Q1 2021 Cree Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to decrease first quarter fiscal year 2021 earnings Conference call.

At this time all participant lines are in listen only mode. So if you require operator assistance. Please press Star then zero.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone keypad.

I'd now like to hand, the conference over to your host today Mr. Tyler Brown, Vice President of Investor Relations. Please go ahead Sir.

Thank you and good afternoon, everyone. Welcome decreased first quarter fiscal 2021 conference call today, Cree CEO, Greg low increases FFO Neal Reynolds, we'll report on the results for the first quarter fiscal year 2021.

Please note that we will be presenting non-GAAP financial results during today's call, which is consistent with how management measures crees results internally non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies non-GAAP information should be considered a supplement to.

And not a substitute for financial statements prepared in accordance with GAAP.

A reconciliation to the most directly comparable GAAP measures is in our press release and posted on the Investor Relations section of our web site, along with a historical summary of other key metrics.

Today's discussion includes forward looking statements about our business outlook and we may make other forward looking statements during the call such forward looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mentioned important factors that could cause actual results to differ.

For materially, including risks related to the spread and impact of the COVID-19 pandemic.

During the Q and a session. We would ask that you limit yourself to one question and one follow up so that we can accommodate as many questions as possible. During today's call. If you have additional questions. Please feel free to contact us after the call and now I'd like to turn the call over to Greg.

Thank you Tyler good afternoon, everyone and thank you for joining us today.

I Hope you and your families are thing safe and healthy during these uncertain times.

The COVID-19 situation continues to evolve and I'm extremely proud of our team's effort to deliver for our customers decide.

Despite the short term headwinds of the pandemic, we're pleased to see a sequential improvement in our business compared to the fourth quarter and we remain focused on our long term strategic goals.

Turning to our first quarter performance, our revenue and non-GAAP EPS were both at the high end of our guidance.

While we have continued with our stringent protocols to ensure the safety of our team and keep our facilities operational our results demonstrate how silicon carbide is building momentum across key end markets.

We believe we remain well positioned to execute on our growing wolfspeed pipeline.

Importantly, we accomplished a critical milestone in our transformational journey with the recent announcement of a definitive agreement to sell Cree LCD to smart Global holdings for total consideration of up to approximately $300 million.

This includes $50 million in cash a $125 million seller note maturing in August of 2023.

And up to another $125 million in earn out depending on the performance of the LNG business in the four quarters post close.

This divestiture establishes Cree as a pure play global semiconductor powerhouse with a strong financial profile and positions us well to continue to lead the industry transition from silicon to silicon carbide.

This transaction sharpens, our focus exclusively on our innovative wolfspeed business and will allow us to deliver long term value for our shareholders.

We're very excited about the future of Cree and the tremendous opportunity we have ahead of us.

The conversations we're having with our customers reaffirmed the need for our technology and underscore our commitment to our strategy.

Our capacity expansion plans remain on track and will help us in our overall effort to drive the industry transition from silicon to silicon carbide and Gan.

I'll now turn it over to Neil who will provide an overview of our financial results and an outlook for the second quarter of fiscal 2021 meal.

Thank you, Greg and good afternoon, everyone.

Overall, we delivered solid performance in the first quarter, despite ongoing macroeconomic headwinds.

Revenues for the first quarter of fiscal 2021.

217 million at the high end of our guidance.

Representing a sequential increase of 5% and a decrease of 11% year over year.

Well speed revenue improved approximately 7% sequentially and declined 10% year over year on global demand remains soft largely related to the pandemic.

Media revenue increased approximately 4% sequentially and decreased 12% year over year.

Our non-GAAP net loss was $21.3 million or 19 cents per diluted share our first quarter non-GAAP earnings exclude 163.1 billion of expense net of tax or $1.49 cents per diluted share were noncash stock based compensation acquired intangibles amortization accretion.

Our convertible notes Heidrick transformation and Cree Ltd divestiture transaction related call factory optimization restructuring costs changes in the value of our Lextar investment and other items outlined in todays earnings release, as well as a $106 million impairment charge associated with the divestiture of our lead.

Business.

Moving on to our first quarter performance by segment.

Well, Steve quarterly revenue totaled 160 million.

This was largely driven by continued demand for our power business and some better performance materials and RF businesses and power. We are pleased by the momentum we're seeing for our products as well as the improving supply dynamics, we experienced in the quarter, which are still below normal levels.

Technology continues to gain traction, particularly in the automotive industry, we're seeing a number of positive developments in the space and continue to have productive dialogs with current and prospective customers further our partnership with Arrow electronics is continuing to drive broad awareness of the benefits of silicon carbide across numerous industrial and other applications.

We are particularly pleased with the demand traction you're seeing from a coordinated efforts around the limits of our new 650 bolt silicon carbide MOSFET platform.

Turning to RF, we continue to execute and build our backlog.

I'm pleased by the early signs of strengthening demand a person and remain confident in the fiveg transition despite delays in certain regions.

Moving to materials, we saw some better order flow in the quarter and mix and would expect this trend to continue modestly throughout the remainder of fiscal 2021.

We'll see gross margin was 36.6% compared to 35.3% last quarter.

The sequential increase was driven by yield and cost improvements and our power and RF businesses.

Partially offset by lower utilization in our materials business as we continue to balance significant efficiency and output improvements with market demand requirements gross.

Gross margin performance also continues to be dampened by a continued COVID-19 safety measures.

Health and safety remains our top priority in all aspects of our business and we anticipate the safety measures. We're taking to protect our employees will continue to impact factory outputs in the near term longer term, we expect our capacity expansion plan will help drive scale and margin expansion.

Our leading product revenue was 101 million and Ltd gross margin was 22.2%.

Already executed well despite ongoing challenges in the market.

Unallocated non-GAAP cost totaled 6.1 million for the first quarter of fiscal 2021 and are included in our overall costs to reconcile to $59 million non-GAAP gross profit and 27.1% gross margin for the company.

Non-GAAP operating expenses for Q1 were $87 million and our non-GAAP tax rate was 30%.

We remain focused on prudent expense control as we look to balance our operating expenses with the Benson investments to fuel future growth.

Our balance sheet remains strong in the face of an uncertain environment with more than 1 billion in liquidity to support our targeted R&D and sales and marketing spend as well as our capacity expansion plans, we have zero withdrawn on our line of credit convertible debt with a total face value of $1 billion.

For the first quarter day sales outstanding was 33 days and inventory days on hand was 104 days cash generated from operations was 400000 and capital expenditures were 115.9 million resulted in negative free cash flow of 115.5 million.

Turning to our Capex outlook for the remainder of the fiscal year, we remain committed to investing in our growth and continue to expect net capex of approximately 400 million to support our capacity expansion plans.

As we've previously stated we expect fiscal 2021 to be our peak investment year to ensure we can ramp production and meat supply needs at E. deployments commence beginning in calendar 2023.

Our Mohawk value added materials facility enduro allow us to scale, our business improve productivity and deliver on our customer commitments.

It is important to note that our capex and cash flow during fiscal 2021 are subject to variability depending on our Mohawk Valley construction progress as well as reimbursement timing from the state of New York.

Now turning to our outlook for the second quarter of fiscal 2021. Please.

Please note given our pending sale of Korea, leading to Smart Global Holdings Ltd is now classified as discontinued operations and therefore, our second quarter guidance reflects our continuing operations and Wolfspeed only.

For the second quarter of fiscal 2021, we are targeting revenue from continuing operations to be in the range of 118 million to $124 million.

We expect the momentum you're currently experiencing our power business to continue and be supported by our capacity expansion initiatives from an RF and materials perspective, we do expect some modest improvements while maintaining the pull the 19 safety protocols, we have in place.

Pre Q2, non-GAAP gross margin from continuing operations is expected to be between 34% to 36%, which includes the impact of $4 million of corporate items.

We'll see gross margin is expected to be between 37% to 39% driven by continued improvement in yields factory efficiency and increased utilization in our materials business.

We are targeting non-GAAP operating expenses from continuing operations between $77 million and $79 million for the second quarter the.

The gradual ramp at our operating expenses is fueled by our investment in R&D, including development projects at our Mohawk valves that as well as increased sales and marketing expenses as we pursue new opportunities.

We target Q2, non-GAAP operating loss from continuing operations to be between 32 million to $38 million and we target non operating net loss from continuing operations the approximately $1 million.

Expect our non-GAAP effective tax rate to be approximately 23% and.

The non-GAAP effective tax rate decreased due to the jurisdictional mix of our forecasted earnings on a continuing operations basis.

We're targeting Q2, non-GAAP net loss from continuing operations to be between $25 million to $30 million or a loss between 23 cents to 27 cents per diluted share.

Our non-GAAP EPS target excludes acquired intangibles amortization non cash stock based compensation accretion on our convertible notes project transformation and leading transaction related costs factory optimization restructuring costs and other items.

Our Q2 targets are based on several factors that could vary greatly including the situation with COVID-19 overall demand product mix factory productivity and the competitive environment with that I will now turn the discussion back to Greg.

Thanks, Neil we've made incredible progress on our transformational journey over the past few years.

Our deep domain expertise and silicon carbide has driven significant growth in our wolfspeed business further solidifying our leadership position.

We have secured key device design ins across high growth innovative industries and have secured several long term wafer supply agreements with customers, which further fortify our business.

Once we close the LCD divestiture Cree will be a pure play global semiconductor company with high growth and high margin potential and capable of significant cash generation as we execute to our long term plans to support this effort, we will continue to invest in innovation and R&D.

Initiatives as well as sales and marketing activities.

Our sales team continues to convert pipeline opportunities at an impressive rate.

And in Q1, we secured approximately $700 million worth of design wins for Wolfspeed exceeding our company wide performance of $600 million from the fourth quarter of fiscal 2020.

Over the last three quarters more than half of the design ins are for automotive customers and the rest are spread across communications infrastructure aerospace and defense energy and industrial applications.

As Neil mentioned earlier, our partnership with Arrow for our 650, both platform continues to generate positive results.

We've already exceeded our target of $750 million of increased pipeline identification as customers are looking to leverage the benefits of this technology across a wide range of end products ranging from plasma generators to electric motorcycles and electro surgical instruments.

The Arrow team is also helping us extend our sales reach into new markets.

For example, they've identified opportunities in 43 countries for the 650, both platform and.

And then more half and more than half of those countries. We did not have a dedicated salesperson.

We look forward to continuing to execute on our growing pipeline, which is now well over $10 billion for our Wolfspeed business alone anchored by opportunities in the automotive communications industrial and energy industries.

In support of this effort, we continue to expand our product portfolio with the launch of 13, new products in the first quarter alone.

We are pleased by the recent developments that underscore the long term opportunities ahead importantly, we are seeing a tremendous traction in automotive, which represents approximately half of our device pipeline.

We are encouraged by the continued regulatory momentum for electric vehicles.

More than 20 comp countries have plans to begin phasing out sales of new gasoline powered vehicles over the next two decades.

