yen exposure, we executed zero cost ceilings hedging to production.
Each are.
Containing flush fluctuations will be containing on narrow range as compared to this both exchange rate.
Hence why did the yen rate against the US dollar may fluctuate they impact on our margins is limited.
As shown in relation to the Japanese yen impact on the balance sheet, we have I'm not sure hedged on cash and loan balances seems the loans and the cash on both the.
We chose to protect us one potential future impact on.
Fluctuation.
Lastly in relation to get fluctuation of Dave I'd cards.
We have no revenues in these currency and seamless approximately 10% of our cost.
Indeed led accountancy will also hedged a large portion of these currencies using a zero occult CNV those on production and be investing a portion of our kish in easily marketable securities.
The ability to currency.
Thereby providing us a natural outage during Q1 twentytwenty the U.S solo nice exchange ratio went up significantly from sweep 45 to three AC.
So obviously, the which provided us with an opportunity to increase our way of hedging coverage and mitigate our the U.S. dollar nice exposure for the coming 12 month on very good financial milestones achieved during the quarter.
And the last note on our share count as of the end of Q1 two into 20, we had one other kind of seven maybe on our old enough to show outstanding and fully diluted share count was 109 million.
Same ficos are being that Breo quartiles.
The difference between the extending on a diluted share count is comprised entirely of ease up related options in our fuels and now I wish to quote to turn the call based on the operational.
But I don't.
Thank you ladies and gentlemen at this time, we will begin the question and answer session. If you have a question. Please press star one if you list account to your question. Please press star too if you think speaker equipment. The headset for pressing the numbers. Your question will be pulled in the order. They receive please stand by only pull for your question.
The first question is from Kodiak, we have loop capital. Please go ahead.
Okay got it. Thank you very much and said hey, guys hope everybody as well.
First off I wanted to.
Just touch on the customer demand improvements around 300 millimeter.
Is that a function just getting the capacity online.
You should see it full wafer capacity by the into the year.
Is it a matter of market share gain driven.
Underlying optical market tiered.
To your knowledge growing at that rate and just kind of how you size upset.
So as those positives in such a negative environment.
Yes. Thank you for the question Cody.
I think in general.
Theres two ways that I would account for our positives and that we are still.
We're cautious there is uncertainty being voiced by customers, but forecasts for us look strong through the year.
Firstly is that we have very diversified end markets that we serve.
And that allows you to.
For example, I mean, it's.
Obvious to everyone automotive is taking a hit right now so even within power to where we had very good share and growth within battery management for each of these.
There's so many other things that power serves that we will see by forecast a year over year growth and power IC. This year. So thats very very good to see indicates that the.
RF mobile.
This relates maybe a lot to your 300 millimeter question.
I think the thing that's very exciting there is that.
There is a big pullback in the RF mobile market presently.
As well published.
But.
Due to the fact of pretty major share gains as well.
With some content increase we will still see.
From present forecasts.
Not just reasonable, but good year over year growth in RF mobile not as high as we initially anticipated.
But the year over year growth is still strong and RF mobile. So you have two things that play to our benefit one is being very diversified end markets. So not overly tied into a single up or down trend.
And the second part is areas and I would say at most every area to where we're growing market share.
And hence you can mitigates as with the RF mobile for this year, a pullback that we would still be having year over year growth.
Does that answer your question Cody.
Yes, it does maybe with silicon germanium is that also market share growth or you just capacity coming online.
Maybe a bit.
Very good question. Thank you again for following up with that.
We already enjoyed a very very high market share in optical transceivers.
So I don't know that theres necessarily market share growth there there is an expanding market.
And why is it an expanding market you have last year, a decrease in data center demand because of that inventory correction, but there was no question that data center.
Information.
Transfer that the the capacity of data centers have to grow so now thats coming back. So it's I don't know necessarily that we're growing market share at night, we have really a very very high position, but we are growing with a growing market. The other part is the fiveg infrastructure that was also accrete.
So the market itself.
So.
In that case, we have and enjoy a very high market share that.
The markets is growing and.
One of the reasons that it made sense to put so much energy and effort into capacity expansion within the psyche was that we knew that the market would grow even though there was a pull back during 2019.
It's very possible.
Within the next few quarters will surpass our highest quarter ever and silicon germanium shipments.
