Q4 2021 Cree Inc Earnings Call
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Yeah.
Good day and thank you for standing by welcome to the Cree, Inc. Fourth quarter fiscal 2021 conference call. At this time all participants are in a listen only mode. 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 one on your.
Telephone please be advised that today's conference is being recorded if you require new further assistance. Please press star zero.
I'd now like to hand, the conference over to your Speaker today, Tyler grown Bock Vice President of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone welcome to Crees fourth quarter fiscal 2021 conference call.
Today, <unk> CEO Gregg Lowe increase CFO Neill Reynolds will report on the results for the fourth quarter and full year of 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 <unk> results internally non.
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 measure.
<unk> is 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 release today and the SEC filings noted in the release mentioned important factors that could cause actual results to differ materially including risks related to the impact of the COVID-19 pandemic.
During the Q&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 any additional questions. Please feel free to contact us after the call.
And now I'd like to turn the call over to Greg.
Thanks, Tyler and good afternoon, everyone. Thanks for joining us today and I Hope you and your families are in good health.
Im pleased to report that during the fourth quarter, we continued to execute and drive our business delivering strong revenue in line with our guidance and non-GAAP diluted earnings per share at the high end of our guidance range.
As we continue our transformational journey, we are excited to officially changed the name of our company to will speed in the coming months.
This represents a pivotal step in our company history. As we are now a pure play global semiconductor powerhouse well positioned to lead the industry transition from silicon to silicon carbide.
During fiscal 2021, we made formidable progress.
We completed the divestiture of our led business to Smart Global Holdings.
We went from moving dirt to installing equipment in the clean room of the world's largest silicon carbide fab in upstate New York, which will begin processing 200 millimeter wafers in the first half of calendar 2022.
We also expanded our crystal growth and wafer production capacity on our North Carolina campus and finally, we quickly adapted to the new operating environment because of the global pandemic, keeping our factories running while at the same time staying connected with customers to convert opportunities in our growing <unk>.
<unk> pipeline.
These are just a few of the many important developments that we achieved in the last 12 months as we see an acceleration of the demand for silicon carbide based solutions across a range of industries.
We are at the beginning of a multi decade secular shift to silicon carbide and we now believe the demand curve is steeper for devices than we originally expected further bolstering our confidence in our long term outlook.
The investments, we're making today will position us well to capitalize on the tremendous opportunities ahead and firmly establish our industry leadership position.
I'll now turn it over to Neil who will provide an overview of our financial results and an outlook for the first quarter of fiscal 2020 to Neil.
Thank you, Greg and good afternoon, everyone.
We delivered solid results during the fourth quarter as we saw increased demand for our devices and materials revenues.
Revenues for the fourth quarter of fiscal 2021 for $146 million slightly above the midpoint of our guidance range, representing an increase of six 2% sequentially and 34, 5% year over year.
Our non-GAAP net loss was $26.9 million or <unk> 23 per diluted share just above the midpoint of our guidance range.
Our fourth quarter non-GAAP earnings exclude $118 million of expense net of tax or $1 <unk> per diluted share for noncash stock based compensation acquired intangibles amortization accretion on our convertible notes project transformation and transaction cost factory optimization cost changes.
And the value of our previously held MSR investments.
Restructuring expense related to a modification of our long term plan regarding a portion of our ground campus and other items outlined in today's earnings release.
Moving on to our fourth quarter performance by product line, we delivered our fourth consecutive quarter of sequential growth for Wall Street.
Continued to see strong demand in our power product line with the strong demand was partially offset by supply constraints due to the temporary closure of our contract manufacturing facility, we use in Malaysia, which was shut down for approximately seven days during the quarter due to the COVID-19 outbreak and has been operating at lower staffing levels due to pandemic related restrictions.
<unk> imposed by the local government.
Spike the challenges with the production in Malaysia, Power-saw device revenue grow 46% versus the prior year.
And RF revenue increased largely due to increased <unk> activity and communications infrastructure providers continue to support the rollout by carriers.
For materials, we saw better order flow in the quarter consistent with our expectations for the back half of fiscal 2021.
Fourth quarter non-GAAP gross margin was 32, 3% compared to 35% last quarter that essentially the sequential decline was primarily due to the growth in our device products and unfavorable margins due to higher Durham manufacturing cost of the short term.
In addition, we were negatively impacted by the production shutdown at our contract manufacturer in Malaysia, which resulted in gross margin being at the lower end of our guidance range.
As previously discussed we view the gross margin impact of short term in nature due to the suboptimal device put production footprint, we have in North Carolina and expected to modestly improve going forward as we work through factory transitions and eventually shift production to our new Mohawk.
Heart valves that in calendar year 2022.
Non-GAAP operating expenses for Q4 were $82 million and our non-GAAP tax rate was 25%.
As anticipated the increase in our operating expenses was fueled by our investments in R&D.
Including development projects that are well underway at our Mohawk Valley pilot line in order to support our 200 millimeter wafer launch as well as an increased sales and marketing expense as we pursue new business opportunities.
During the quarter. We also recorded a $74 million write down for an unfinished facility that was built to support the led business back in 2015, which is no longer viable to support our future growth plans.
For fiscal 2021 revenue was $526 million, representing a 12% increase when compared to fiscal 2020 due to growth in our device businesses, partially offset by lower materials revenue.
Non-GAAP net loss from continuing operations was $104.7 million or <unk> 93 per diluted share non-GAAP loss excludes $237 million.
Of adjustments net of tax or $2.11 per diluted share.
We ended the fourth quarter with a strong and healthy balance sheet with approximately $1.2 billion in liquidity to support our growth strategy zero withdrawn on our line of credit and convertible debt with a total face value of $1 billion.
For fourth quarter days sales outstanding was 52 days and inventory days on hand was 147 days.
<unk> generated from operations was negative $54 million and capital expenditures were $168 million, resulting in negative free cash flow of $222 million.
As we expected fiscal 2021 required a significant amount of investment and capex totaling a net amount of $566 million.
We expect this to represent the most significant period of investment between now and 2024 as we execute our capacity expansion plan, including the launch of our Mohawk Valley Fab at 200 millimeter and the first half of 2022.
As Greg mentioned earlier, we are experiencing a significantly steeper demand curve from our customers for silicon carbide devices than we had previously anticipated.
This has resulted in supply constraints for some customer orders will not be fulfilled in fiscal year 2022, and channel inventory levels will remain low although capacity comes online at our Mohawk Valley Fab and.
