Q3 2022 Wolfspeed Inc Earnings Call
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you'd like to withdraw your question Press Star followed by the number two we ask that you limit yourself to one question and one follow up thank you.
Please note today's call is being recorded.
I'd like to now hand, the conference over to your first speaker today, Tyler <unk> Vice President of Investor Relations. Please go ahead. Thank you operator, and good afternoon, everyone. Welcome to <unk> third quarter fiscal 2022 conference call.
They will speed CEO , Gregg Lowe and will see CFO Neill Reynolds will report on the results for the third quarter of fiscal year 2022.
Please note that we will be presenting non-GAAP financial results during today's call, which is consistent with how management measures will speeds 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 in 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 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 I Hope you and your families are safe and healthy.
I am pleased to report that during the third quarter, we continued to execute on our strategy delivering strong results and non-GAAP diluted earnings per share. Despite some macroeconomic disruptions.
Last month was an eventful one for the company as we cut the ribbon and opened Mohawk Valley are fully automated 200 millimeter silicon carbide semiconductor wafer fab.
Currently we are running initial lots and we'll then transition to product and customer qualification.
By production shipments, it's an exciting time for us as well as our customers.
They can see a huge influx of capacity coming online, enabling them to transition their products from silicon to the more efficient silicon carbide chips. We're delighted to have had lucid motors join us for the ribbon cutting demonstrating our innovative lucid air and highlighting the advantage.
Stacey using silicon carbide technology in their car.
We also had the opportunity to host some key partners at Mohawk Valley, including Arrow Electronics leadership in some of their key customers. The feedback was very positive and they are quite impressed with the scale of the facility.
Aside from key partners and customers top policymakers have also come to the site to see firsthand, how the new fab will help drive the auto industry's transition from internal combustion engines to electrified powertrains and support innovative power management solutions for the industrial and energy industries.
This includes signage Senate majority leader, Chuck Schumer, who recently came to our Mohawk Valley Fab to showcase what is possible when we invest in American technology jobs in critical sectors of the economy.
We were also honored to have New York Governor.
Kathy <unk> join Us last week at the ribbon cutting.
Governor Hogle was our keynote speaker and highlighted the Mohawk Valley Rich legacy of manufacturing and strong work ethic, which she believes will be a key contributor to creating the new silicon carbide Valley.
The opening of Mohawk Valley is an important strategic milestone for Wolf speed and extends our competitive position as a global leader in Silicon carbide devices.
These exciting developments are made possible by our deep bench of semiconductor leadership and our dedicated team members.
I am very proud of the work we've done so far and I'm excited to share our progress as we continue to execute on our growing and diversified opportunity ahead of US we remain committed to our strategy and achieving our long term growth objectives and our strong results. This quarter are proof of our team's ability to capitalize on this one.
Adam.
With that I'll turn it over to Neil who will provide an overview of our financial results for the third quarter and an outlook for the fourth quarter of fiscal 2020 to Neil.
Thank you Greg and good afternoon, everyone. We delivered strong results during the third quarter as we continue to see increased demand for our silicon carbide solutions.
Starting with our top line performance revenue for the quarter came in slightly below the midpoint of our guidance at $188 million, representing an increase of eight 6% sequentially and 37% year over year.
We delivered our seventh consecutive quarter of sequential revenue growth. While these are strong results. Our top line was impacted by COVID-19, quarantine protocols in China, which resulted in a partial shutdowns at some of our packaging subcontractors and delays in some of our shipping channels.
Absent these shutdowns.
We have met or exceeded the top end of our guidance range for the quarter.
We are continuously monitoring ever changing COVID-19 environment as it remained focused on timely delivery of products to our customers.
Demand for our power device solutions continues to be strong as evidenced by revenue growth of approximately 87% over the prior year.
I mentioned, our progress Mohawk Valley, meaning.
A meaningful step towards increasing power device capacity and we remained focused on bringing more device capacity online.
For RF devices, we're seeing positive momentum in the communications infrastructure and aerospace and defense markets.
From a materials perspective demand for our 150 millimeter silicon carbide substrates is strengthening as we see increasing demand from our customers, which resulted in strong year over year and sequential growth.
And we continue to add capacity to serve the strengthening demand.
Turning now to our bottom line performance, our non-GAAP net loss was $14 3 million or <unk> 12 per diluted share at the top end of our guidance range, our third quarter non-GAAP earnings exclude $52 2 million of expense net of tax or <unk> 42 per diluted share for noncash stock based compensation acquired intangibles amortization.
Accretion on our convertible notes project transformation transaction cost factory optimization startup costs and other items outlined in today's earnings release.
Third quarter non-GAAP gross margin was 36, 3% compared to 35, 4% last quarter.
Gross margin was slightly above the midpoint of our guidance range.
Sure than expected device revenue due to the China shutdowns drove modest improvements in our product mix.
non-GAAP operating expenses for Q3 were $88 $6 million and our non-GAAP tax rate was 25%.
The increase in our operating expenses was largely due to investments in our device businesses and 200 millimeter silicon carbide substrate platform.
For the third quarter days sales outstanding was 49 days and inventory days on hand was 159 days.
Cash generated from operations was negative $28 million and capital expenditures were $103 million, resulting in free cash flow of negative $131 million.
We currently have approximately $1 3 billion of cash and liquidity on hand to support our planned. Additionally.
Additionally, we completed a successful convertible debt offering with the issuance of $750 million convertible senior notes at the end of January .
This offering allows us to fund the expansion of materials capacity on germ campus and additional fab and backend capacity to support the steepening demand for Silicon Carbide solutions, We've mentioned previously.
It will continue to be opportunistic from a capital market standpoint to ensure we have flexibility to continue to support our long term growth path.