And that's a good place to beat and that is not necessarily market share growth that is a market growth, but it wasn't anticipated market growth and the capacity expansions that we did were well I mean, not just well aligned there are totally aligned with our customers.
So we put.
Strong investments in 2018.
To expand silicon germanium capacity that right now is paying back very well as far as what we see for the next quarters.
So.
Hopefully that was covered your question total.
Yes. It did thanks, very much and lastly for Oregon.
Can you just walk us through gross margin.
Decline it was.
Maybe a little bit of a shortfall of what I would have expected and then how you're seeing gross margin can be here.
I think gross margin.
Were good in Q1.
I mean, even the slight reduction in revenue, which was guided and expected I mean, we achieved this real Andre it's going to which is slightly above the mid range.
So even if you analyze.
35.5 comedian below previous quarter, we save this $3.3 million form the coke.
A touch stood out so it's too early.
Gross profit is only $2.2 million Bucketed from these 5.5, which is the.
By the model.
I mean automotive is usually incremental 50, 60% and exactly we.
These models for the future.
Obviously, we said in the press release.
On top of defect that we expect a growth sales phase two 310 and exports, which is additional modems at present, we said as we expect further quarter over quarter goals during value.
And obviously you should expect the margin will improve.
By automotive, which means about 50, 55% incremental.
The growth both goes both ways.
Increased revenue.
Very good thank you very much guys.
Yes, Cody just let me add one thing.
Within the areas, where I talked about where we have very very strong growth. There is one area that we're not seeing the growth this year and that would be in the discretes. So there is.
Continued pullback indiscreet that we're seeing.
But.
Other than Discretes across the board I think we're in pretty good shape.
Great. Thank you very much.
The next question from Rajvindra Gill with Needham and company. Please go ahead.
Yes, Thank you and congrats on solid results in this uncertain environment, that's very good.
Just a question on in terms of the guidance, so 310 million for QQ.
I was wondering if you could just provide what the organic year over year growth rate would be.
And also.
How youre thinking about the organic growth rate for for the year.
Earlier in the year, you talked about kind of low double digit organic growth rate.
This is back in January obviously things have changed some pluses and minuses.
Are you still maintaining that the assumption and if so it will require about 12% to 15% growth in the second half versus the first half as wonder if you could just.
Explore the organic growth rate.
Question. Thank you.
Yes on the organic growth for Q2.
Do you have to 19, we don't have anymore. I mean, the Q1 19 was the last quarter under the Panasonic previous current clock and later on Q2, the new 11, 19. So Q2 20 against Q2 19 and against Q1 and when do you will be entirely organic against a gun.
So there will not be any.
Reduction on older and so we will be consistent.
Okay.
And then are you can still kind of reiterating the low double digit organic for the year and if so that would imply 12% to 15% growth from the second half versus the first half.
We didn't change does.
Focused and I don't think we said, 12% to 15%, we said low double digits right, yes, none of what I'm, saying is that in order to get low double digit organic growth rate for the year, you would have to kind of grow 12% to 15% and the second half versus the first half roughly.
So that implies.
A ramp.
Throughout the year.
And.
I'm just wondering I wanted to get your thoughts on that.
Yes.
Typically what we meant to say that we have a quarter over quarter goal.
Xueling vehicle and we didn't change these.
Okay.
So just add maybe slightly more color on that.
Because we were seeing.
Such a high.
Initial forecast.
Even with uncertainty, we're still quite convinced of growth throughout the year.
To reiterate a low double digit or not is very difficult to say at this point sincerely because the visibility is not perfect.
But the growth base right now is strong enough in the forecast diverse.
Confidence within reason.
That our initial statements were correct.
To this degree of how much that's a little bit difficult to state at this point.
The next question from Mark.
Please go ahead.
Hi, Thanks for taking my question on the 300 millimeter capacity increase it sounds like there's there's two things going on there is theres the non lit lift, though a bottleneck and then you're also adding additional lithography capacity.
For which is supposed to hit later on and so a couple of questions here.
Can you give us a sense of how much the capacity increases due to the non but both bottleneck when it when it starts on Cork and the third quarter and.
And how much will that capacity increase from the additional.
Though.
I see that you're you're adding and when does that kind of layer into.
Your total capacity on 300 millimeter.
So the annualized capacity increase as we said is somewhere between 70 to 100 million.
If we were talk about.