In the meantime, we are working to accelerate capacity capex investments.
Improve output and our term facilities and manage through the COVID-19 related challenges with our contract manufacturer in Malaysia.
As we remain in the midst of a rapid capacity expansion for both materials and our wafer packs, we anticipate capex net of expected reimbursements from the state of New York to be approximately $475 million in fiscal 2022.
We expect capex to be more heavily weighted to the first half of the fiscal year with Q1, representing the peak investment period as we ensure our ramp of Mohawk Valley remains on track.
We are still on schedule to operationalize, the world's largest silicon carbide fab in the first half of calendar year 2022 access to capacity in semiconductors is top of mind for many of our customers and we want to be ready to meet that demand given the steeper ramps that we are now experiencing where devices.
Now turning to our outlook.
In the first quarter of fiscal 2022, we are targeting revenue in a range of $144 million to $154 million, we expect revenue to be driven by momentum in power, partially offset by the current supply constraints and some lower productivity as our Malaysian contract manufacturer continues to ramp activities. Following the recent COVID-19 out.
Great.
Our Q1 non-GAAP gross margin is expected to be in the range of 31, 5% to 33, 5%, which is flat to slightly up versus <unk> as modest improvements in productivity in our Durham site are offset by higher costs in Malaysia as a team works through COVID-19 related challenges.
As previously noted lower yields and factory transitions in our DRAM Fabs will continue to present, some short term challenges on gross margin performance and will remain a headwind as we shift our production to our new Mohawk Valley Fab.
Starting this quarter, we plan to start reporting startup costs related to the ramp at Mohawk Valley.
We anticipate startup costs for fiscal 2022 will be approximately $80 million.
Which $60 million will be cash related costs.
Anticipate more than 50% of these costs will be incurred in the second half of fiscal year 2022, as we qualify and ramp the path.
We're targeting non-GAAP operating expenses of 85 million for the first quarter. The sequential increase in our operating expenses is due to R&D, including planned growth at Mohawk Valley to support our 200 millimeter wafer launch.
We target Q1, non-GAAP operating loss to be between $40 million to 34 billion and non operating net loss of approximately $1 million.
We expect our non-GAAP effective tax rate to be approximately 27%.
We're targeting Q1, non-GAAP net loss to be between 29 million to 25 million or a loss of 25% to 21 per diluted share our non-GAAP EPS target excludes acquired intangibles amortization noncash stock based compensation accretion on our convertible notes project transformation and led <unk>.
Action related cost.
Factory optimization restructuring costs and other items. Our Q1 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 Gregg.
Thanks, Neil as we look at our performance during fiscal fourth quarter and the full year I am very proud of what the team has accomplished.
Demand in the automotive and RF markets continues to be very good while at the same time, we are encouraged by growing interest across a variety of industrial and energy customers.
Thanks to the hard work and unwavering commitment of our sales organization our device opportunity pipeline is now above $15 billion and the team is continuing to uncover new opportunities at a very good pace.
At the same time the team is also doing a solid job of converting opportunities during.
During the fourth quarter, we secured our highest total to date for design and posting slightly more than $1 billion of design ins.
With this record setting performance in Q4, the sales team posted approximately $2.9 billion of design ins during fiscal 2021.
Which is an amazing accomplishment by the team and demonstrates that we are well positioned to compete and win and devices.
The design ins for the full year of 2021 represents more than 1100 customer projects.
Automotive represents roughly two thirds of the design ends including <unk>.
A major award from a leading global automotive manufacturer, while the rest is spread across a wide variety of applications, including an electric farm tractor residential energy storage systems, and then electrical vertical takeoff and landing aircraft for passenger and cargo transport.
Our massive pipeline and record design and <unk>.
Give us further confidence in our ability to achieve our target revenue for fiscal 2024 of $1.5 billion.
Based on the Steepening demand curve for Silicon carbide devices through 2024 and beyond.
Looking towards the macro environment, we're encouraged to see our strategy continues to be supported by several recent developments that indicate long term growth.
Last month European Union countries gave their final approval to a law to make the blocks greenhouse gas emission targets legally binding.
The climate law set two.
2030 targets to reduce net <unk> emissions by 55% from the $19.90 levels and to completely eliminate them by 2050.
On July 14th.
The European Commission released its new climate agenda, which effectively requires all new cars to be emission free by 2035.
Removing any flexibility for automakers to continue selling some gasoline or diesel vehicles, including hybrids and.
In addition, a few weeks ago, the White House issued an executive order setting a target for electric vehicles hydrogen fuel cell and plug in hybrids to make up to 50 to make up to 50% of U S sales by 2030.
This action comes at the same time as many U S. Automakers have increased their commitments to ramp their electric vehicle production activities for instance earlier this summer General Motors announced its plans to boost global spending on electric vehicles and autonomous vehicles to 35 billion through 2025, which is a 30.
Percent increase over its most recent forecast.
A key element to support the increased adoption of silicon carbide in the automotive sector and across several other industries is the expansion of manufacturing capacity.
Our Mohawk Valley 200 millimeter fab is on track to begin device qualification production runs in the first half of calendar 2022.
The facility is shaping up nicely and has shown very well during recent customer visits to the fab.
On our campus here in Durham, we expanded our materials operations to a second building on our term campus.
Which is part of the previously announced plan to increase materials capacity by 30 acts.
On a related note a few weeks ago, we announced the expansion of our operations leadership team to support our expected growth and the retirement of Rick Mcfarland for currently leads global operations Rex.
<unk> Felton, who is currently directing the Mohawk Valley build will now oversee the company's fab operations planning functions and quality efforts reporting directly to me.
And until he retires next summer Rick will continue to lead the company's materials and backend operations, along with facilities and procurement activities and we'll of course assist racks with the transition.
When Rick leaves US next summer Rex will assume leadership responsibilities for all global operations and.
In addition, we continue to attract incredible leadership talent to the organization recently Missy Chagall joined us to serve as the new Vice President of Fab operations here in North Carolina.
He was most recently with Texas instruments, where she spent the last 20 years building extensive expertise and large scale manufacturing operations.
Additionally, Laura Russell is now part of our team serving as our VP for finance for global operations, Laura joins us from NXP, where she was most recently VP of finance for the radio power business unit, Laura has over 20 years of experience in the semiconductor industry.
These recent additions further demonstrate our ability to attract and retain top talent in the semiconductor space and folks who are keenly interested in helping drive that paradigm shift in power electronics in the marketplace.