Additionally, this month the EU Parliament voted to increase their goal of cutting emissions from a 40% reduction to now a 60% reduction in emissions by 2030.

We expect this to be a positive katich catalyst for clean transportation and electric vehicle demand in Europe.

Rideshare companies Lyft, and Uber are committed to having a 100% electric vehicle fleet by 2030 and 2040, respectively.

Turning to Fiveg, while regulatory delays and headwinds related to the pandemic impacted some rollouts in Europe and the US momentum is building a cost across the globe for this next generation technology, which delivers greater performance for bandwidth intensive applications.

Now we are still in the early phases of what we expect to be a multi year growth opportunity for Gan as fiveg momentum picks up.

Outside of auto and Fiveg, we're seeing growing applications for silicon carbide.

As we continue to scale, our business and drive the cost of Silicon carbide down our potential customer base is growing to include different industries and markets that are interested in utilizing the advantages of our technology.

Our plans to explain and silicon carbide capacity are progressing on schedule.

Our balance sheet is solid and we remain well positioned to both fund our operations as well as make the necessary investments to grow our business.

In summary, we are executing well in an uncertain environment with our pending Ltd sales, we reached a critical milestone in our transformational journey.

Our device opportunity pipeline continues to grow and we are performing well in converting opportunity to design and.

We are excited for the opportunities ahead for our technology and look forward to helping our customers deliver their next generation solutions and with that I will turn the call back over to the operator, and we'll begin our Q and a session.

Ladies and gentlemen, if youd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.

Again that is star then one if you'd like to ask a question at this time.

Our first question comes from the line of Jed Dorsheimer with Canaccord Genuity. Your line is now open.

Hi, Thanks.

First question, Greg you made mention.

I mentioned that I came on a little bit late but.

In terms of backlog I was wondering if you could provide or sorry, not backlog, but the.

Sort of the RF queues that you're working on and the backlog the who are building.

The break down between the verses day for example, Fiveg inquiries.

As well as just other power electronics.

Im not looking for the exact amounts, but could you talk about run rate.

Ranges and then how it how is that shifted at all this quarter and then I do have a follow up yes.

Yes, so thanks much Ed so really it's a pipeline we're talking about here the opportunity pipeline for our device business and.

You know, we we grew obviously the pipeline as well as now well over $10 billion in terms of the split out of that.

A majority of that is automotive and therefore electric vehicle related so thats going to be north of 50% tax.

Actually north of 60% right now and in terms of decisions that were made in this past quarter. The majority of those of that $700 million of design in the vast majority of those were also automotive related.

Design ends.

In terms of the pipeline.

The rest of the pipeline is a is a mix of industrial type applications and a pretty significant growth of those industrial type applications with the activities that we're doing together with arrow on the 650 volt platform.

We have some aerospace and defense activities and we have some communications infrastructure.

Opportunities as well so it's kind of a mix of those for the rest of it but the pipeline the device pipeline really is pretty solidly automotive related and.

Electric vehicle related.

Got it just as my follow up question, just pivoting to manufacturing in the increase of R&D should we read into that in terms of.

That bump up.

Ill.

Is.

Eight inch related or 200 millimeter related or.

Are there any other milestones that you might be able to art.

Articulate so that we can best track that development. Thanks.

Yes, Thanks, guys and we're obviously continuing to work on future generation technologies like the 200 millimeter.

Activity for some of that is going to be related to that for sure but.

But it's also related to.

New product introductions that we've got planned out and.

Our new new technologies that will be introducing so I would say, it's a combination of those.

Our next question comes from Edward Snyder with charter equity. Your line is now open thanks a lot.

Greg maybe we could touch on bottlenecks your ft wafer facility production was a bottleneck for a couple of quarters or is that freed up is there any bottlenecks at all or is.

The starting point and then mid 7 million dollar pipeline.

How far does that stretch we talking about three years two years, what's the what is the likely.

Flowed revenue I'll look for guidance, but how far out is that pipeline stresses same kind of question for last quarter $600 million and then I have a follow up thanks, yeah. Okay. So let me let me maybe hit the second question first and maybe I'll talk a little bit about the the first question, but Neil can probably hit that better than me.

On the on the 700 million dollar.

Design ins that we got this past quarter most of that as I mentioned, well over 50% of that and more north of 60% of that is automotive related most automotive designs are sort of three to four years out when you go when you get a design then it goes into production Neil EBITDA.

To date, our last Investor day about it and we are starting to ramp some of the some of these.

Products in 2022, we see if.

Really a steeper ramp in 24 25, an acceleration of that ramp if you will so.

The automotive ones are typically three to four years out depends a little bit on whether it's more of a new comer in automotive.

The company's like.

Like Tesla for example, or some of the ones that are more historically automotive related theres different kinds of processes that they follow but I think three or four years or so is a pretty good bogey for that and just to remind everybody the $700 million of design ins that we just printed for this quarter.

Is obviously $100 million and more than we did last quarter, but last quarter was companywide. So it's a nice a nice step for Wolfspeed to now have a design ins at $700 million just for Wolfspeed and.

Terms of FPL I'll, let Neil cover that one.

Yes on the.

Syed customer still continue to look for you know relatively heavy mix as part of the capacity expansion Capex that we're investing in a part of that has to bring up additional epic capacity. So I think we're turning the corner there and we're making good progress as it as it relates to closing the gap on a.

On an epic capacity versus versus net.

This is my fault, but good so the preponderance of the all your revenue will be will speak to that and continue operations, but.

The preponderance of that is not the vast majority is in industrial and solar is that fair statement and given that your RF did when you were kind of heavy into some of the fiveg stuff goes away, but thats been shut down the Cts probably picked up and then overall, maybe you could make some comments on fiveg because it's been strong we've seen it through a bunch of other companies, but it's primarily been chinas.

Rollout of Fiveg is industrial policies in the big driver, but even that is starting to seem to slow a bit as they move from Mike urban Mimo sites to more suburban and rural macro sites are you seeing that reflected in order patterns now.

Yes, I think you're right in terms of the overall fiveg rollout, it's been primarily China related and and obviously.

Theres, we're unable to engage with wawa at this time so.

We don't have that in any of the plans and so forth, we're seeing a pickup in some of the some of the RF business. We are seeing a pickup in that but I think you are right that the it's really been kind of a China dominated type story.

Our next question comes from Brian Lee with Goldman Sachs. Your line is now open.

Hey, guys. Thanks for taking the questions maybe first one just following up on the earlier question here on the automotive wins and timing cadence.

Greg It sounds like the ramp is steeper in 2024 and 2025, if I heard you correctly, although it does beginning in 2002. So should we also take that to mean device revenue specifically being.

Being supplied out of Mohawk Valley does it really becomes meaningful for you guys until fiscal 2025, just trying to triangulate the capacity ramp in the Ohio Valley impact.

You know overlaid against some of your comments around the the automotive wins, you're seeing today and when those really ramp into production and volume for you guys.

Yes, Brian.

No problem. So Brian Thanks for the question and yes, we are ramping Mohawk Valley beginning in 2022, it it won't be a substantial part of the of the volume in 2022, but.

But we believe by 2024 thief automotive customers are coming on line it will be actually a pretty substantial part of the of the equation in 2024, So we'll see that and just before you get your follow up Brian Ed did ask about the fragmentation I Didnt hit that part of the question as well and so Ed.

The fragment the.

The Wolfspeed business is actually quite fragmented.

Today, and so it's a lot of industrial type customers a lot of.

Aerospace and defense type customers as well so it as a as we sit today, it's very very fragmented as we move towards the future. It will be more of an automotive type play so sorry about that I didnt hit that last time, So Brian you had a follow up.

It yet.

That's a pretty good segue for the follow up I had I was I was trying to maybe better understand the diversification slash fragmentation in the Wolfspeed mix. You know you guys have talked about.

Being flat for fiscal 21 based on some of the disclosures you updated around the LP unit sale a couple of weeks ago. So as we think about will speed mix. A lot is clearly changed over the past 12 months at the trend in China, while away et cetera. So is there any way you can level set us a bit as to you know what was the mix of Wolfspeed revenue.

In fiscal 2020, and then what should we sort of be expecting in fiscal 2001, and I'm kind of thinking about the broader buckets you guys talk about materials Silicon carbide power devices, and then I'll ask just it would seem like things have changed a bit and so how should we be thinking about on a flat revenue base roughly.

What that mix has shifted to now.

Yes.

I'll I'll take a crack at it and if Neil you want to add a little bit of color. So in terms of the split of the business between our device business in our materials business. You can kind of think of those as roughly 50 50 and that wasn't the case four years ago.

We were.

The materials business has grown faster than the device business over the last four years to have now kind of a 50 50 mix as we look to the future and point out point, specifically to 2024.

Between now and 2024, we anticipate our device business will grow substantially faster than the materials business as we start knocking down some of these.

Opportunities and converting opportunities into design and so you will see a.

A steeper ramp of the revenue.

So that the device businesses will be greater than 50% and nicely greater than 50% of the revenue by 2024, Neil I don't know if you want to add any additional color to that.

Well I think Thats right I think one thing Brian to think about a year and a shorter terms you're trying to compare last year.

This year, there's been a lot of changes with covidien and timing of recovery of customers and inventory movements, which has moved things around.

I think what Greg said is accurate in terms of the sizing of what the revenue it looks like and then look we're seeing a lot of demand right now for our power Mos that some of the buy side I think in the materials front, we've seen a little bit of movement as people manage inventory here in the short term as we recovered from a pandemic.

But I think as you look over the medium and longer term as Greg had said you able to see the device business grow faster, but there will be periods, where we'll see a.

Pretty substantial growth in materials as well so as we move out of these I'd say early stages of growth in the business. There is always going to be fits and starts in different areas.

But over time, the device business will be more.

And Albert materials business.

Our next question comes from Paul Coster with JP Morgan. Your line is now open yes.

Yes. Thanks for taking my question I guess I'm looking at what's happening in the space.

Space at the moment and this seems like a lot of innovation around commercial vehicles knowledge, but nonetheless mish markets rather than.

Passenger vehicle market. So it seems like that those sectors are going to go first.

The cost of ownership from silver makes those more compelling than the sticker price for passenger vehicle. The do you concur and does that mean the.

Yes. So in the next couple of years, that's the kind of those would lead indicators that we should be watching the sort of the truck and bus markets rather than the passenger vehicle markets as proxies for where you have demand is coming from on the slide though.

So Paul I'd say, both we announced the Yutong group a design win Yutong as a.

The largest.

Electric bus manufacturer in China, we announce that design win last.

Quarter, I believe but what I would say is I've seen reports that say, there's going to be a crossover point than the cost of.

Electric vehicles kind of mirroring or matching the cost of internal combustion engine by 2024.

I had a real nice set of visits with some European customers last week and.

One of the comments that a one of a mentioned to me was that they were going to the European Union is looking at.