The bottlenecks at this point I stated that we.
At a 300 millimeter utilization at 80%.
Our utilization rates, we always talk about against the photo capacity that's allotted.
We would have had enough demand our model is to run at somewhere between 85 and 90%.
So we have enough demand that we would have been at 90% utilization if we didnt have.
[music].
Process bottlenecks that are being alleviated through some of this capacity expansion.
So you could say that's.
Initially there would be a relief of about 10 points of capacity through the bottlenecks, but additional capacity is being added with the photo.
And but the total we had said depending on exact mix that we'd be shipping is somewhere annualized between $70 million to $100 million.
Okay.
That is for just make sure I'm clear this is for the non lift or was that for the additional leverage.
That's with everything got you okay.
Okay and so.
So when you.
In in kind of a time like this.
You talked about this a little bit in your prepared comments, but I was hoping you could share color like how do you how do you manage your own supply risk.
In an environment like this could you just review how do you think about this and what your strategy as thank you.
Hum.
So.
Our fundamental business model has always been.
Based upon.
Very close contact in partnership with customers and with suppliers.
But due to relationships that weve develops.
We've been able to very very easily transition into even greater amount of communication with both suppliers and customers.
And to understand any gives or takes of what they have or don't have there had been a few incidents where something wouldn't have been shipped but we had enough.
Heads up on it that we're able to change to another supplier and in most all circumstances.
Our supply chain.
We have multiple qualified suppliers and one per dominant supplier that we work with but we always maintain a business continuity plan to where if someone has something happens abruptly to their factory.
Either we try to ensure that they have multiple factories.
So that we can have.
Continuity from them or we have another supplier.
And that's how we've been able to manage extremely well we had.
What are one of the the obvious things that have happened in the past months is that.
Commercial rates.
Has been decrease quite readily because commercial flights a decrease Craig readily so we've shifted very quickly to freight flights but.
We were able to understand no and do that seamlessly.
But from the suppliers themselves that was just getting supplies from point data point be.
For the suppliers themselves. It's really just a question of having a very very strong relationship with suppliers.
And with the communication asking the right questions and knowing something that might occur in enough advance that you can address.
And as I stated we ourselves.
In certain areas built up a much higher inventory than normal.
In direct materials and silicon wafers.
We have a supply of silicon for every SKU that we use.
And for the very high level skews, a fairly high supply of silicon higher than the inventory levels that we normally carry but we thought it was prudent to build up inventory levels. During a period that the supply would be there knowing that they would be used but we are at higher inventory levels and we would be under normal states of operation.
Mark did that answer your question I hope.
Yes, that's very helpful.
You don't mind, if I just follow up on that briefly.
I guess there one concern right now I think in the market is that.
That that behavior of trying to add a little extra inventory in order to guarantee your own operations.
Do you have sensed to the extent.
How much that is happening and your customer at your customers and that so that was my last question. Thank you.
At our customers I have a very very good feel for what's happening with their inventory because we have very close interactions.
I don't know that our customers have the same degree of field for their end customers.
One area that.
We were.
More optimistic on in the beginning of the year was in discrete.
And.
Some of what.
They had thought I believe.
Was due to people wanting to build more inventory that have now decided that they didnt the a lot of discrete discretes.
Go through distribution centers.
And distribution centers belt will pull back very very quickly.
So.
Most.
Everything other than Discretes doesn't deal with districts very very much.
But that is the one area that we have seen.
Uh huh.
A reduction in what we had initially thought and most likely.
A year over year reduction revenue is to our discrete customers.
That's very helpful. Thank you.
The next question is from Richard Shannon of Craig Hallum. Please go ahead, Sir Richard.
That's a higher you high return on.
Hi, I'm going to follow up on this last question just very quickly.
Good detail here.
But rather just one thing there the wafer supply that you have increased inventories of is that do you see the risks kind of equally across wafer sizes and the different technologies to deal with silicon versus that's a line others or other meaningful differences in the risks there.
For very very high usage high demand.
We have pretty stable contracts.
And those contracts.
Forecast and commit to us buying wafers and to the supplier supplying the wafers.
The RFS alive the type of the contract that we have so there is a very very stable type of an activity.
For the other is what we've done is we have built greater inventory.
And now it's just going with steady state orders.
By having reserve inventory that in case, there should be something that comes into and some of that is really just a question of being able to get material from point data point B.