I'd like to thank Rick for his commitment and continued contributions to the organization and wish racks, Missy and Laura continued success in their new roles.
In summary, we are successfully capitalizing on opportunities in front of us today, while continuing to make investments to deliver this next generation technology to customers.
We are growing our device opportunity pipeline and winning our fair share as evidenced by the recent quarter with $1 billion of design ins.
Our balance sheet remains healthy to support our operations.
We're excited about the future prospects as we expand our leadership position and make the necessary investments to address what we now believe to be a steeper than originally expected demand curve for silicon carbide devices.
In late fall, we plan to hold an Investor day in New York to further discuss the strong progress we've made on our transformation strategy and share more details about the exciting long term outlook with that I'll turn it over to the operator and we can begin Q&A.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question principal palanquin, we ask that you. Please limit yourself to one question and one follow up question.
I'll pause and wait until we have our first question.
Thank you Gigi and as you collect the questions I did want to comment on the announcement, we made at the close of the market today with ft. Micro. We're pleased to have reached an agreement that expands our multiyear long term 150 millimeter silicon carbide materials contract with SP. The amended agreement, which is now worth more.
And then $800 million.
Cause for us to supply 150 millimeter silicon carbide bear in FTE wafers to ft into the second half of the decade.
Our long term 150 millimeter wafer supply agreements with all device manufacturers now total more than $1.3 billion and help support our efforts to drive the industry transition from silicon to silicon carbide.
This latest extension demonstrates how the industry at large is shifting towards silicon carbide and that we will continue to be an important partner for many of our current customers over the next.
Years, I want to thank John Marc and the team at <unk> for their continued partnership and we look forward to continuing to work with them and with that I'll turn it back to you. So we can begin the Q&A.
Thank you. Our first question comes from the line of Jed <unk> from Canaccord Genuity. Your line is now open.
Hi, Thanks, guys.
Yes.
Great. Thanks for pointing that out with ft micro.
Kind of along those lines.
I think that probably sums up your position on the material side of that.
It's pretty well and I guess my first question is.
A bit more granular in terms of the $1 billion of design in.
If we think about.
The device side of your business and the design in and then.
In particular automotive can.
Can you give us some more clarity in terms of the 23 model year and.
How many.
Our models are platforms, we should expect to see.
<unk>.
While speed MOSFET and either directly or with your partners and then I have a follow up.
Okay. So just to remind everybody on the call the $1 billion of design and Theyre all device design ends and the $15 billion opportunity pipeline that we talked about is all device opportunity pipelines. So we don't mix that with the materials I know you know that yet, but I just wanted to remind everybody on that too.
Be clear basically the $1 billion that we posted this recent quarter I think around two thirds of it was was automotive and the typical timeline for going from when you get a design into when it goes into production is typically four years, maybe five years, sometimes for electric vehicles.
<unk>, it's turning out to be a little bit shorter than that.
And obviously, that's why we're seeing kind of a steepening ramp so the the I.
I can't give you an exact number of models I don't have that data right handy here, but what I can tell you is that we've got a number of different cut.
Customers that are going to be ramping that are ramping right now and ramping in 'twenty three and then obviously supporting the $1.5 billion in.
In 'twenty four and that's what we're referring to as being steeper right. Now there is a there is just a.
Demand from the customer that steeper than we originally anticipated and that's what we're trying to catch up with.
Got it that's helpful and maybe just a segue to my follow up and this might be better for Neil.
Im assuming that youre, keeping your long term target.
3% plus or minus in terms of <unk>.
Gross margin in a lot of clients are asking us whether or not the 30% where you've been at for a while and sort of the new normal and I was wondering if you might be able to help us bridge that understanding of what gives you the confidence in keeping that 50% out there maybe that also touches on I guess.
What I was asking in terms of Greg or ship from.
Materials do.
To devices.
Yeah. Thanks, Joe for the for the question I think as you look at the current margins were impacted by about a point and <unk> <unk> from the Malaysia situation. So I think the both quarters you can think about that driving us down about a point from.
Where we would have been.
Carnival normally.
And then I think as you look at the rest of the year.
The margin will be a function of how things play out in Malaysia.
Got back and think about achieving kind of mid Thirty's, I think plus or minus as we get to the back half of the fiscal year.
Just improved execution out of the North Carolina factories, and I think some of the management changes we discussed should bring in I would think of as more high quality expertise and experience to kind of drive to those levels in the back half of the year Nike shifting kind of kind of mid term to long term.
You mentioned that as kind of want to hit on a long term target model for.
About 50% plus gross margin by 2024 and as we've stated previously the key to that transition from kind of a low 30 east from where we're at today to 50% plus kind of lies heavily on the kind of fab cost footprint transition from North Carolina, The Mohawk Valley.
And as we transition kind of that new footprint and qualify the factoring 2022, and if you think about fiscal 2023.
Kind of at the beginning of that and beyond we will see some very big and significant differences between what we're running today in North Carolina, and what will be running in Mohawk Valley. So let me just kind of spell that out a little bit further detail I think if you think about the differences between North Carolina, and Mohawk Valley wafer cost for instance.
In Mohawk Valley will be more than 50% lower than what we currently have in Durham.
That's not completely including the full benefit of moving from 150 millimeter to 200 millimeter diameter change.
Cycle times, and Mohawk Valley will be 50% greater or better than what we have.
So 50% better than what we have done and then lastly, the yield the Mohawk Valley will be 20% to 30, sorry, 20 to 30 points higher than what we have currently in Durham. So all of those benefits can be really derived as a function of moving from.
It was a very manual and I think a small footprint in north Carolina to kind of highly automated.
Date of the art facility that would be running up in New York.
And then we've already seen good evidence of that from our Mohawk Valley pilot line to support somebody insertions and.
Dissipate a heavy margin transition as we move from North Carolina into the new Fab Mohawk out.
Thank you. Our next question comes from the line of Edward Snyder from Charter equity. Your line is now open.
Hi, Greg.
Greg You said you added a second building for materials materials has been growing very nicely I know youre kind of throttled on devices, given not only Malaysia, but your footprint in Durham.
Execution is it safe to assume that materials continues to grow as a percentage of your total revenue.
I expect that would be the case until New York comes along or is there something else going on maybe we can give it maybe just bucket if you can.
So we are thanks, Ed So we are expanding into a into a different building here on campus in fact I just.
Went through the facility.
Hey.
And.
So that is happening here on campus and that will be for our materials factory.