Increasing the the reduction if you will of greenhouse gases from a 40% reduction to 60% reduction over the coming.

For years, and so forth and basically from an internal combustion engine.

What this customer said is we are witnessing the end of the ice age and so the internal combustion engine is going away and I you know based on the design activity I'm, saying based on the fact that we we just we just closed $700 million worth of.

Design wins last quarter, most of those being automotive it sure seems to be reflective of that so I think it's both Paul that seem to be.

Moving forward.

Okay got it and the other observation Greg is this a little bit of ocean still taking place right, whether its hard bid motors with roots using Greenville.

Great you fuels the generated since the fueling in electric power train or weather.

Well I mean, whether its new battery technology is it coming to market and all of them seem to be kind of converging on the market in the middle of the decade does it matter to you.

This change is happening because youre just.

Just go into every in any of these electric vehicles, regardless of the technology changes happening with powertrain some fuel sources.

I think you know in terms of.

Fuel cell versus say.

Battery electric vehicle I don't think Theres really much of a difference because you are converting that energy and turning it into electric energy for the for the for the Motors.

There is definitely a bigger opportunity for those than there would be in a in a hybrid as an example, and thats typically because the power.

Thats, a requiring is substantially less.

But what I would say and again this is based on and again I visited with just last week with several Oems and then several tier ones in the Europe and the feedback that I'm getting are what they are saying to me is.

Plug in hybrids are probably just a transition and the reason for that is they don't really solve the problem of emissions.

Especially in places like Europe, because there is not a lot of places to plug in and you know you have a lot of people just park on the street, there's not a lot of infrastructure, there, whereas with electric vehicles. They are starting to do.

These high.

Hi, Hi capacity electric Chargers.

You are seeing cars now coming out with 500 mile ranges.

And for into and again this is what one of their customers were telling me.

If you just put in once a week.

Now all of a sudden you've got a whole weeks' worth of going to and from work and so forth. So.

I think there is certainly theres sort of a sense that.

Really that the transition is going to be from internal combustion.

Two electric there might be some some stops along the way with our transition through through hybrid, but I think that.

I think mostly of most of our think it's going to be fully electric and then the final thing that I would say on that is.

The European regulators are starting to understand that.

There are.

There are incentives for people to buy.

Plug in hybrids and people are therefore, taking advantage of those hybrid of those incentives, but then they're not plugging in the car and so.

That actually is going the opposite way in terms of emissions because you have a substantially less efficient powertrain.

And if you're not plug it in it's kind of going were so there is some talk that that those incentives are you going to be taken off the table at some point.

Our next question comes from Craig Irwin with Roth Capital Partners. Your line is now open.

Hey, your line may be on mute.

Thank you.

I wanted to ask a little bit about the LTV business now that it's going behind US can you maybe share with us some of the mechanics of how that said some sense for us.

Were you previously costing overhead for this business based on revenue.

Full floor space or some other metric.

And.

As part of this you know small increase in losses were expecting up in the second fiscal quarter due to act.

Expectations that you take over the full cost of the real estate or some other overhead as that business transitions to really a virtual fab type business.

Hey, Craig Yes, so on that you don't want get into all the details on the costing but I think it's pretty well segregated between LNG ample speed as we previously.

Previously reported.

As you look forward some of that there is some dilution in the deal as you start to start to move forward with a little bit of stranded cost in there from an opex standpoint that would have been managed through and we'll manage it over the next 18 months, but by and large obviously the deal what it does for us is.

Is it gives us a lot more focus on the other really important pieces of wolfspeed will that be pipeline activity.

Continued execution on the capacity expansion and working through a lot of the investments that we've got so the schedule in terms of you talked about outsourcing a lot of that business as well from a capacity standpoint that schedule all remains the same and.

Smart smart, we'll take that over as the as we move forward and after we close the deal and so by and large it's pretty much on the same plan that we had before moving forward.

Okay excellent and then as far as efficiency if the overall fab one of the things Greg discussed at the last analyst day was the challenges with CF I believe you called it chase and de lay out of the.

The ground facility can you maybe talk about whether or not the.

The LNG business vacating.

Its footprint there creates an opportunity for improved layout or improved efficiency in the rest of the fab.

Thanks, Craig, Yes, Thats a ban chase.

The format of both our Fabs here in North Carolina, and RTP Fab is a substantially smaller fab and then the Durham fab and the Durham Fab is where the LSD operation is so it won't convert the fab to what's called a ball room style design that volume.

Style is what is going to be in New York, So it won't create a new sort of.

Form of space, if you will but it definitely is going to allow us to increase our capacity for wolfspeed as we transition the led business to an outsourced model and that of course was an ongoing activity that we had prior to the act prior to the digits.

The definitive agreement that we signed with smart global So thats, just kind of continuing on schedule. So no. It doesn't change the style of wafer fab.

To the more modern.

Ballroom style.

That's what we're building up in New York.

But again the transition of LCD to a outsource model increases our capacity in Durham for Wolfspeed.

Our next question comes from Colin Rusch with Oppenheimer. Your line is now open.

Thanks, So much guys can you talk a little bit about the competitive dynamics on the device side and what you're seeing in terms of evolution of the product.

As you said to get these design wins in the sense that you're gonna have to expand the breadth of the product a little bit as you get a little bit closer with customers, but wondering how the competitive dynamics are evolving and what the cadence is or are those evolutions, yes. So.

The competitive advantage the competitive dynamics are pretty straightforward customers.

So look at there is there are there are design and they they do an analysis of our technical capability as it relates to what they need in their design, they do that with competitors as well they look at things like supply.

Supply continuity and.

Your ability to to manufacture and so forth.

They look at things like.

Well of course pricing is a key part of that as well. So it's a it's a typical I would say mosaic that they look at we typically score pretty nicely on on most of these different items and especially when it comes to the supply dynamics. The end of the fact that we've got internal capability on silicon carbide gives us extra piece.

You know as well and I think in terms of the design win a design in activity.

Delivering $700 million this past quarter was actually pretty nice accomplishment for us.

And it really lines up pretty nicely with what we.

What.

Will translate into $1.5 billion business and in 2024, So we feel pretty good about that I think the cadence of a design. So basically our design decisions have been pretty pretty much along the lines of what we thought they were going to be and if you think about it over the line.

Last three quarters.

We went from $400 million to $600 million to $700 million worth of of design and Thats $1.7 billion of design ins on a.

But.

But over a $10 billion.

Device pipeline so.

It feels to me like the decisions are coming down pretty much in accordance with what we thought now there is a.

Theres going to be some puts and takes every quarter and so forth, but we feel pretty good about that.

I think my question was really more about the evolution of the product as that but I'll take it offline.

Just just separately.

Maybe just a housekeeping question on the payables gross.

What's going on there and is that it's you're going to be an unwind on that at some point here over the short term I should we think about kind of steady state on those those tales going forward.

Yes. So some of that is related to the fact that you have larger invoices as we exit capacity expansion fully bought valleys that brings the DPL up you can see it come back to the kind of normal normal levels I think in the 77 plus days as we had previously.

Outside of that expansion.

Our next question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is now open.

Yes. Thank you Greg just as we come up on a year of the analyst day and the target that you laid out the fiscal 24 cents.

Since that time are there any particular development should point to in terms of the traction that you're seeing in that kind of get on that path to the 1.5 billion a little bit at a time.

Yes, a couple of things. So thanks for the question a question Craig So as I as I mentioned that the fact that we've been able to deliver $1.7 billion worth of design wins in the last three quarters gives us both.

Bolster its obviously our confidence that we'll be able to get to that number out in 2024 and then the other thing I was just on a panel today discussion and and that we're talking about the impacts of co bid on our industry and what do we think is going to happen and so forth and I've had a lot of.

Really good conversations with our customers about this and basically the Oems and the tier ones that were that were talking to and the auto industry that basically all said the same thing and that is the impact of Cove. It is an acceleration of the adoption of electric vehicles and that for a couple of different reason.

One is that the consumers are seeing blue sky for the first time and a lot of different cities because of the shutdown and glow.

Global warming is a hard thing to see but but a blue sky is an easy thing to see and so consumers are saying.

I don't want to go back to a polluted Los Angeles or a polluted deli.

Deli or what have you.

We want we want to be able to have clean air and healthier and so forth. So you've got this consumer you know pull if you will and then on the flip side of it you've got big.

Big.

Countries and the European Union.

Our staring at we are going to spend money to do a recovery.

Why wouldn't we dedicate a bunch of that to a green recovery and Europe is clearly leading that with 30% of it really going towards climate type initiatives and so and that also is driving.

The auto industry towards electric vehicle so.

The one.

I mean, there's lots of silver linings uncoated, there's lots of bad things about cobot, but what I would say is it's really.

Yes.

Hitting the accelerator if you will for the adoption of E. These and I think that's the that's the thing we didnt anticipate that at the analyst day Craig.

Got it and then if I could follow up just maybe an extension of this when I think about your go to market. It just how significant are the partnerships I know youve announced things with Delphi and you've talked a lot about arrow narrow.

Narrow then to remain exclusive overtime or how should we think about how much of an impact. These partnerships are having as you kind of reach towards that target model.

Yes, so they are always our exclusive global distributor for for the Wolfspeed products. We do have some local distributors, but clearly exclusive global in that I don't see that changing anytime.

Anytime I think be the results that we've just gotten together on the 650 volt platform is astounding and when you think about it we launched that program in April which is probably.

The the worst part of the pandemic, China, we're still sort of down.

Europe and US were on our knees February it was just we were really in pretty bad lockdown and despite that.

The team was able to deliver.

And hit our goal of $750 million worth of pipeline identification and they did that one quarter early earlier than than the goal. So they're doing a fantastic job. We've got a very strong partnership with them and and I anticipate that will that will last for very long period of time and then in terms of cut.

Customers like Delphi, and we've announced a is that up we've had an announcement with Dan fuss with Utah along with the.

Volkswagen.

Fast program Abby. These are all these are all good relationships and we're working together with them to bring products to market.

I met with many of those.

Customers just last week so I.

Fees, the automotive industry, especially and industrial.

Customers as well when they when they bring you on as a supplier. They are bringing you on for a very long period of time, it's three or four years ago from they bring you onto when you begin to ramp and I know it goes products stay in production for.

Five or six years and then there was an end of life process for their end to end product, where you got to support aftermarket and so forth. So you know there. This is a marriage that that last 10 15 years and so these are good long term customers to have.

Our next question comes from the line of Gary Mobley with Wells Fargo Securities. Your line is now open.

Hi, everyone. Thanks for taking my question.

I wanted to ask you about the way to think about well I guess first off I. Appreciate you give us a base baseline as to how the Wolfspeed business should operate in the December quarter.

And so also that baseline.

$77 million to $79 million and a non-GAAP opex.

How do you see that being affected by the Leidy sale I think you mentioned, one stat businesses separate $10 million to $15 million per quarter.