But.
So if that answers your question very high demand.
Hi volume is for the most part under strong contracts.
Okay, let us help I just want to make sure.
My next question is probably a multi part or on the mobile market here, you're talking about still expecting growth in 2020 from share gains I didnt catch to begin to increase how you introduce it was on one.
In mobile okay. Thank you. So you talked about expecting growth in 2020 of all the growth has come down here with obvious inflection from mobile purchasing patterns here, but you said it was coming from strong growth in content gains.
My first part of this is would you still expect growth, we didnt have I said market share gain and content increases, but but I think its market share gain but go ahead.
Okay does that mean you'd still have growth in mobile if you didn't have the share gains.
You think.
But I didnt have share gains would I still have growth and mobile.
No I don't think stuff.
Okay and the construct of the share gains is there anything characterize it by technology either by for your customers or your internal technology to enter versus 300, or a geographical customers or anything like that that.
It's kind of the.
Driver for the share gains.
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I think the share gains are coming really worldwide.
Some customers more than others, but it's not specific to any certain geographic region.
Theres higher share gain in some regions and others, but I.
Overall, the big players are and who the emerging players are and I think were.
Doing pretty well across the board there.
Okay, Let's sounds good my last question here as well most people are probably focusing near term given cobot impacts on the economy. Here wondering if you are going to look out into next year.
And kind of look at some of your growth drivers both fuel growth in your larger markets mobile infrastructure slash optical but also looking at some of the new projects and product you're talking about like the fingerprint sensors. The time of flight semi new power products Silicon photonics et cetera.
If you talk about from a dollar growth perspective.
Which ones do any of these growth drivers stand out as a one that could really have a an outsized impact on your next year.
Nextshares, referring to which you're sure.
2021.
I think.
Certainly.
RF mobile.
And.
RF infrastructure.
Always will have.
Big impact because they're very big markets.
And we're well positioned and growth.
In these markets one because of a very very high market share already and thats, the the optical market with the silicon germanium.
And the other with very strong market share gains and increasing capacity with very exciting technologies.
So.
Those I believe will remain very very strong growth drivers as I stated earlier.
The reason that we invested strongly in silicon germanium and and capacity expansion in 2018 and quite will most likely continue to invest in that is because that is a very very big expanding market.
With data traffic.
Honestly, increasing and increasing if we look at its.
And.
From.
2020 through.
For 2019 through 2021.
There should be about a 30% increase and four by 20 fives.
And.
Many many ex increase in.
Eight by 50, so 400 gigabit per second.
That's what we stated that we are have many many wins skews protos and even beginning in the 800 gigabit per second.
So those two greeting very important for us the other area that I believe we'll see.
Very strong growth and as what we've said was our focus is with the.
Fingerprints under OLED.
That will be.
Very I believe strong area for us.
As well as the.
Fingerprint under LCD and the LCD will start.
Volume production by target.
We ended this year and growing into volumes significant volume should in 2021.
In addition, we have a lot of very very active advanced.
Stacking projects with.
Image sensors that will continue in the 20 to 23 24 to become very very big numbers I believe they should anyone have they promise to be able to.
The loss that market will certainly rebound at some point.
How much of a growth driver will it be or not I think that the.
Consensus was somewhere about a.
5%, 6% CAGR, but it's it's pulled back quite substantially.
So that when it comes back should come back very strong and.
Get too well beyond previous rates.
The power management, we have a very very broad portfolio and power management that.
I think is.
Is quite strong.
Even with as I stated.
The automotive portion of power.
Being down this year.
By forecast, we would see year over year power growth.
And not insignificant.
Then in 2021, when all things are equal I assume that that should take off very strongly the new platforms that we have going out so I think probably across all of our business units.
See good growth.
As I stated.
During the formal comments.
Within the.
Tops business units, where the model is really taking a customer flow.
Or a customer idea working on them, where everything stays behind a firewall.
We're doing some very very innovative things on this nano wire RGB.
And intrinsic RGB micro display and.
That is promising to take off very very strong as well so within the top theres additional things that are being done in addition to.
Offset market.
Our.
Power discrete market.
Of which the biggest portion that we serve as mosfets, but there is additional very very high growth markets because they don't exist right now I mean, there technologies that are disruptive technologies that will.
Could grow very very strong.
So I think across the board were in pretty good shape, one of the nice things about our business.