And what I would say is we're also expanding obviously the wafer fab here in North Carolina for our devices as we move the led business out of that as well I would anticipate our edge I'm sorry is that when we look at our plans for 2024 at one 5 billion.
We were <unk>.
<unk> that.
Roughly $600 million of that was going to be devices and about $900 million of that was going.
<unk> $600 million was going to be material and $900 million, where it's going to be devices. So we actually are anticipating that our device business will be growing faster than the materials business through that timeframe of 2024, and it will most likely accelerate as a percentage of the business beyond 'twenty four as we start seeing.
Customers ramp with the $1 billion of device wins that we just posted.
As previous quarter.
Does that makes sense. It makes sense was new York comes on device is going to grow much faster, but it's kind of a chicken and the egg issue I mean, you've got a lot of demand out there and there's obviously a lot of potential demand out there, we'll see all of those give.
So I know.
Industrial and RF are doing quite well too.
But it seems like.
Especially on the SD micro agreement here and what we've been hearing for the food chain.
We have materials Ltd business to some degree.
<unk> still the largest I know theres been a lot of talk and we've gotten a lot of calls from folks who are kind of concerned about some of the press release is coming out of <unk>.
<unk> internal efforts SD micro made announcement of the 200 millimeter <unk> out there talking about shipping stuff.
Those seems to be quite a bit different on the ground.
Got about $1.3 million or $1.
So long term supply agreements has the competitive dynamic.
In materials, both crystal wafers bare wafers and at least changed much and if it has.
Is it safe to say, it's favoring the incumbents, maybe you two six.
A room or are we seeing more people come on board because demand is so strong.
Think Ed what I would say is.
Certainly from our perspective.
There is a huge.
And the opportunity for Silicon carbide, and so you see a lot of folks are attempting to get into this business, but it has a lot of pretty tough barriers to entry and meet her technical barriers that you can't just kind of solve with money. So.
Some of this is very very.
Difficult stuff to.
To work with and I think the fact that we've got $1.3 billion worth of long term supply agreements pretty solid with pretty much the who's who in the market.
Really kind of.
Shine a light on our fundamental capability and as we talk to customers. In this area. This is a really important thing.
For them to know that we've got a very very strong materials business. So.
And then finally, what I would say is.
We are absolutely not resting on our laurels in terms of our materials capability, we drive it every single quarter, whether thats. The transitioned 200 millimeter reductions and cost improvements in yield all of that kind of stuff is a very very intense active.
Activity for us and so basically it's just.
Creating an even more difficult environment to try to jump into because.
Learning and scale is really important for silicon carbide, we've got 30 years of learning in the largest scale and we're growing that scale pretty rapidly now as well so.
It's just going to create.
It is going to continue to have kind of really tough barriers for entry in this market, but again, we don't rest on that at all we're driving like Crazy every.
Everyday of the week.
Thank you. Our next question comes from the line of Joe Moore from Morgan Stanley. Your line is now open.
Great. Thank you I Wonder if you could talk about the startup cost that you mentioned in the second half of fiscal 'twenty to $60 million.
Do you see that rolling through and just in general obviously, a lot higher margin out of the new fab.
What happens your overall cost of sales do you sort of maintained both fashion do you have to grow into a revenue level to sort of support some of these incremental costs coming in.
Hey, Joe Thanks for the question. This is this is Neil so first of all again, so Mohawk valley startup costs, we anticipate being about $80 million that was for the year and $60 million of that.
It was roughly in cash costs and you can think about more than 50% of that being kind of in the back half of the year.
As we move into fiscal year, 2023 that will start to fall off pretty significantly as we start to ramp with had.
And you'll start to see that fall away. So I don't think it's about I think it's very much in line with our long term plan of up to date real change to it.
This is what we kind of anticipated as you bring up a new factory. So I think this is right in line with the trajectory we need to hit the $1.5 billion in revenue and I think it's on track for where we need to where we need to get to and again as you said as you look at the as you look at the cost numbers.
<unk> differences in the yield differences between what we're currently seeing today and what we anticipate anticipating Mohawk valley that all of that will then underpin pretty significant transitions in margin as you start to bring up the fab as you get out into more significantly into 2000 fiscal year 'twenty three if you start to bring that revenue on.
Great. Thank you very much.
Yeah.
Thank you. Our next question comes from the line of Pierre <unk> from New Street Research. Your line is now open.
Hi, guys. Thanks for taking my question.
So I've been saying this earnings season was achieved very impressed to see how many people are thinking.
And actually Couldnt carbide, and how big it is pending.
And I had in mind SD micro where you can <unk>.
One game.
Okay. Thanks.
Between 2017 to gather in 'twenty four.
I see.
Was that specific to seek spoke to that spending had been in <unk>.
And capex from Silicon carbide, and even maybe a decade.
Roaming sticking again Kevin.
Between 2020 to 25.
And so my question to you My first question to you Greg.
I guess you guys actually you got very closely as Wayne.
And when you add all that Capex.
Got it.
Being made by your competitors.
And when you compare that to what you're seeing in demand and what you see began to take them to market and what you guys are planning for and winning UGC.
Thank you expecting up to a healthy market and which should be one of the top three players.
<unk> me.
It's taking that fab.
<unk>.
Living an illusion in the market and some of that might be.
<unk> and maybe <unk>.
I appreciate that but if you could see them getting into silicon carbide in scaling out.
Yes, I guess.
I'd answer that from a couple of different vectors first off the demand is definitely.
Is there and the appetite for Silicon carbide, just continues to grow Neil and I were just in Europe, a month ago or so for a couple of weeks visiting with Oems and with with tier ones and so forth.
All of the indications we got from pretty much all the customers. We saw is what they thought was going to be demand.
Now higher than what they originally thought and faster than they originally thought across multiple different.
And equipments and certainly automotive being a pretty key part of that so I think the demand is definitely.
Okay.
Rapidly expanding and that's obviously a good thing.
In terms of in terms of the market itself I think I think from a materials perspective, we're obviously growing our capability pretty strong in that area in the $1.3 billion of.
Of materials long term agreements that we have I think is just an indication.
That.
This stuff is pretty hard to do.
And everyone. We have a lot of people that are trying to do internal efforts, but I think with.
With $1.3 billion worth of long term agreements that kind of an indication that.
Maybe it's a little bit more challenging than most people originally thing. So I would say I think having the experience and having this capability is one thing that I talked to customers quite a lot about.
When they look at making this transition to silicon carbide.
Company, that's been in it for the longest amount of time that has the most experience.