Quarterly Opex savings, so so thats, presumably a benefit to that run rate you gave for the December quarter, but.

At the same time, because you ramping up opex for other reasons in preparation for capacity expansion or whatnot. So how should we think about the different moving pieces within opex offer that December quarter baseline.

Thanks, and I think that's a really good question. So as we move forward I think opex is going to accrete modestly as we start to you start to move forward through the elements related to the divestiture kind of indicate but that's really not the primary driver of the elevated Opex you are kind of the short term.

As Greg mentioned earlier, we have substantial projects that we're investing in it because what you're alluding to R&D investments.

Really to a number of things, including ensuring we already do.

Ramp the Mohawk Valley Fab and kind of move through that process as well. In addition to an increase in our sales and marketing spend as we continue to grow again about opportunities and execute on the pipeline there.

There is an element of look we'd have a you have a divesture to go through it was going to be some.

A lot of work to do on that within our DNA functions, but I really think that the large portion of the elevated all black is really related to the R&D and sales and marketing spend and by the way. This is the same plan. We have laid out before I think we're just getting visibility now too is the just the wolfspeed cut at this as we move forward.

Okay related to that.

You know it looks like Youve got about 300 basis points of.

Allocated expenses in your cost of goods sold line.

Most ltd divestiture or do you see opportunity to bring that down.

Is it for me thanks.

Well I think I think what that is a lot of that that's related to is kind of like you know what they have.

The benefits or management incentives you know a lot of these types of things I don't think the cost necessarily goes away, but I do think as it scales over time and when we when we talk about the LNG divestiture last week, you kind of said there's about two to three points that kind of sits in that corporate corporate bucket from a gross margin standpoint, I think what we'll do is evaluate how we manage this post closing.

And how we talk about the company and think about the company, but here as we look forward to in the shorter term you can kind of consider that dosing at those same levels.

Our next question comes from Joseph Osha with JMP Securities. Your line is now open.

Oh, Hello, everyone just following up a little bit on the previous question, if we think about.

What the pure Wolfspeed target operating model looks like given all of this this conversation about operating cost absorption and so forth, what what would that be and in order to get to that targeted the target operating model or do we need to be at that sort of one and a half billion dollar run rate that we talked about and then I have a follow up.

Well first of all Joe as we talked about earlier, the one and a half billion is predicated on you know, 5% Walter you'd be adoption rate as we've talked about earlier everything we're seeing you know kind of supports that we'll see where the timing is as it looks like that as it relates to fall through it really depends on how we how we management how we manage this and how we see the inflow.

Uh huh.

Point is to get us to that kind of 20 to 23 timeframe. Obviously, we can modulate as we go forward I'll tell you I think our anticipation right. Now is that you know we're kind of a pull goal here the opportunity out beyond that period is you know is pretty.

Pretty large and we think we got to get positioned to capture it. So I still think we'll see some accretion in terms of the opex as we kind of move forward and then what kind of grow into it.

But but is there in the past you've kind of put some specific markers out there in terms of what a gross margin operating margin business might look like are you willing to sort of talk about what what that might look quite procure wolfspeed.

Yes, So I think if you go back and look at the announcement last week. What we said is we'll see to be you have to 2024 timeframe between 50 and 54.4% gross margin. We just talked about a little bit of corporate costs. So that's roughly about a 50% company level and then about a 25% opex level and to get up to 24.

Okay.

And then I don't know if you can answer this or not though I heard you referred to the fast relationship with Volkswagen or are you able to say at this point, whether you're or youre in the MLP platform there.

Actually just just a quick third one.

When Wolfspeed is in an independent business given how I see do segment reporting works might we expect to see the business carved up into more than one reporting segment and that's it from me. Thank you.

Yes in terms of the fast program that is a.

It's a program that is targeted at.

A small subset of Volkswagen suppliers, there they have something on the order of 50000 suppliers and they have something on the order of 65 suppliers that are designated as fast and fast stand for future automotive supply track and basically they use the English accurate.

NIM fast.

As as as you would think its intention which is they are trying to figure out a way to get the suppliers into there.

Into their design quickly they give Volkswagen gives us it.

It gives fast suppliers access to different levels of engineering that you normally wouldn't get access to they get access to.

Different projections for.

Are there new vehicles and so forth. It is not an award of any specific program.

And then Joe because from a segment reporting standpoint look where we just signed the definitive definitive agreement to sell the only business you know very recently and we're working through managing how we're going to look as we as we move forward, but we'll give more updates on that as we get into the new year.

Our next question comes from David O'connor with Exane BNP Paribas. Your line is now open.

Great. Thanks for taking my question I have a question on the pipeline.

Greg.

Let's say about a year ago I know you said, 50% of $9 billion pipe enough times would be the site within 12 months. So one year on from that mill is half the pipeline already decided and I have a follow up.

I would say the decisions are moving pretty nicely. They are moving pretty closely to that that track and I think if I. If I recall correctly, I said 12 to 18 months.

Certainly we've had now $400 million worth of design and three quarters ago.

600 million.

Two quarters ago, and then 700 million Wolfspeed alone.

One quarter ago, or this past quarter and those are design ins that we want you know theres, obviously, some things that we didn't win as well so I would say.

David that it's actually tracking that pretty nicely.

And.

That's actually kind of amazing when you think about it because we made that prediction pre cobot and customer is basically went into lockdown mode and then very quickly got back into.

Getting there their designs continuing to move in a different kind of way. So I think it is kind of tracking pretty much what we thought.

Okay, Great. That's quite helpful. And then maybe one on the materials side.

Total materials better order flow in the quarter and if I think back to last quarter. You mentioned that there was some deferred shipments. So my question is have they will be pulled back in though again.

Yes, I think yes. Thanks, that's a good question. So the way that to think about that is there has been some inventory management by some of the customers Tom talked about that last time and I can say is I think in the guidance that were giving this quarter that largely resolved itself and then you start to look forward you should start seeing some modest improvement, particularly as you think about some of the LTAC launch another you haven't customers and the dynamics.

How that kind of kicks in going forward.

Our next question comes from Ambrish Srivastava with BMO. Your line is now open.

Hi, Thank you very much I had a question on the.

On the sequential growth Greg.

If you look at the device onto the.

Based companies that sell into the auto industry, we're seeing very large Q over Q increases.

40, 50% and some of those businesses.

An example is back to where it was a year ago. So I was just curious is that because of the composition of the live feed business. The houses materials and obviously that has a much longer lead time before that turns into devices.

The primary reason and also it's fair to assume that the device side is.

He has a pretty meaningful contribution from the RF site, so that would explain that am I.

Right and.

And assuming those two factors in why the Q of a grille Q over Q growth until you're not seeing the rebound.

That the and I'll use that word legacy auto companies are seeing and then the second question is on the.

Our this business you talked about some kind of stabilization that you see.

So love is out of the numbers, where exactly are you seeing these these new wins that you have with the non.

While the customers that are beginning to Iran, and if you could talk to that that'd be helpful. Thank you.

Okay. So first on the first question.

Just kind of baseline things automotive.

Is something less than 10% of the revenue of Wolfspeed and so thats, even a year ago as well so automotive was down but it.

We're not a substantial automotive.

It's not a substantial part of our revenue like it would be at a place like T.I.R.

To NXP or what have you or where they have a substantial footprint in automotive. So thats number one number two is our activity in automotive is all.

A lot of it is in design ins that we won.

We announced a couple of design wins last year that are going into production. In 2022, 23, 24, So I think thats the near term up and down in automotive doesn't have a dramatic swing either way for us in terms of RF. There's a there's a handful of non highway customers.

Her out there we're engaged with all of them and we're.

We're winning you know we've got some wins in there as well I can't give.

More color than that but we're engaged with all that now and non while way.

RF manufacturers.

Thank you.

Our next question comes from the line of Edward Snyder with charter equity. Your line is now open thanks for follow up and sorry to kick it to death, but we talk a lot about design ins and wins, Greg can you give us some clarification on that I mean is that as from P.O. or is that more like a frame agreement that tries to scale the.

Opportunity for you depending on unit sales because if.

In the out periods, and whether or not you know.

Count on this or do you have to wait to see how the automotive sales play out and then I had a follow up on or off.

Yeah. So the way. It works is we have an opportunity pipeline, where we're we're bidding on stuff working with customers et cetera, and when it moves to design in that's when the customer has made a decision and they've chosen us and that that can come in different kinds of forms typically its a I'd say a war.

Third letter, where they say congratulations you've been awarded this here is the projected volume here is the pricing that we've agreed to and things like that so they made a decision that they are going with us.

When it goes into production, we classify that as a design win that you go from design into design win and typically in an automotive and that production is first I think its thousand dollars of revenue that we get out of that and so you know that that's typically a lot closer to when they start ramping into production. So.

There is some amount of leakage to happen from opportunity to design in and design into design win, but we're very very comfortable with the with the numbers that we have.

Put in.

The points that we've kind of put on the board. If you will with the 400 million going to 600 million going to $700 million in design ins that we have.

So it's a commitment from a customer it's an agreement that they're they're going to go with us and.

And then from there it's all about.

How is there how is their end product.

You'd in the marketplace and how do they ramp right.

Right. It's all it's all excellent news.

Really rolling it up here too, but this is a long way from actually topline growth decreed primarily because you've got it you got to get the design in and the other shipping and to be Frank E. V industry has got to solve the problem of people not wanting to buy the especially be these because a lot of best laid plans have shown up it actually unit volumes because of the the profile of performing.

Versus cost for most most folks courses several years and incentive programs change over time. So I just want to get we have Chris but understanding and then on RF I mean outside of law ways. He is probably the only other big one shipping into China at this point I expect you're shipping to them.

Are you seeing increased competition I assume would tell me it was a big funnel for wall way. So when nobody got cut off they kept shipping there I'm always know running into problems with other component they can't get the duties Sumitomo sorry, the increase of competition in other areas as you not seen before in the commercial and then just as a marker here is it fair to say that.

In terms of RF your product defense and aerospace is still markedly significantly larger than your commercial is that a fair statement. Thanks, I don't have the exact numbers in front of me, but we have a very nice defense and aerospace business. There. So its going to be a pretty good portion of that RF business and we see that it's a really nice growth on for.

Unity I don't want to comment on and Sumitomo as a competitor they are a good company, they're a good competitor and I don't want to predict.

Talk about them.

What I would say is we are engaged with the with the with the T. and the other non far away customers around the world and we're we're beginning to see some some pretty good traction and then Ed just to just to kind of flip back to your first part of that comment. The one thing that I would say is recall that we have a baseline of 5% adoption.

He these in our model.

It's not a heroic assumption and so you know I think.

Most most pundits out there feel like Thats, a pretty short putt, so I hear what you're saying on the adoption rate, but we're we're not baking into the plan some heroic assumptions.

And that concludes today's question and answer session I'd like to turn the call back to Green glow for closing remarks well.

Well thanks, everybody for your interest in Korea, and we look forward to talking to you at.