And I think one of the reasons that.
Coming back to some of the previous questions.
The reason that we're able to mitigate.
Whatever.
Impacts are our from coal that this year is because we do serve so many end markets.
And within multiple of them, we have market share growth and multiple them are growing markets.
So hopefully that answered your question Richard has a long answer.
I appreciate the detail and that's very helpful. Russell and that is all for me. Thank you. Thank you.
The next question from Krish Sankar.
Please go ahead.
Hi, Thanks for taking my question I had a couple of them Russum one if you spoke about.
Moving strengthen datacenter orders Q over Q the of any view on the sustainability of this deal thats into strength.
For the rest of the other than the know how to follow up.
I would believe that's the.
Trend is pretty strong probably of.
Anything that we're looking at.
I believe for at least from my perspective, the highest confidence at this point is in the silicon germanium.
So I think that the trend is very strong demand is very strong.
And it's not just data centers I said, it's also fiveg infrastructure.
But.
I think that's that's very real.
One of the reasons that you know that it's real as when you are getting.
Very recent upside orders.
And it's not just forecast their orders that are coming in most all of our silicon germanium as running 40 to 43.
Photo layers so.
Orders have to be placed early starts up to be done early not early but just mean for Q3 shipments.
If you're dealing with 43 layers you have to start.
The wafers fairly quickly so for silicon germanium.
We have fairly good visibility because it's a longer processing time, the most all of our other flows so the purchase orders come in earlier do you start the wafers earlier.
Alright, Thats really helpful color. So and then as a follow up you spoke about seeing sequential growth through the rest of the good. So is it fair to assume that utilization rates across the entire fleet will continue to improve and new good any color you can give in terms of quantification into the next quarter.
Certainly is revenue goes up utilization rates must go up.
I stated that we've already seen a big increase in the.
Fabthree Newport Beach facility as a function of the increase of orders of Silicon germanium.
And beyond that I don't want to necessarily give specific utilization rates because I don't have them off the top of my head.
I want to have to correct anything.
But in general the answer is absolutely as revenue goes up utilization rates go up.
Got it thanks.
Your next question.
The next question is somebody from Lisa Thompson Zacks investment research. Please go ahead.
Hi.
I just have a few questions for you what is really easy or do you still think the tax rate should be around 4%. This year.
That's right.
Yeah, Okay, yes.
Okay Thats it.
Could you talk a little bit about the economics to you the gross margin or how does it work.
Well drilling pull 100 key products to.
400 in above does that change for you you make more money at the high speed.
I think.
Our model like I mentioned before any incremental revenue goal fees as does the novologix, 50%, 65% Douglas both.
Hello, and EBITDA and operating profit no anything of what you said the 50 is that related to say Jay. So we said at above that full side you have close on margins are better data.
Closer to 65, 70% incremental.
And.
If we believe in.
So I'll smartphone old discrete so it's lower than the 50%.
So any anomalies can assume one from what is the growth and then assume the resulting the margin.
And for your specific.
The other part of the question, Lisa where you said you asked if.
The margins go up.
Yes that is.
A very.
Partnership based thing with our customers, we work with them to serve their longer term needs.
And.
With each platform.
There's typically a reset of the pricing of the platform.
And then you might have off of any platform some year over year every several year price reduction.
But every new platform will have a reset of pricing versus the previous platform that is in high volume.
Okay.
I guess my final question.
Oh, yes, some of them, so let's talk about changing supply chain.
De risking geographically.
Oh listen have you seen any change in your customer.
Thank you at all.
By changing supply chain them slightly.
Maybe from our customers changing their supply chain or from I don't understand yeah.
Right.
There's a lot of talk about maybe we shouldnt be getting so much stuck on China no. Our people looking at you because you're not their own could that possibly benefit you.
Potentially but.
I would say fundamentally not so much the.
So the bulk of what has bought in China.
It is not products that we ourselves or product flows that we are self serve.
There's either.
Lower end foundry capabilities.
Or you would have.
Other foundries that do and focus on digital technologies. So for the most part what we serve our customers could not really obtained from China.
Okay, great. Thank you that's all my questions.
Thank you very much.
The next question from David Duley Steelhead Securities. Please go ahead.
Yes, most of my questions have been answer, but just a couple of clarifications.