And it is us and so I think it does kind of shine a light on us.
As someone that has a lot of capability and obviously there are other folks that are entering the market as well, but it feels to me like the demand is.
It's way past any kind of tipping point right now.
The.
The automotive market certainly is has said goodbye to the internal combustion engine.
The number of companies that just are no longer developing any plans for internal combustion engine cars by 2000, 32035, and so forth has grown and now we're seeing industrial customers, we talked about vertical takeoff and landing cargo transport electric tractors.
<unk> drives compressors.
We're just seeing a lot of industrial customers jumping on this silicon carbide bandwagon and.
<unk>.
When you see the benefit of 10 times, the elektron mobility or 10 times the performance of our Elektron mobility perspective, the lower <unk>.
Energy costs, and so forth for operating these fees equipment.
The transition is pretty solid.
Okay.
Thank you.
Next question comes from the line of Craig Irwin from Roth Capital Partners. Your line is now open.
Good evening, Thanks for taking my questions and congratulations on that design in momentum impressive.
I wanted to ask a little bit about the industrial market.
This is something we haven't talked a whole lot about.
On the last couple of calls.
I don't remember if it was your prior analyst day or the one before that we had the gentleman from.
From ADP, who.
Discuss the potential in some of their some of their utility equipment and there was a conversation about high power MOSFET I think 3500.5000 volt MOSFET.
Can you maybe frame out for us the importance of these these future devices.
To your 2020 for 2025 outlook.
Is this in the guidance that you gave us and how would you rank. This is a priority for the industrial markets.
And the development that's available there.
Great question, Craig and what I would tell you the industrial market I, obviously have a ton of experience with.
With my time at Ti.
The one thing about it that's really very different is that it's very very fragmented you have thousands of customers.
All of the individual different sockets that youre trying to win are relatively small individually, but collectively it's very very large and so the real key there is having an ability to engage with those customers in and since we are a relatively small footprint.
The partnership we have with Arrow has.
It really played very very well for us they've gotten engagements with thousands of different customers with their massive.
Sales channel that they have.
Got a great relationship with them in fact, Neil and I.
Some of our other <unk> were out there a month and a half ago I think.
And meeting with them in the.
The subject line of the meeting was how do we take this to the next level. It's already gone great. How do we continue building that relationship and capitalizing on each other some progress so it's a very important.
Market for Us and the good news is we've got a great partner in helping us reach that and Thats going very very well I think as it relates to 2024.
Into the plan, but obviously the steepening demand that we're seeing into.
<unk> to 'twenty four and beyond.
It gives us a lot of comfort for what the growth trajectory looks like beyond that Craig.
Thank you. Our next question comes from the line of Brian Lee from Goldman Sachs. Your line is now open.
Hey, guys. Good afternoon, thanks for taking the questions.
One thing I just wanted to clarify Neil you mentioned, the $80 million of startup costs.
In fiscal 2022 with more than half of that in the back cash to each of the Mohawk Valley Ranch is that.
All flowing through I'm, assuming it's all flowing through Cogs.
And when we look at your non-GAAP gross margin guidance of 31, and a half to 33 and a half.
For Q1 here does that reflect.
Inclusion of those startup costs are you are you stripping those out just.
I wanted to clarify that and then I had a follow up.
No. Good question, Brian just to be clear, we're going to exclude those costs from our non-GAAP results going forward.
Those are that's going to represent things like we've got depreciation and labor and facilities and other things that we are at a point where the base build is just about complete with the fab or.
The clean room, so there will be a lot of cost that really won't be related to our cloud revenues were pro forma those out going forward just to kind of get a better view of what the margins look like in the business as we progress through the year, what you'll see is more of a kind of term based kind of margin model as we get through fiscal year 'twenty two.
About ramping about qualifying it you know in.
In the first half of next year calendar year, and then and then as we as we move forward from there will start bleeding that splitting that into kind of an apples to apples basis.
Once we start getting past that kind of ramp up chase.
Thank you. Our next question comes from the line.
Saturn E from Jpmorgan. Your line is now open.
Hi, good afternoon. Thanks for taking my questions. So I have a couple.
One I wanted to see if you can.
Give me a bit more visibility about fiscal crane to revenues and home with you will be more craft will be do it and particularly compared to the second half versus first half what are you seeing this year or in fiscal 'twenty, one of about like 70% increase.
Half like how different or how similar does it look to this field and home materialist Mohawk impact.
That's correct. Thank you.
Yes. Thanks for the question and let me just be clear our Mohawk Valley. So at Mohawk Valley, we're going to be ramping the fab.
First half of calendar year.
Dave calendar 2022.
And what that means in the first part of that we kind of think about that kind of March quarter circle internal qualification and that has moved into the June period, you start thinking about doing customer qualification and then transitioning to revenue.
Beyond that so you can think about 2022, theres kind of de Minimis impact on revenue for Mohawk Valley, but I think I think just kind of getting down to a few things we should clarify a little bit on the revenue. Let me just unpack how this kind of plays out you kind of mentioned a few pieces. There. So first of all as I look at just <unk> is looking back you know the revenue in the quarter came in.
Just above the mid point of the guidance range and.
While demand continued to accelerate some of these businesses, particularly in power.
We were slowed by the COVID-19 outbreak in Malaysia, and there was roughly $3 to $5 billion of revenue that was left unfulfilled in the quarter. Okay. So it would have done $3 million to $5 million more had it not been for the COVID-19 outbreak at our contract manufacturer in Malaysia.
With that I thought we saw we thought we saw pretty good growth as you look into looking forward into <unk>, but the demand continues to be strong, particularly in devices empower.
We continue to fuel I think strong quarter over quarter and year over year growth.
At the midpoint of what we baked in another kind of $5 million to $7 million of revenue impact from Malaysia. So said another way, we probably could have.
Committed to more revenue in Q1 period had not been for the Malaysia situation. So we also widened our revenue range for that as well so again, even with that we do expect to see some good revenue growth now with that I also think it's important that we kind of step back and just kind of look at the macro level here, Greg kind of talked a little bit earlier.
As we discussed in the prepared remarks, the slope of the demand curve for Silicon carbide solutions, particularly on devices has dramatically increased.
Ahead of what we previously thought we thought the inflection point as we talked about Investor day, and since then was kind of 'twenty three 'twenty four time frame and.
Right now, we're seeing that pulling all the way into fiscal 2022 and.
And to give you an idea this year alone, we'll see more than $100 million of customer demand on our revenue line unfulfilled in this year.