And our results call next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to the <unk> first quarter fiscal year 2021, <unk> earnings Conference call.

At this time all participant lines are in listen only mode. So if you require operator assistance. Please press Star then zero.

After the speaker's presentation, there will be a question and answer session.

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I'd now like to hand, the conference over to your host today Mr. Tyler Brown <unk> as President of Investor Relations. Please go ahead Sir.

Thank you and good afternoon, everyone. Welcome decreased first quarter fiscal 2021 conference call today Creed, CEO, Greg low increase CFO, Neil Reynolds well report on the results for the first quarter fiscal year 2021.

Please note that we will be presenting non-GAAP financial results during today's call, which is consistent with how management measures crees results internally.

Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies non-GAAP information should be considered a supplement to and not a substitute for financial statements prepared in accordance with GAAP.

A reconciliation to the most directly comparable GAAP measures in our press release and posted on the Investor Relations section of our website along with a historical summary of other key metrics.

Today's discussion includes forward looking statements about our business outlook and we may make other forward looking statements during the call such forward looking statements are subject to numerous risks and uncertainties our press.

Press release today, and the FCC filings noted in the release mention important factors that could cause actual results to differ materially including risks related to the spread and impact of the COVID-19 pandemic.

During the Q and a session. We would ask that you limit yourself to one question and one follow up so that we can accommodate as many questions as possible. During today's call. If you have additional questions. Please feel free to contact us after the call and now I'd like to turn the call over to Greg.

Thank you Tyler good afternoon, everyone and thank you for joining us today.

I Hope you and your families are saying safe and healthy during these uncertain times.

The cold at 19 situation continues to evolve at all.

I'm extremely proud of our team's effort to deliver for our customers.

Despite the short term headwinds of the pandemic, we're pleased to see a sequential improvement in our business compared to the fourth quarter and we remain focused on our long term strategic goals.

Turning to our first quarter performance, our revenue and non-GAAP EPS were both at the high end of our guidance.

While we have continued with our stringent protocols to ensure the safety of our team and keep our facilities operational our results demonstrate how silicon carbide is building momentum across key end markets.

We believe we remain well positioned to execute on our growing well speed pipeline.

Importantly, we accomplished a critical milestone in our transformational journey with the recent announcement of a definitive agreement to sell Cree Ali to eat Smart Global holdings for total consideration of up to approximately $300 million.

This includes $50 million in cash.

$125 million seller note maturing in August 2023, and up to another $125 million and earn out depending on the performance of the Ltd business and the four quarters post close.

This divestiture establishes creep as a pure play global semiconductor powerhouse with a strong financial profile and positions us well to continue to lead the industry transition from silicon to silicon carbide.

This transaction sharpens, our focus exclusively on our innovative wolfspeed business and will allow us to deliver long term value for our shareholders.

We're very excited about the future of Cree and the tremendous opportunity we have ahead of us.

The conversations we're having with our customers reaffirmed the need for our technology and underscore our commitment to our strategy.

Our capacity expansion plans remain on track and will help us in our overall effort to drive the industry transition from silicon to Silicon carbide Gan.

I'll now turn it over to Neil who will provide an overview of our financial results and an outlook for the second quarter of fiscal 2021 meal.

Thank you, Greg and good afternoon, everyone.

Overall, we delivered solid performance in the first quarter, despite ongoing macroeconomic headwinds.

Revenues for the first quarter of fiscal 2021.

217 million at the high end of our guidance.

Representing a sequential increase of 5% and a decrease of 11% year over year.

Well speed revenue improved approximately 7% sequentially and declined 10% year over year.

Global demand remains soft largely related to the pandemic Ltd.

Led revenue increased approximately 4% sequentially and equal decreased 12% year over year.

Our non-GAAP net loss was 21.3 million or 19 cents per diluted share our first quarter non-GAAP earnings exclude 163.1 billion other expense net of tax or $1.49 cents per diluted share were non cash stock based compensation acquired intangibles amortization accretion.

On our convertible notes Hardrick transformation increase Ltd divestiture transaction related call.

Three optimization restructuring call changes in the value of our Lextar investment and other items outlined in today's earnings release.

As well as a 106 million dollar impairment charge associated with the divestiture of our led business.

Moving on to our first quarter performance by segment most.

Well, Steve quarterly revenue totaled 160 million.

This was largely driven by continued demand for our power business and some better performance materials and RF businesses.

However, we are pleased by the momentum we are seeing for all products as well as improving supply dynamics you experienced in the quarter, which are still below normal levels.

Technology continues to gain traction, particularly in the automotive industry, we're seeing a number of positive developments in the space I continue to have productive dialog with current and prospective customers.

Further our partnership with Arrow electronics, and continuing to drive broad awareness of the benefits of silicon carbide across numerous industrial and other applications.

We are particularly pleased with the demand traction dosing well coordinated efforts around the release of our new 600 people Silicon carbide MOSFET platform.

Turning to RF, we continue to execute build our backlog. We're pleased by the early signs of strengthening demand the person I remain confident in the fight you transition despite delays in certain regions.

Moving to materials, we saw some better order flow in the quarter and again and would expect this trend to continue modestly throughout the remainder of fiscal 2021.

Well speak gross margin was 36.6% compared to 35.3% last quarter.

The sequential increase was driven by yield and cost improvements at our power and RF businesses.

Partially offset by lower utilization on materials business as we continue to build significant efficiency and output improvements like market demand requirements gross.

Gross margin performance also continues to be dampened our continued cold 19 safety measures.

Health and safety remains our top priority in all aspects of our business and we anticipate the safety measures. We're taking to protect our employees will continue to impact factory outputs in the near term.

Her term expect our capacity expansion plan will help drive scale and margin expansion.

Already product revenue was 101 million and they'll be gross margin was 22.2%.

He executed well despite ongoing challenges in the market.

On allocated non-GAAP cost totaled 6.1 million for the first quarter fiscal 2021 and are included in our overall cost to reconcile the $59 million non-GAAP gross profit and 27.1% gross margin for the company.

Non-GAAP operating expenses for Q1 were 87 billion and our non-GAAP tax rate was 30% yeah.

We remain focused on prudent expense control as you look to balance our operating expenses, but the best investments to fuel future growth.

Our balance sheet remains strong in the face of an uncertain environment with more than 1 billion of liquidity to support our targeted R&D sales and marketing spend as well as our capacity expansion plans.

Zero withdrawn on our line of credit convertible debt with a total face value of 1 billion.

The first quarter Gate sales outstanding was 33 days and inventory days on hand was 104 days cash generated from operations was 400000 and capital expenditures were 115.9 million, resulting in negative free cash flow of 115.5 million.

Turning to our cap ex outlook for the remainder of the fiscal year, we remain committed to investing in our growth. We continue to expect net capex of approximately 400 million to support our capacity expansion plans.

As we've previously stated we expect fiscal 2021 your peak investment year to ensure we can rent production and meat supply at E. deployments commence beginning in calendar 2023.

Our Mohawk Valley side of the Cherokee facility Enduro allow us to scale, our business improve productivity and deliver on our customer commitments.

It is important to note that our capex and cash flow during fiscal 2021 are subject to variability depending on our Mohawk Valley construction progress as well as the reimbursement timing from the state of New York.

Now turning to our outlook for the second quarter fiscal 2021. Please.

Please note given our pending sale of Cree LCD to Smart Global holding Ltd is now classified as discontinued operations and therefore, our second quarter guidance reflects our continuing operations and Wolfspeed only.

For the second quarter of fiscal 2021, we are targeting revenue from continuing operations to be in the range of 118 million to 124 million.

We expect the momentum you're currently experiencing our power business to continue and be supported by our capacity expansion initiatives combined RFM materials perspective, we do expect some modest improvements while maintaining the pull the Nike safety protocols, we have in place.

Q2, non-GAAP gross margin from continuing operations is expected to be between 34% to 36%, which includes the impact of $4 million or corporate items.

Well, Steve gross margin is expected to be between 37% to 39% driven by continued improvement in yields factory efficiency and increased utilization in our materials business.

You are targeting non-GAAP operating expenses from continuing operations between 77 million and 79 million for the second quarter.

Gradual ramp at our operating expenses is fueled by our investment in R&D, including development projects at our Mohawk valves that as well as increased sales and marketing expenses as we pursue new opportunities.

We target non operating net loss from continuing operations, the approximately 1 million.

We expect our non-GAAP effective tax rate to be approximately 23%.

The non-GAAP effective tax rate decreased due to the jurisdictional mix of our forecasted earnings on a continuing operations basis.

We're targeting Q2, non-GAAP net loss from continuing operations to be between 25 to 30 million or a loss between 23 cents to 27 cents per diluted share.

Our non-GAAP EPS target excludes acquired intangibles amortization non cash stock based compensation accretion on our convertible notes project transformation and Ltd transaction related costs factory optimization restructuring costs and other items.

Q2 targets are based on several factors that could vary greatly putting the situation with cold at night team overall demand product mix factory productivity and the competitive environment with that I will now turn the discussion back to Greg.

Thanks, Neil we've made incredible progress on our transformational journey over the past few years.

Our deep domain expertise and silicon carbide.

Driven significant growth in our Wolfspeed business further solidifying our leadership position.

We secured key device design ins across high growth innovative industries and have secured several long term wafers supply agreements with customers, which further fortify our business.

Once we close the LCD divestiture Cree will be a pure play global semiconductor company with high growth and high margin potential and capable of significant cash generation as we execute to our long term plans.

To support this effort, we will continue to invest in innovation and R&D initiatives as well as sales and marketing activities.

Our sales team continues to convert pipeline opportunities at an impressive rate.

And in Q1, we secured approximately $700 million worth of design wins for Wolfspeed exceeding our company wide performance of 600 million from the fourth quarter of fiscal 2020.

Over the last three quarters more than half of the design and our automotive customers and the rest are spread across communications infrastructure aerospace and defense energy and industrial applications.

As Neil mentioned earlier, our partnership with Arrow for our 650, both platform continues to generate positive results.

We've already exceeded our target of $750 million of increased pipeline identification as customers are looking to leverage the benefits of this technology across a wide range of end products ranging from plasma generators to electric motorcycles and electro surgical instruments.

The Arrow team is also helping us extend our sales reach into new markets.

For example, they've identified opportunities in 43 countries for the 650 volt platform and.

And then more happy and more than half of those countries. We did not have a dedicated salesperson.

We look forward to continuing to execute on our growing pipeline, which is now well over $10 billion for our Wolfspeed business alone anchored by opportunities in the automotive communications industrial and energy industries.

In support of this effort, we continue to expand our product portfolio with the launch of 13, new products in the first quarter alone.

We are pleased by the recent developments that underscore the long term opportunities ahead importantly, we're seeing a tremendous traction in automotive, which represents approximately half of our device pipeline.

We are encouraged by the continued regulatory momentum for electric vehicles.

More than 20 countries have plans to begin phasing out sales of new gasoline powered vehicles over the next two decades.