Could you just help US understand you mentioned you have very high market share in the optical silicon germanium area could you just.
Highlight what you think your market share is there and then.
Could you talk about the competitive environment in the RFS Hawaii area.
And how that's changed over the last few quarters or how you expect it to change going forward. Thank you.
Yeah. The first question I'll happily answer we believe were at about 60% market share or higher.
So that's for your first question.
For the second question.
It's not something that I prefer to talk about meeting to speak about.
Competitors, the competitive landscape itself as with any.
Hi end.
Technology.
The landscape requires.
Better performing platforms.
So in the case of the RFS alive will demand continually.
Continual reduction in our on C. off.
It demands very very good digital capabilities.
Demands very good linearity. So just all of the figures of merit continually have to move forward on the landscape itself again, Thats I don't talk about competition, ultimately and that's not something I would prefer to speak too, but the competitive landscape is really just based upon having.
Very good platforms to be able to get the most recent design wins.
And.
Then in performing well and how you supply.
I always state, having a 300 millimeter platform.
Differentiate you and BRL fertilizer market at this point or or 65 nanometer design rules are either one of those helping you capture further market share.
One more time, please I'm sorry, the what were 300 millimeter that.
It is having a 300 millimeter factory, that's running off that satellite or having 65 nanometer design rules are either one of those allowing you to pick up further market share.
Absolutely.
Yes, the done although we have.
An extremely.
Good 200 millimeter platform, that's called Qt nine.
Having.
The ability.
To do 65 nanometer allows you very very.
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The strong digital integration, which is important for the an integrated switch LNA.
So yeah. The 300 millimeter certainly is enabling.
Increases and market share definitely.
Great final question for me as.
As far as a percentage of overall revenue what percentage to discretes represent at this point approximately.
A percentage of revenue of the company.
Yes.
Yes, it's about the west was up 10% loving the full year 19.
Thank you.
Thank you welcome.
We have a follow up question from regions I guess of Needham and company. Please go ahead.
And.
Yes. Please.
Yes, thanks for the follow up just a quick question on automotive.
Obviously, a lot of the factories have been shut down in the U.S. Europe, they're starting to reopen a bit.
You didn't mention some weakness in power for for auto but.
Any sense in terms of you know how the automotive automotive market could shape up for for the year are you seeing any kind of rebound at all as you kind of look into the second half from your customers.
And also in terms of kind of content gain semiconductor content increases in automotive, whether it's from sensors or increase power management.
Do you foresee that partially offsetting some of the weakness in the overall automotive market.
Our predominant power management into automotive.
Really is in battery management and need.
We've not seen an increase.
That demand as of yet.
Indeed factories are opening up in models are being built than.
We will see it increase there.
But but to date we've not.
As far as.
The amount of content going into automotive and vying for a bigger portion that content.
We're always actively going after that.
At our biggest portion right now directly in automotive that at least were aware of and it's not that we have 100% visibility into the end use that every part that we sell but the biggest portion of it is for battery management and that has not step back yet.
Thanks.
Okay. Thank you.
This concludes the question and answer.
Now I'd like to make his concluding statement.
Certainly.
Well again, thank you very much and really thank all of you for the.
I think very very good questions appreciate it.
Just as a.
Summary statement, we are optimistic and encouraged and I am.
Truly proud of our employees.
That to date throughout this worldwide pandemic.
For our Q1 performance it was exact and since that time weve not missed a step on shipments.
The.
Integration of customer demand and operational flexibility has really been outstanding.
Certainly.
Encouraged that in the midst of global challenging times.
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Even in the mobile market.
Our RF mobile share increase continues and should show meaningful 2020 quarter over quarter growth and meaningful 2020 over 19 growth.
That's our end market coverage is broad enough, allowing very strong growth in multiple markets during even the current situation.
We look forward to speak with you as the year progresses.
And to that end between now and the beginning of June will participate in the following investor conferences.
The Oppenheimer annual event Sunday May 17th 2020.
The 17th annual Craig Hallum Institutional Investor Conference May 27, 2020.
And the Needham fourth annual automotive Tech conference in June 3rd 2020, all of these are virtual events and for those of you who are able or have wishes, we'd love to interact with you and speak with you at those times or at any other thank you very very much.
Thank you. This concludes the power semiconductor fourth quarter 2020 results conference call. Thank you feel pretty decent you may go ahead and disconnect.
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