And the demand levels, we are seeing a 23% and 24, plus a steepened as well and I'll.
You heard a couple of questions on industrial and automotive this demand I'd say, it's relatively broad base for instance.
Automotive devices continues to be relatively small the revenue for that in Q4 alone grew more than 100% versus last year. So I think this device situation has really shifted to a supply side type of channel and so we just need to drive more capacity out of our current footprint in North Carolina, just to keep up with the demand inflection that's really pulled all the.
Going into this year.
Until we get Mohawk valley kind of up and running so I think the revenue markers that we're seeing now and as evidenced by the pipeline of design and it was really pulling in pretty heavily weighted to the right into the current period.
Thank you.
Our next.
Question comes from the line of Karl Ackerman from Cowen. Your line is now open.
Yes, good afternoon, gentlemen, I have two questions. Please.
My first question I was curious more of a clarification, but how much do you have remaining of the $1.3 billion in long term materials contracts or I guess are we saying that the $1.3 billion as future orders.
And then secondarily.
On on materials.
Absence of material contracts on 200 millimeter today.
Just driven by maybe more mature yield on $150.200, just help me think about I was thinking about the.
The opportunity of 200 millimeter materials contracts as well.
I'll take that so first off in terms of the $1.3 billion I don't have an exact answer for you, but I would say most of it if future is my guess, so I think thats pretty.
I think thats pretty solid so we've gone through some of it obviously, but.
But we still have.
Probably the substantial portion of the one three is <unk>.
Revenue to come.
I don't have the exact number but im pretty sure Thats pretty.
Pretty close.
And then basically that $1.3 billion, it's really all on 150 millimeter. So that's been the focus of that and then in terms of 200 were really just concentrating right now on.
Ramping our own facility on that at this point.
Understood appreciate that if I may from my follow up.
You did record over a $70 million expense driven by the modifications to your long term plans for Durham.
Hoping you could discuss that I guess are you seeing less wafer capacity demand on 150 millimeter than previously expected.
Or is it driven by the need to fill Mohawk or the desire to fill Mohawk sooner.
Yes. Thanks for the question first of all there's really no demand relates to this the demand is very very strong so the.
The write down of the building and first let me say, we actually found a different solution than that building that we currently have on campus.
We are currently expanding.
Cereals capacity for 200 millimeter in that new building as we speak so there's a significant amount of investment going in.
As I said in Q4, we determined that we no longer needed a shell a lot of people are familiar with that we had a shell on campus.
Partially completed building was built to support the led business back in 2015. So we look for a lot of different ways to use the facility you different wafer fab, our materials perspective perspective, but.
We found a more optimal kind of expansion plan for materials in Durham on the Durham site.
With addition of.
The assurance of supply being top of mind for our customers.
About additional potential materials capacity down the line outside of the Dropdowns.
Thank you.
Reminder, you may ask a follow up question.
Got it.
Our next question comes from the line of Gary Mobley from Wells Fargo. Your line is now open.
Hey, guys. Thanks for taking my question.
I know you haven't apology 10-K, yet but in terms of trying to think about the materiality of that scheme micro as a customer and thinking about the $500 million in silicon carbide materials supply agreement signed back.
In 2019.
Is all of that $500 million then shipped in the last 18 to 24 months and thus the need for an incremental $300 million.
You can augment that that relationship and then.
In terms of thinking about some of the capacity constraints that are limiting your power.
Power business.
Should we think about that as being perishable demand.
That perhaps others can fill it or is this just going to continue during your backlog until you can solve those capacity constraints. Thank you. Thanks for the question, Gary and I will take them. So first off I don't want to get into a lot of detail on their contracts with the with any of our materials customers I think I can just go back to the comment that I.
Made earlier is if you take a look at the total pipeline or the total materials contracts are long term agreements of one 3 billion.
The vast majority of that is still to be fulfilled.
And I'd, probably just leave it that way I don't want to get into any one specific customer, but I think.
And then in terms of.
The opportunity of course.
You mentioned there is a $100 million worth of opportunity that will go unfulfilled. This year and of course, our our customers would prefer to see that fulfilled.
I've spent a lot of time talking to customers and.
The thing that I think resonates with them.
Most is that in five months, we will be processing material and the world's largest.
Silicon carbide fab, we will be processing material that will be going through then qualifications and then they will be getting material to qualify et cetera, and just recall a lot of our really.
The demand really takes off in 'twenty three 'twenty four.
No.
I see that we are expanding capacity that we made a decision two years ago to expand capacity and that capacity is coming online.
Really just in five months now when you think about it first part of calendar 2022.
<unk> had.
Customers recently visit New York factory.
And the feedback we've gotten is super positive on that they see the pilot line that we've got running up there and they like that because it's.
Sort of getting the getting the.
The production lines kind of.
Ready to go with the pilot line, and then kind of transitioning that to the factory as it begins to open so.
I think the customers see that we've got this pretty substantial amount of investment we're doing they appreciate it.
They are really sticking with us on that.
And to kind of put things in perspective.
We had a field of mud in March of 2020.
And in the first quarter of 'twenty, two we will be producing product.
And qualifying product Thats pretty quick.
And this is in a time, where the semiconductor industry in general has a ton of capacity issues and a few decided today to start with a field of mud and build a factory I think theres zero possibility you'd be up and running in two years.
<unk>.
I would say it's at least a year in addition to that and maybe even longer. So I think the I think the bottom line is that.
They see that we're making the investments.
And that these investments are a big light at the end of the tunnel for them.
Thank you. Our next question comes from the line of his neck Arya from Bank of America Securities. Your line is now open.
Thanks for taking my questions I had two as well.
First sun.
I'm curious you're seeing very strong demand signals, but how is that translating into the pricing environment.
Right versus what you had talked 90 days ago or asked differently, what is the level of confidence in achieving long term.
Gross margin outlook right.
<unk> customers come in towards the facilities.
Look at what you're producing there.
How are you doing that trade off between the pricing versus having the certainty of these long term contracts.
Yes, I think in terms of <unk>.
Pricing, what I would say is.
The vast majority of what we do our long term deals and thats bulk materials as well as on devices and so the pricing is kind of set. So we are pretty good view as to what's going to happen. There. We obviously know what's happening with our cost models as well and as Neil mentioned, there's pretty dramatic cost reductions.
Coming online as we as we move into Mohawk Valley, We don't really.
Price our business as a kind of a spot market kind of thing. So we don't really get into the.