Additionally, this month the EU Parliament voted to increase their goal of cutting emissions from a 40% reduction to now a 60% reduction in emissions by 2030.

We expect this to be a positive khattar catalyst for clean transportation and electric vehicle demand in Europe.

Rideshare companies Lyft, and Uber are committed to having a 100% electric vehicle fleet by 2030 and 2040, respectively.

Turning to Fiveg, while regulatory delays and headwinds related to the pandemic impacted some rollouts in Europe and the U.S. momentum is building up costs across the globe for this next generation technology, which delivers greater performance for bandwidth intensive applications.

Now we are still in the early phases of what we expect to be a multi year growth opportunity for Gan as fiveg momentum picks up.

Outside of auto and Fiveg, we're seeing growing applications for silicon carbide.

As we continue to scale, our business and drive the cost of Silicon carbide down.

Potential customer base is growing to include different industries and markets that are interested in utilizing the advantages of our technology.

Our plans to expand silicon carbide capacity are progressing on schedule.

Our balance sheet is solid and we remain well positioned to both fund our operations as well as make the necessary investments to grow our business.

In summary, we are executing well in an uncertain environment with our pending leidy sale, we reached a critical milestone in our transformational journey.

Our device opportunity pipeline continues to grow and we are performing well and converting opportunity to design and.

We are excited for the opportunities ahead for our technology and look forward to helping our customers deliver their next generation solutions and with that I will turn the call back over to the operator, and we'll begin our Q and a session.

Ladies and gentlemen, if youd like to ask a question at this time. Please press. The Star then the number one key on your touched on telephone.

Again that is star then one if you'd like to ask a question at this time.

Our first question comes from the line of Jed Dorsheimer with Canaccord Genuity. Your line is now open.

Hi, Thanks.

First question, Greg and you made.

Mentioned that.

I came on a little bit late but.

In terms of backlog I was wondering if you could provide or sorry, not backlog, but the.

Sort of the RF skews that you're working on and the backlog that you are building.

The breakdown between the verses say for example, five.

Gee inquiries.

As well as just other power electronics.

I'm not looking for the exact amounts, but could you talk about Rob.

Ranges and then how it how is that shifted at all this quarter and then I do have a follow up yeah.

Yeah. So thanks, a lot Chad so really it's a pipeline we're talking about here the opportunity pipeline for our device business and.

And.

You know, we we grew obviously the pipeline as well as how well over $10 billion in terms of the split out of that.

A majority of that is automotive and therefore electric vehicle related so that's going to be north of 50% tax.

Actually north of 60% right now and in terms of decisions that were made in this past quarter. The majority of those that $700 million of design in the vast majority of those were also automotive related.

Design ends.

In terms of the pipeline.

The rest of the pipeline is a is a mix of industrial type applications and a pretty significant growth of those industrial type applications with the activities that we're doing together with arrow on the 650 volt platform.

We have some aerospace and defense activities and we have some communications infrastructure.

Opportunities as well so it's kind of a mix of those for the rest of it but the pipeline the device pipeline really is pretty solidly automotive related and.

Electric vehicle related.

Got it just as my follow up question, just pivoting to manufacturing and the increase of R&D should we read into that in terms of.

That bomb Bob.

Ill.

It is.

Eight inch related or 200 millimeter related or.

Are there any other milestones that you might be able to art.

Articulate so that we can best track that development. Thanks.

Yes, Thanks, guys I mean, we're obviously continuing to work on a future generation technologies like the 200 millimeter.

Activity for some of that is going to be related to that for sure but.

But it's also related to.

New product introductions that we've got planned out and.

A new new technologies that will be introducing so I would say, it's a combination of both.

Our next question comes from Edward Snyder with charter equity. Your line is now open thanks a lot.

Greg maybe we could touch on bottlenecks your ft.

For this or production was a bottleneck for a couple of quarters. There's that freed up is there any bottlenecks at all.

As the starting point and then mid $70 million pipeline.

How far does that stretch we talking about three years two years, what's the what is the likely.

Load revenue I'll look for guidance, but how far out is as the pipeline stretch and same kind of question for last quarter 600 million and then I have a follow up thanks.

Okay. So let me let me maybe hit the second question first and maybe I'll talk a little bit about the.

The first question, but Neil can probably hit that better than me.

On the.

On the 700 million dollar.

Design ins that we got this past quarter most of that as I mentioned, well over 50% of that and more north of 60% of that is automotive related most automotive designs are sort of three to four years out when you go when you get a design then it goes into production Neil.

Talk that they our last Investor day about it and we are starting to ramp some of the some of these.

Products in 2022, we see if.

Really a steeper ramp in 24 25, an acceleration of that ramp if you will so.

The automotive ones are typically three to four years out depends a little bit on whether it's more of a new comer in automotive.

The company is like.

Like Tesla for example, or some of the ones that are more historically automotive related theres different kind of processes that they follow but I think three or four years. This is a pretty good bogey for that and just to remind everybody the $700 million of design wins that we just printed for this quarter.

Is obviously, a $100 million and more than we did last quarter, but last quarter was companywide. So it's a nice a nice step for Wolfspeed to now have a design in at $700 million just for Wolfspeed and terms of FBR.

Let me cover that one.

Yes on the IP side customer still continue to look for you know relatively heavy mix.

Part of the capacity expansion capex of investing in a part of that has to bring up additional epic capacity. So I think we're kind of turning the corner there and we're making good progress as it relates to closing the gap on that.

The capacity versus versus net.

As my follow up if I could so the preponderance of all your revenue that will be Wolfspeed continue operations, but.

The preponderance of that is not the vast majority is in the industrial and solar is that fair statement.

Given that your RF did when you were kind of heavy into some of the fiveg stuff going away, but thats been shut down the Cts probably picked up and then overall, maybe you could make some comments on fiveg because it's been strong we've seen it through a bunch of other companies, but it's primarily been China's rollout of Fiveg is that industrial policy, which has been the big driver, but even that is starting to seem to slow a bit as they move from.

Urban mimo sites to more suburban and rural macro sites are you seeing that reflected in order patterns now.

Yeah, I think you're right in terms of the overall fiveg rollout, it's been primarily China related and it obviously.

There were unable to engage with probably at this time so.

We don't have that in any of the plant and so forth, we're seeing a pickup in some of the.

Some of the RF business, we are seeing a pickup in that but I think you are right that the it's really been kind of a China dominated type story.

Our next question comes from Brian Lee with Goldman Sachs. Your line is now open.

Hey, guys. Thanks for taking the questions maybe first one just following up on the earlier question here on the automotive wins and timing cadence.

Greg It sounds like the ramp is steep bearing 2024 and 2025, if I heard you correctly, although it does beginning in 2002. So should we also take that to mean device revenues specifically.

Yes, being supplied out of Mohawk Valley does it really becomes meaningful for you guys until fiscal 2025, I'm just trying to triangulate the capacity ramp in Mohawk value impact.

Overlaid against some of your comments around the.

The automotive wins, you're seeing today and when those really ramp into production and volume for you guys.

Thanks Ryan.

So Brian Thanks for the question, Yes, we are ramping Mohawk Valley beginning in 2022.

It won't be a substantial part of the.

The volume in 2022.

But we believe by 2024 thief automotive customers are coming on line it will be actually a pretty substantial part of the of the equation in 2024, So we'll see that and just before you get your follow up Brian Ed did ask about the fragmentation I Didnt hit that part of the question as well and so Ed.

The fragment the.

The Wolfspeed business is actually quite fragmented.

Today, and so it's a lot of industrial type customers a lot of.

Space and defense type customers as well so as a as we sit today, it's very very fragmented as we move towards the future. It will be more of an automotive type play so sorry about that I didnt hit that last time, So Brian you had a follow up.

Yes.

That's a pretty good segue for the follow up I had I was I was trying to.

Maybe better understand the diversification slash fragmentation in the Wolfspeed mix you guys have talked about.

Being flat for fiscal 21 based on some of the disclosures you updated around the unit sale a couple of weeks ago. So yes, as we think about will speed mix a lot has clearly changed over the past 12 months at the trends in China, Alawite et cetera. So is there any way you can level set us a bit as to what was the mix of wolfspeed.

Revenue in fiscal 2020, and then what should we sort of be expecting in fiscal 2001, and I'm kind of thinking about the broader buckets you guys talk about material Silicon carbide power devices, and then I'll ask just it would seem like things have changed a bit and so how should we be thinking about a flat revenue base rough.

The what that mix has shifted to now.

I'll I'll take a crack at it and if Neil you want to add a little bit of color. So in terms of the split of the business between our device business and our materials business you can kind of think of those as roughly 50 50.

And that wasn't the case four years ago.

We were.

The materials business has grown faster than the device business over the last four years to have now kind of a 50 50 mix as we look to the future and point I'll point, specifically to 2024.

Between now and 2024, we anticipate our device business will grow substantially faster than the materials business as we start knocking down some of these.

Opportunities and converting opportunities into design and so you will see a a steeper ramp of the revenue.

So that the device businesses will be greater than 50%.

Nice way greater than 50% of the revenue by 2024, Neil I don't know if you want to add any additional color to that.

Well I think Thats right I think one thing Brian to think about it you're a shorter term when you're trying to compare last year.

This year, there's been a lot of changes with Colgate and timing of recovery of customers and inventory movement, you just move things around.

I think what Greg said is accurate in terms of the sizing of what the revenue it looks like and then look we're seeing a lot of demand right now for our power Mos that some of the buy side I think on the materials front, we've seen a little bit of movement as people manage inventory in the short term as you've recovered from a pandemic.

But I guess as you look over the medium and longer term as Greg had said, you'll just see the device business grow faster, but well be periods, where we'll see pretty.

Pretty substantial growth in materials as well so as we move out of these I'd say early stages of growth in the business as I was going to be fits and starts in different areas.

But over time when the device.

Device business will pan.

Outlook materials business.

Our next question comes from Paul Coster with Jpmorgan. Your line is now open.

Yes. Thanks for taking my question I guess I'm looking at what's happening in the space.

Space at the moment and this seems like a lot of innovation around commercial vehicles, and large, but nonetheless mish markets rather than.

Passenger vehicle market. So it feels like that those those sectors are going to go first.

Cost of ownership come sort of makes those more compelling than the sticker price for passenger vehicle. The do you concur.

I mean the.

Yes, so over the next couple of years, that's the kind of those will lead indicators that we should be watching but the sort of the truck and bus markets rather than the passenger vehicle markets as proxies for where you have demand is coming from on the slide.

So Paul I'd say, both we announced the Yutong group design win Yutong as a.

The largest.

Electric bus manufacturer in China, we announce that design win last.

Quarter, I believe but what I would say is I've seen reports that say, there's going to be a crossover point on the cost of.

Electric vehicles kind of mirroring or matching the cost of internal combustion engines by 2024.

I had a real nice set of visits with.

Some European customers last week and.