And to that kind of thing and so.
We'd much rather have long term agreements with folks and they can count on us for putting the capacity in place and having.
And understood pricing curve and then we can count on them for having the demand coming our way. So it's more like that I would say.
Got it and for my follow up maybe for Neal I believe you said.
Youre looking at a higher capex level for fiscal <unk>.
22, I was hoping you could give some more color around that what is driving that higher capex and then importantly, when does that translate into upside to your longer term model like what is the benefit of this additional spending that you're planning to do next year.
Yes first of all as I said, thanks for the question first of all as we said the.
Demand.
As we kind of look at it the slope of the demand curve not just this year, but into 'twenty three and 'twenty four has.
Certainly steepened and I think.
Our revenue trajectory as we get out to those timeframe, it's really just going to be a function of how much capex, we can bring online and how fast we can translate that into revenue. So I do think as you look out at the time, that's exactly what we're trying to do is kind of get out into an above where we're at today now that can be a function of how well, we can execute that and bring it online so I'm not necessarily saying it again.
The change in those numbers today, but I think we're anticipating and seeing the steep with an accurate. So if you look at 2021 physical we spent 500.
$66 million.
Capex, which is our peak year, we'll bring that down to $4.75. This year, but we'll also see.
Yes.
Second amount of reimbursements.
From the state of New York, and as the year moves on given that Steepening.
Demand for well start to see.
Some benefits from that hopefully as we get out into a year from now and what type of cost that is.
If you go back to January and the Capex plan that we laid out when we launched 200 millimeter. This is largely the same plan.
But we're trying to do is capture the capacity and the revenue in such a way by pulling in that same plan anywhere we can to drive more capacity. So some of that was growing over 23% and 20 for some of that was materials expansion for facilities and things like that so you can think about it as being maybe pulling in roughly 100 million maybe versus what you are.
Anticipated before but with the expectation that as we get into 'twenty three 'twenty four we can meet our higher a higher revenue level than we had anticipated previously in the $1.5 billion dollar plan.
Thank you.
Thank you. Our next question comes from the line of Colin Rusch from Oppenheimer. Your line is now open.
Thanks, So much guys can you just give us an update on the preparedness of the supply chain and their suppliers to support your ramp as you're answering here back half.
The next fiscal year.
So I can probably hit that Neil is very actively engaged in this as well.
Basically from the beginning of the pandemic, we have had a weekly supply chain update in terms of where things are and what <unk>.
Points are happening and so forth our team has done a fantastic job on this and and.
<unk>.
We've stayed close with all of our suppliers.
And in the supply chain obviously.
Throughout the pandemic the feedback we're getting from from these folks is very positive in terms of how we've handled the situation. Both from day, one when everything went into lockdown and there was no business kind of going on.
How we were very even handed in terms of dealing with them and then as things have kind of roared back they've been very very supportive of us in this.
In this transition Neil I don't know if you want to add any additional color from your point.
Yes, so I think in terms of the supply base, one thing I think that.
We've been fortunate the fortunate enough to have effective was going out very early.
Knowing that the capacity expansion in our revenue requirements, we would need to go out there early so I think we place orders either equipment or other thing out of the long term to get those types of things in place.
I mentioned earlier I think that would be.
It's difficult more difficult expansion, if we were starting that today.
As I look at working with our suppliers I think again I think we've partnered with the supply players very very well.
And I also think that we've gotten ahead I think in many cases, maybe longer lead times that are out there right now and so we don't really see an impact on that in terms of the scheduling of the capacity expansion has been working on in fact as I mentioned earlier, we're actually pulling things in any area, we can and.
Obviously in the capability to do that.
Excellent and then just following up on in terms of the design ends.
The rate at which they are now and could you just talk about the duration of working through those design and in that process.
Are they accelerating any spot rate.
We're at call it six months earlier.
It seems like well first off every opportunity kind of has a life of its own.
So youll see obviously the last quarter, we were super please.
Pleased with having $1 billion of design in but it's not one of these things where it's kind of always up into the right. Sometimes a lot of decisions are made in a quarter and sometimes decisions get made for get delayed for whatever reason last quarter, obviously with a super positive quarter for us the last year with phenomenal it too.
$9 billion, so we feel pretty good about that so.
If they kind of take a life of their own what I would say, though is we're certainly seeing.
The design ins that we have the expectation from the customers in terms of ramp is what's been pulled in.
And as is steeper than we originally anticipated. So it's obviously a good problem to have and it's one we're working on pretty hard right now.
Thank you. Our next question comes from the line of Edward Snyder from Charter equity. Your line is now open.
Great. Thanks for the follow up I was little confused by your answer on the question about perishable demand for materials.
You've got a lot of large customers.
To a business like <unk>, which are also competitors and device I know you've had you must have had conversations about how they feel about your ability to the largest most automated device fab, that's not going to be competitive with them.
Can maybe you can characterize the tenor of those and help explain how they're going to benefit from the materials business because that's your Durham side of the business you know because we grow materials in New York that could ramp independent of <unk>.
Your device business device fab in New York, So what's preventing the materials business from ramping faster if thats the limit to your customers would be.
How do they feel about.
This monster Fab you're building.
Just a couple of things first off on the.
Perishable demand.
What I was answering that relative to devices.
As Neil mentioned it with the device business that has the.
The $100 million worth of.
Of.
Unfulfilled demand for next year. So that's really from a device perspective, and so I think when those device manufacturers see what we're doing with New York or Windows device customers see what we're doing in New York.
Pretty pleased with the with the amount of activity that we've got going on there in the development and so forth in terms of materials as I mentioned, we anticipate that 2024 that our materials business will be somewhere in the order of $600 million of device business $900 million.
And so we know that a lot of folks are trying to build materials on their own.
But I think the $1.3 billion.
Couple of expansions and extensions that we've seen.
Our kind of turning into I think it's I think people are just realizing this is more difficult than than they originally anticipated and again Ed or.
Our attitude is we've got great relationships with these folks I have ongoing conversations with them.
We treat them as real customers, there's not sort of been one for what we do and have been too for everybody else, we try to give them the best materials, we can.
And that's primarily because we're we're trying to convert the power market from silicon to silicon carbide.
As a big supplier of materials, having a good relationship with folks that are going to help us do that as a really important thing so I think.
The way I would characterize it is I think people the materials customers see their opportunity as a as a device supplier is growing very very rapidly because the entire market is growing rapidly.
<unk>.
And there's really no sign of it asymptote out anytime in the coming decades.
So I think it's.
It's mostly just a realization that this stuff is harder to do than probably anticipate.
And the fact that we treat them well.
As a customer.
And maybe if I could housekeeping did you say that the fourth.
75 of Capex.
Gross or net of New York State payments.
At the net of New York State payments.
Thank you.
Thank you. Our next question comes from the line of Bruce <unk> from BMO. Your line is now open.
Alright. Thank you. Thank you for letting me get on the call I had a question Neil on the.
On the cost and both you and Greg from the semi industry, it's kind of unusual to see startup costs being pro forma it out, especially since 60 million out of the <unk> cash charge can you just help us.
I understand the thinking behind them.
And then my related follow up question is.
Since you are pro forming pro for mining costs out does that imply then that gross margin bottoms out in the second quarter.
Thank you.
Thanks, Ann Bearish and of course, the before we took that decision. We did some benchmarking on that and I think if you kind of study that we've seen other companies do that as well I think the second thing really is on the startup cost is given the size of the company. We are today versus what we're going to be out in the future weighing down our margins have been trying to explain them to all of you.
That startup costing and there was not really generating revenue.
It's such a significant piece kind of just be easier to kind of report on it every quarter and let you know what we're doing and be very transparent about it and then be able to.
Kind of kind of look and see.
Where we go from there and sorry, I missed what was that second question.
Yes, the second question was.
Should we think that gross margin then bottoms out in the second quarter of the current fiscal.
Fiscal year.
But I think that we're going to see some improvements I mean, a large a lot of this is going to be dependent upon what happens in the play as your contract manufacturer as I said earlier about one point of impact happened in for cable to see another point of impact in the <unk> quarter, just related to that and we are making improvements in our.
Our Durham in our Durham factory. So I think if you think about what's gone on in Durham and the Steepening.
Demand thats happening right now a lot of that supply disconnect. You can think about a revenue standpoint, we're not what we're saying here is if we can get more capacity online. We can do more revenues our revenue forecast for the year hasn't changed. It's just we got higher demand and we want to get more output out of Durham in the meantime, so I think what will happen here.
You take a step back in durable won't we've put in over 100 tools in the last year to support higher demand and we just need to get that improve that factory output and kind of support that kind of demand curve and as Greg mentioned earlier, we've added new leadership to get better focus on that and really improve the North Carolina footprint. For example, Macy's Degaulle, who you heard the prepared.
Remarks is somewhat recently higher she was running a bay and chase for Ti.
A significant.
Significantly more amount of wafers in our Durham fab does so.
That most of the capacity improvements and you think about bottomed out on the margin that we've got to drive to fulfill that incremental demand will come through yield and cycle time performance in our footprint.
As we drive to higher revenue, we anticipate that the margins will come along with it. So it all kind of all goes together so fulfilling this additional demand driving those things feels like we've kind of hit bottom we should see some improvement as we get into <unk> I wanted to get in the back half of the year kind of hit that mid thirties kind of plus or minus that is excluding those startup costs as I mentioned earlier.
Thank you.
Thank you. Our next question comes from the line of harsh Kumar from Piper Sandler. Your line is now open.
Hey, guys. Congratulations on the strong design in pipeline, Greg I had a quick question I'm just I've seen a lot of companies define things differently I was just hoping that you could.
<unk> to us how you guys categorize designing these are these orders are on the books that are just basically fully committed at this point are or is there something else to it and yes, I will go with that and then come back for a second.
Yes, typically it's.
The way it works is it.
And they flipped over to design in when a customer has awarded US the business. Many times that's in the form of an award letter or something like that but it's an official document that come from the customer that says.
We have evaluated all of our different suppliers and you've won this particular project and so it's a customer.
Design Award, if you will and.
Now you talk about the ramping of it.
When they need an initial qualification parts and all of that to go from that award letter to production depending on the end equipment can be several years in automotive. It's typically four years and during that time, you're shipping initial samples to them they are putting them in their bills.
Whatever challenges they have youre working with them on it from an engineering perspective, and so forth that is.
Pretty typical for what semiconductor companies define as design in.
It is very familiar to me in terms of the other companies that I've worked at and I think most people kind of consider it.
At the same way.
So I just wanted to follow up on that but then the opportunity pipeline do you know the number of going in when you win a design like how big that order is going to be or is that something you can kind of estimate.
No.
The customer tells us it's going to be X millions of.
Units and then we multiply it by the price that we did and so we know how much it turns into an <unk>.
Obviously all of that is subject to the accuracy with which the customer thinks their product is going to ramp.
And that can have some variability, but thats super normal harsh in this environment. So I think I think what we're doing in terms of.
Design and is pretty much straight down the fairway with.
Other people would describe it as well.
Understood very helpful. Thank you Greg.
Thanks harsh.
Yeah.
Thank you. Our next question comes from the line of David O'connor from Exane BNP. Your line is now open.
Great. Thanks for taking my question maybe.
Greg if I can go back to the wafer supply agreement.
Given the transition that we're seeing in the industry from the 150 millimeter to the 200 millimeter I'm. Just wondering why 200 millimeters were not part of this expanded wafer supply agreement given that it's going to stretch into the back part of the decade.
In addition to that the $1.3 billion an agreement is still a five year timeframe. So the right way to think about that.
Yes, so on the second question, yes, so kind of half a decade is about the right ZIP code. If you will some of them are obviously a little bit longer.
The one we just announced then gets into the second part of this decade here with ft.
Just in terms of.
Just just to remind everybody all the deals that we've done are 150 millimeter and we're really focused on just ramping our internal capability at this point on 200.
So it's more of a.
A decision just to stay focused on that.
Got it and maybe just one quick follow up for Neil on the Opex, how we should model that into the next fiscal year anything to.
To call out there. Thank you.
Thanks, David as you get into the Opex I think similarly, you can think about that accretive at a couple of million dollars a quarter and the investment areas remain the same.
Primarily in R&D.
As it relates to bringing new products to market. In addition to the 200 millimeter development work Thats going on and in sales and marketing group, who are investing in to help us bring home more of these pipeline and grow the design end levels contributed to do and those are the areas that we're investing in so you can think about maybe a couple of million a quarter as you get out to the end of the year.
Got it thanks, so much.
Okay.
Thank you at this time I am showing no further questions I would like to turn the call back over to Gregg Lowe for closing remarks.
Well, thanks, everybody for your engagement and questions in.
Participation in our call today, and we look forward to talking to you next quarter. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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