One of the comments that one of a mentioned to me was that they are getting to the European Union is looking at.

Increasing the they reduction if you will of greenhouse gases from a 40% reduction to 60% reduction over the coming.

Years, and so forth and basically from an internal combustion engine.

What this customer said is we are witnessing the end of the ice age and so the internal combustion engine is going away and I you know.

Based on the design activity I'm, saying based on the fact that we you know we just we just closed $700 million worth of design wins last quarter most of those being automotive it sure seems to be reflective of that so I think it's both Paul that seem to be moved.

Moving forward.

Okay got it and the other observation Greg is that there's a little bit innovations to exciting place right, whether it's hybrid motors with roots using green or so.

Great fuels generated since the fueling in electric power train or weather.

Well I mean, whether its new battery technologies coming to market and all of them seem to be kind of converging on the market in the middle of the decade does it matter to you.

This change is happening because youre.

Just go into any of these electric vehicles, regardless of the technology changes happening with pilot training some fuel sources.

I think in terms of.

Fuel cell versus say about.

Battery electric vehicle I don't think Theres really much of a difference because you are converting that energy and turning it into electric energy for the for the for the Motors.

There is definitely a bigger opportunity for those then there would be in a hybrid as an example, and thats typically because the power.

Thats, a requiring is substantially less.

But what I would say and again this is based on and again I visited with just last week with several Oems and then several tier ones in Europe.

On the feedback that I'm getting are what they are saying to me is.

Plug in hybrids are probably just a transition and the reason for that is they don't really solve the problem of emissions.

Especially in places like Europe, because there is not a lot of places to plug in and you have a lot of people are kind of straight there's not a lot of infrastructure there, whereas with electric vehicles. They are starting to do.

These high.

Hi, Hi capacity electric Chargers.

You are seeing cars now coming out with 500 mile ranges.

For it.

And again this is what whether customers were telling me.

If you've just plugged in once a week.

Now all of a sudden you've got a whole weeks' worth of going to and from work and so forth. So.

I think there is if there is sort of a sense that.

Really the transition is going to be from internal combustion.

Two electric there might be some some stops along the way with our.

Our transition through two hybrid, but I think.

I think mostly of most of our think it's going to be fully electric and then the final thing that I would say on that is.

The European regulators are starting to understand that.

Are there.

There are incentives for people to buy.

Plug in hybrids and people are therefore, taking advantage of those hybrid of those incentives, but then they're not plugging in the car and so.

That actually is going the opposite way in terms of emissions because you have a.

Financially less efficient powertrain.

And if you're not plug in it and it's kind of going where so there's some talk that that those incentives are going to be taken off the table at some point.

Our next question comes from Craig Irwin with Roth Capital Partners. Your line is now open.

Craig Your line may be on mute.

Thank you.

I wanted to ask a little bit about the LNG business now that it's going behind US can you maybe share with us some of the mechanics of how this sunsets for us where you previously costing overhead for this business based on revenue.

Full floor space or some other metric.

And.

As part of this small increase in losses were expecting in the second fiscal quarter due to.

But patients that you take over the full cost of the real estate or some other overhead as that business transitions to really virtual fab type business.

Hey, Craig Yes, so on that you don't want get into all the details on the costing but I think it's pretty well segregated between LNG and full speed as we.

Previously reported.

You look forward some of that there's some dilution of the deal as you start to start to move forward with a little bit of stranded cost in there from an opex standpoint that would have had to manage through implemented over the next 18 months, but by and large obviously the deal what it does for us.

It gives us a lot more focus on the other really important pieces of wolfspeed.

The pipeline activity.

Continued execution on the capacity expansion and working through a lot of the investments that we've got so.

The schedule in terms of you talk about outsourcing a lot of that business as well from a capacity standpoint that schedule all remains the same and.

Smart smart, we'll take that over as the as we move forward and we closed the deal and so by and large it's pretty much on the same plan that we had before moving.

Moving forward.

Okay excellent and then as far as efficiency if the overall fab one of the things Greg discussed at the last analyst day was the challenges with tier I believe you called it chase and they lay out the.

Graham facility can you, maybe talk about whether or not the.

The LNG business vacating.

Its footprint there creates an opportunity for improved layout or improved efficiency in the rest of the fab.

Thanks, Craig, Yes, Thats a ban chase.

The format of both our Fabs here in North Carolina, and RTP Fab is a substantially smaller fab and then the Durham fab and the Durham Fab is where the legacy operation is so it won't convert the fab to what's called a ballroom style design that ballroom.

Style is what it's going to be in New York, So it won't create a new sort of.

Form of space, if you will but it definitely is going to allow us to increase our capacity for wolfspeed as we transition the LPD business.

To an outsourced model and that of course was an ongoing activity that we had prior to the prior to the deferred.

The definitive agreement that we signed with smart global So thats, just kind of continuing on schedule. So no. It doesn't change the style of wafer fab.

To the more modern.

Ballroom style.

Thats what were building up in New York.

But again the transition of LCD to a outsource model increases our capacity in Durham for Wolfspeed.

Our next question comes from Colin Rusch with Oppenheimer. Your line is now open.

Thanks, So much guys can you talk a little bit about the competitive dynamics on the device side and what you're seeing in terms of evolution of the product.

So to get these design wins and assuming that you're going to have to expand the breadth of the product a little bit as you a little bit closer with customers, but wondering how the competitive dynamics or both and what the kit is or are those evolutions, yes. So.

The competitive advantage to competitive dynamics are pretty straightforward customers.

Look at there is there are there are design and they they do an analysis of.

Our technical capability as it relates to what they need in their design, they do that with competitors as well they look at things like.

Supply continuity and your ability to to manufacture and so forth.

They look at things like.

Well of course pricing is a key part of that as well. So I'd say, it's a typical I would say mosaic that they look at we typically score pretty nicely on on most of these different items and especially when it comes to the supply dynamics and the fact that we've got internal capability on silicon carbide gives effect to point.

You know as well and I think in terms of the design win a design in activity.

Delivering $700 million this past quarter was actually pretty nice accomplishment for us.

And if it really lines up pretty nicely with what we.

What.

Will translate into $1.5 billion business and then 2024, so we feel pretty good about that I think the cadence of.

Designs have faced clear design decisions have been pretty pretty much along the lines of what we thought they were going to be and if you think about it over the last three quarters.

We went from $400 million to 600 million to $700 million worth of of design and Thats $1.7 billion of design ins on a.

A little.

Little bit over a $10 billion.

Device pipeline so.

It feels to me like the decisions are coming down pretty much in accordance with what we thought now there is a.

It's going to be some puts and takes every quarter and so forth, but we feel pretty good about that.

I think my question was really more about the evolution of the product is that it will take it offline.

Just separately on.

Just a housekeeping question on the payables growth.

What's going on there and is that it's going to be an unwind on that at some point here over the short term I should we think about kind of steady state on those those tales going forward.

Yes. So some of that is related to the fact that we have larger invoices as we exit capacity expansion fully bought valleys that brings the DPL up you can see it come back to the kind of normal normal levels I think in the 77 plus days as we had previously.

Outside of that expansion.

Our next question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is now open.

Yes. Thank you Greg just as we come up on a year of the analyst day in the target that you laid out the fiscal 24.

Since that time are there any particular development should point to in terms of the traction that you're seeing and.

Kind of get on that path to the 1.5 billion a little bit at a time.

Yes, a couple of things. So thanks for the question a question Craig So as I as I mentioned that the fact that we've been able to deliver $1.7 billion worth of design wins in the last three quarters gives us.

Bolster its obviously our confidence that we'll be able to get to that number out in 2024 and then the other thing I was just on a panel today discussion and there.

We're talking about the impacts of co bid on our industry and what do we think is going to happen and so forth and.

I've had a lot of really good conversations with our customers about this and basically the Oems and the tier ones that were that were talking to and the auto industry that basically all said the same thing and that is the impact of Cogut is an acceleration of the adoption of electric vehicles and that's for.

A couple of different reasons, one is that the consumers are seeing blue sky for the first time in a lot of different cities because of the shutdown and.

Global warming is a hard thing to see but but a blue sky is an easy thing to see and so consumers are saying.

I don't want to go back to a polluted Los Angeles or a polluted.

Deli or what have you.

We want we want to be able to have clean air and healthier and so forth. So you've got this consumer pull.

Pull if you will and then on the flip side of it you have got big.

Big.

Countries and the European Union.

Staring at we are going to spend money to do a recovery.

Why wouldn't we dedicate a bunch of that to a green recovery and Europe is clearly leading that with 30% of it really going towards climate type initiatives. So and that also is driving.

The auto industry towards electric vehicle so.

One.

I mean, there's lots of silver linings I've covered there is lots of bad things about Kobe, but what I would say is it really.

Hitting the accelerator if you will for the adoption of these and I think thats. The Thats. The thing we didnt anticipate that at the analyst day Craig.

Got it and then if I could follow up just maybe an extension of this when I think about your go to market and just how significant are the partnerships I know you announced things with Delphi on you talked a lot about arrow.

Then to remain exclusive over time or how should we think about how much of an impact. These partnerships are having as you kind of reach towards that target model yes.

Yes, So arrow is our exclusive global distributor for for the Wolfspeed products, we do have some local distributors, but they are they exclusive global in that I don't see that changing.

Anytime I think be the results that we've just gotten together on the 650 volt platform is astounding and when you think about it we launched that program in April which is probably.

The the worst part of the pandemic, China, we're still sort of down our Europe and US were on our knees February. It was just we were really in pretty bad lockdown and despite that.

The team was able to deliver.

And hit our goal of $750 million worth of pipeline identification and they did that one quarter early earlier than than the goal. So they're doing a fantastic job. We've got a very strong partnership with them and I anticipate that will that will last for very long period of time and then in terms of cut.

Customers like Delphi, and Weve not announced a set up we've had an announcement with Dan.

Utah long with the.

Volkswagen.

Fast program Abby. These are all these are all good relationships and we're working together with them to bring products to market.

I met with many of those.

Customers just last week so.

Fees.

No motive industry, especially and industrial.

Customers as well when they when they bring you on as a supplier. They are bringing you on for a very long period of time.

Three or four years to go from they bring you onto when you begin to ramp and then goes products stay in production for five or six years and then there was an end of life process for their end to end product, where you got a support aftermarket and so forth. So there. This is a marriage that that last 10 15 years and so.

These are good long term.

Customers to have.

Okay.

Our next question comes from the line of Gary Mobley with Wells Fargo Securities. Your line is now open.

Hi, everyone. Thanks for taking my question.

I wanted to ask you about the way to think about well I guess first off I. Appreciate you give us a base baseline as to how the Wolfspeed business should operate in the December quarter.

So off that baseline of.

$77 million to $79 million and a non-GAAP opex, how do you see that being affected by the less sale I think you mentioned.

One stat businesses separate $10 million to $15 million per quarter in quarterly Opex savings. So so thats, presumably a benefit to that run rate you gave for the December quarter, but it's.

At the same time going to be ramping up opex for other reasons in preparation for capacity expansion or whatnot. So how should we think about the different moving pieces within opex offer that December quarter baseline.

Thanks, and I think that's a really good question. So as we move forward I think opex is going to accrete modestly as we start to start.

Start to move forward there is an element of related to the divestiture kind of indicate but that's really not the primary driver of the elevated Opex you are kind of the short term.

As Greg mentioned earlier, we have substantial project that we're investing in it because what you're alluding to R&D investments.

A number of things, including ensuring we already do.

Ramp the Mohawk Valley Fab and kind of move through that process as well. In addition to an increase in our sales and marketing spend as we continue to grow again about opportunities and execute on the pipeline.

There is an element of look we have a we have a divesture to go through it was going to be some.

A lot of work to do on that within our DNA functions, but I really think that the large portion of the elevated I'd like is really related to the R&D and sales and marketing spend and by the way. This is the same plan. We have laid out before I think we're just getting visibility now to the just the most deep cut at this as we move forward.

Okay related to that.

It looks like Youve got about 300 basis points.

Allocated expenses in your cost of goods sold line.

Host levied divestiture or do you see opportunity to bring that down.

Is it from me thanks.

Well I think I think what that is a lot of that that's related to is kind of.

Whether that be benefits or management incentives and a lot of these types of thanks, I don't think the cost necessarily goes away, but I do think that it scales over time and when we when we talked about the LNG divestiture last week, you kind of said, there's about two to three points that kind of fits in that corporate corporate bucket from a gross margin standpoint, I think what we'll do is evaluate how we manage this post close.

And how we talk about the company and think about the company, but here as you look forward in the shorter term you can kind of consider that dosing at those same levels.

Our next question comes from Joseph Osha with JMP Securities. Your line is now open.

Oh, Hello, everyone just following up a little bit on the previous question, if we think about.

What the pure Wolfspeed target operating model looks like given all of this conversation about operating costs absorbed so what what would that be and in order to get to that targeted at target operating model or do we need to be at that sort of one of the half billion dollar run rate that we talked about and then I have a follow up.

Well first of all Joe as we talked about earlier, the one and a half billion is predicated on a 5% Walter you'd be adoption rate and.

We've talked about earlier everything we're seeing you know kind of supports that we'll see where the timing is as it looks like that as it relates to fall through it really depends on how we how we management how we manage this and how we see the inflection.

Point as you get up to that kind of 20 to 23 timeframe. Obviously, we can modulate as we go forward.

I think our anticipation right now is that we're kind of a pull goal here the opportunity out beyond that period is you know is.

Pretty large and we think we got to get positioned to capture it. So I still think we'll see some accretion in terms of the opex as we kind of move forward and then will kind of grow into it.

But is there in the past you've kind of put some specific markers out there in terms of what a gross margin operating margin business might look like are you willing to sort of talk about what what that might look quite procure wolfspeed.

Yes, So I think if you go back and look at the announcement last week. What we said is we'll see to be yes, the 2024 timeframe between 50 and 50.4% gross margin.

Just talked about a little bit of corporate costs. So that's roughly about a 50% company level and then about 25% opex level as you get up to 24, okay.

Okay.

And then I don't know if you can answer this or not I heard you referred to the fast relationship with Volkswagen or are you able to say at this point, whether you're you're in the MLP platform there.

Actually just just a quick third one.

When Wolfspeed is in an independent business given how FTP segment reporting works might we expect to see the business carved up into more than one reporting segment and that's it from me. Thank you.

Yes in terms of the fast program that is a.

It's a program that is targeted at.

A small subset of Volkswagen suppliers, there they have something on the order of 50000 suppliers and they have something on the order of 65 suppliers that are designated as fast and fast stand for future automotive supply track and basically they use the English Akron.

Jim fast.

As as you would think its intention which is they are trying to figure out a way to get the suppliers into there.

Into their design quickly they give Volkswagen gives us.

It gives fast suppliers access to different levels of engineering that you normally wouldn't get access to they get access to.

Different projections for.

Are there new vehicles and so forth. It is not an award of any specific program.

And then just from a segment reporting standpoint look where we just signed the definitive definitive agreement to sell the only business you know very recently and we're working through managing how we're going to look as we as we move forward, both well give more updates on that as we get into the new year.

Our next question comes from David O'connor with Exane BNP Paribas. Your line is now open.

Great. Thanks for taking my question I have a question the pipeline.

Greg at the analyst day about a year ago. I know you said, 50% of $9 billion pipe enough time will be the site within 12 months. So one year on from that no is half the pipeline already decided and I have a follow up.

I would say the decisions are moving pretty nicely. They are moving pretty closely to that that track and I think if I. If I recall correctly, I said 12 to 18 months.

And certainly we've had now $400 million worth of design and three quarters ago.

600 million of.

Two quarters ago, and then 700 million Wolfspeed alone.

One quarter ago, or this past quarter and those are designs that we won theres, obviously, some things that we didnt win as well so I would say David that it's actually tracking that pretty nicely and.

That's actually kind of amazing when you think about it because we made that prediction pre cobot and customer is basically went into lockdown mode and then very quickly got back into.

Getting there their designs continuing to move and a different kind of way. So I think it is kind of tracking pretty much what we thought.

Okay, Great. That's quite helpful. And then maybe one on the materials side.

Total materials better order flow in the quarter and if I think back to last quarter. You mentioned that there was some deferred shipments. So my question is have they also pulled back in those again.

Yes, I think yes. Thanks, that's a good question. So the way that to think about that as there has been some inventory management by some of the customers talked about that last time and I can say is I think in the guidance that were giving this quarter that largely resolved itself and then you start to look forward just should start seeing some modest improvement, particularly as you think about some of the LTAC long term are you do you have a customers and the dynamics.

How that kind of kicks in going forward.

Our next question comes from Ambrish Srivastava with BMO. Your line is now open.

Hi, Thank you very much.

Question on the.

On the sequential growth Greg.

If you look at the device onto the.

Based companies that sell them to the auto industry, we're seeing very large Q over Q increases.

40, 50% and some of those businesses.

An example is back to where it was a year ago. So I was just curious.

Because of the composition with the live feed business the houses materials, and obviously that has a much longer lead time before that turns into devices is that the primary reason and also fit to assume that the device side is has a pretty meaningful contribution from the RF site, so that would explain that.

Right in.

And assuming those two factors in why the Q of a growth Q over Q growth auto you are not seeing the rebound that the.

I'll use that word legacy auto companies are seeing and then the second question is on the.

Other business you talked about.

Some kind of stabilization that you see.

So love is out of the numbers, where exactly are you seeing these of these new wins that you have with the non woven.

While the customers that are beginning to ramp and if you could talk to that that'd be helpful. Thank you.

Okay. So first on the first question.

Just kind of baseline things automotive.

Is something less than 10% of the revenue of Wolfspeed, and so and that's even a year ago as well so automotive was down but.

We're not a substantial automotive.

It's not a substantial part of our revenue like it would be at a place like T.I.R.

To NXP or what have you or where they have a substantial footprint in automotive. So that's number one number two is our activity in automotive is all about.

A lot of it is in design ins that we won.

We announced a couple of design wins last year that are going into production. In 2022, 23, 24, So I think thats the near term up and down in automotive doesn't have a dramatic swing either way for us in terms of RF. There's a there's a handful of non highway customers.

Her out there we're engaged with all of them and.

We're winning.

We've got some wins in there as well I can't give.

More color than that but where we're engaged with all that now and non while way.

RF manufacturers.

Yes. Thank you.

Our next question.

Question comes from the line of Edward Snyder with charter equity. Your line is now open thanks for follow up and sorry to ticket the debt, but we talk a lot about design ins and wins, Greg can you give us some clarification on that I mean is that us from PEO or is that more like a frame agreement that tries to scale the opportunity for you to pending on unit sales because if.

It will be obviously makes a difference in terms of project yet your revenue.

And now I'll periods, and whether or not you.

Count on this or they have to wait to see how the automotive sales play out and then I had a follow up on RF.

Yes, so the way. It works is we have an opportunity pipeline, where we're we're bidding on staff working with customers et cetera, and when it moves to design in that's when the customer has made a decision and they have chosen us and that that can come in different kinds of forms typically have to say.

Award letter, where they say congratulations you've been awarded this here is the projected volume here is the pricing that we've agreed to and things like that so they made a decision that they are going with us.

When it goes into production, we classify that as a design win. So you go from design end the design win and typically in an automotive and that production is first I think its thousand dollars of revenue that we get out of that and so you know that that's typically a lot closer to when they start ramping into production.

So there is some amount of leakage to happen from opportunity to design in and design and to design win.

But we're very very comfortable with the with the numbers that we have put.

Put in.

The points that we've kind of put on the board. If you will with the 400 million going to 600 million going to $700 million and design ins that we have.

So it's a commitment from a customer it's an agreement that they're they're going to go with us and.

And then from there it's all about.

How is there how is their end product.

And in the marketplace and how do they ramp right.

Right. It's all it's all excellent news.

Really rolling it up here too, but this is a long way from actually topline growth, but Korea, primarily because you've got it you got to get the design in and the other shipping and to be Frank heavy industries got to solve the problem of people not wanting to buy the especially be these because a lot of best laid plans have shown up and actually unit volumes because of the the.

The profile of performance versus cost for most most folks courses several years and incentive programs change over time, So I just want to get crisp understanding and then on RF.

Outside of Wal ways, probably the only other big one shipping into China at this point I expect you're shipping to them are.

Are you seeing increased competition I assume would tell me it was a big funnel for wall way. So when he got cut off they kept shipping there what we sell running into problems with other components. They can't get the duties Sumitomo, sorry, the increase or competition in other areas as you not seen before in the commercial and then just as a marker here is it fair to say that.

In terms of RF your product defense and aerospace is still markedly significantly larger than your commercial is that a fair statement. Thanks, Yes, I don't have the exact numbers in front of me, but we have a very nice defense and aerospace business. There. So its going to be a pretty good portion of that RF business and we see that it's a really nice growth on.

Trinity I don't want to comment on Sumitomo as a competitor they are a good company, they're a good competitor and I don't want to project.

Talk about them.

What I would say is we are engaged with with the.

And the other non far away customers around the world and we're we're beginning to see some some pretty good traction and then Ed just to just to kind of flip back to your first part of that comment. The one thing that I would say is recall that we have a baseline of 5% adoption of ease in our model.

It's not a heroic assumption and so you know I.

Thank you.

Most most pundits out there feel like Thats, a pretty short putt so.

I hear what you're saying on the adoption rate, but we're we're not baking into the plan some heroic assumptions.

And that concludes today's question and answer session I'd like to turn the call back to Greg Lowe for closing remarks.

Well thanks, everybody for your interest in Korea, and we look forward to talking to you at.

At our results.

Call next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now.

Now disconnect.