During the quarter, we incurred startup costs, primarily related to Mohawk valley totaling approximately $21 million.
As we've discussed previously we originally expected a total of $80 million of startup cost in fiscal 2022 with the majority of these costs incurred in the second half of the fiscal year as we continued to ramp with that.
At this time, we believe startup costs will be at approximately $75 million level by the end of the fiscal year.
Provided a non-GAAP adjustment for the startup cost as well as a reconciliation table in our earnings release.
As Greg mentioned earlier, we are running initial lots of the fab with plans to qualify customers eventually ramp revenue.
With the official opening of Mohawk Valley at the end of April we will improve our ability to meet the steepening demand curve for silicon carbide devices, which will only improve as we continue to ramp production capacity.
We are now anticipating net capital expenditures of approximately $550 million this fiscal year versus the previously communicated $475 million.
This change is related to the timing of reimbursements from New York State for the Mohawk Valley Fab.
We anticipate receiving these reimbursements in the first half of fiscal 2023, and this does not represent a significant change in our fiscal 2022.
Gross capex spend outlook.
The construction of this fab is not only a great accomplishment for <unk>, but also has created north of 250 jobs to date for the people of upstate New York and is attracting future talent from the surrounding University. The universities for our partnerships with CUNY school system and others.
Moving to our outlook for the fourth quarter of fiscal 2022, we are targeting revenue in the range of $200 million to $215 million, we expect revenue growth to be driven by our power business as we continue to increase capacity across the supply chain.
Q4, non-GAAP gross margin is expected to be in the range of 35, 3% to 37, 3% as.
As a reminder, the key to our growth market transition from the mid <unk> to 50% in 2024 is largely based on three elements, which we have outlined previously optimizing Durham transitioning from 150 millimeter for 200 millimeter wafers and driving revenue through our Mohawk Valley.
We continue to be on track with all three of these elements as evidenced by our progress this quarter.
We are also targeting non-GAAP operating expenses of approximately 91 million for the fourth quarter of fiscal year 2022 as.
As we discussed last quarter, we anticipate operating expenses will continue to slowly increase over time due to increased head count in R&D and sales and marketing.
Spec this to become a smaller percentage of revenue as we near the middle of the decade.
We target Q4, non-GAAP operating loss to be between $20 million and $11 million.
And nonoperating net loss to be approximately one 5 million.
Our non-GAAP tax amount to get benefit of approximately $4 million.
We're targeting Q4, non-GAAP net loss to be between 16 million to $9 million or a loss of 13, two seven per diluted share.
Our non-GAAP EPS target excludes acquired intangibles amortization non.
Cash stock based compensation project transformation and transaction costs factory optimization restructuring and startup costs and other items. Our Q4 targets are based on several factors that could vary greatly including the situation with COVID-19.
All demand product mix factory productivity and the competitive environment.
With that I will now turn the discussion back to Gregg.
Thanks, Neal the ribbon cutting at our Mohawk Valley Fab marks an important milestone for <unk> as we evolved from the leader in Silicon carbide technology to a global semiconductor powerhouse.
Our investment in a world class facility positions will speed to benefit from the secular growth opportunity created by the electrification of the automobile the improvements in efficiency for industrial end markets and the transition from silicon to silicon carbide across both.
The trends of this transition to silicon carbide devices is happening faster than we anticipated in fact, our device opportunity pipeline continues to grow and is now well north of $25 billion.
And is comprised of approximately 9000 different projects.
More importantly, our sales team continues to do a phenomenal job converting these opportunities into design ins across a wide range of applications.
Our third quarter design ends were approximately $1 $6 billion.
Matching our record setting total from last quarter.
Year to date design ins are at $3 8 billion.
A 100% increase from the $1 $9 billion, we recorded in the same period of fiscal 2021. This is a remarkable accomplishment by our sales team.
We will see continues to win business with key partners. So you won't always see them in our press release or hear about them on an earnings call and this is one of the many reasons why I am pleased to talk about our new partnership with Lucid Motors, which I mentioned at the top of the call.
Range is a critical success factor for electric cars and played a key role for lucid motors as they chose will speed silicon carbide devices for the lucid air.
The lucid air is able to reach an estimated EPA range of high of 120 miles.
Which is the longest range for an electric car on the market today.
The lucid Air provides another strong example of our ability to convert opportunities in the pipeline.
We have secured approximately $8 7 billion of design ins over the last three years, representing a long tail for future revenue.
This puts ever increasing upward pressure on our long term revenue outlook that we shared with you back at our Investor Day, just last year.
The progress we've made at the Mohawk Valley Fab paired with another record setting design in total for the quarter demonstrates how wolf speed is expanding its market, leading position and driving the transition to silicon carbide devices, and the automotive and industrial end markets.
Given this a top priority going forward is increasing capacity for both materials and devices.
And we will certainly leverage our existing footprint as much as we can.
This includes ongoing expansion of our materials footprint in Durham to maximize material growth.
It also producing as many devices as we can out of our current Fabs in North Carolina and pulling forward some of our fit out timelines for the Mohawk Valley Fab.
We'll speed will very likely need to add more materials production.
As well as consider the construction of another wafer fab.
At this point in time, I can't tell you precisely when and where but it will certainly be sooner than we anticipated back at our Investor day.
Additionally, as we continue to grow we continue to have the right people in place to help us manage that.
I'd like to highlight the tireless efforts of Adam Milton Our Vice President of operations at Mohawk Valley.
Adam is a testament to the strength of our <unk> culture as he started with will speed upon graduating from college and now runs day to day operations at the Mohawk Valley Fab.
Thank you Adam and the entire Mohawk Valley team.
Team for everything you've done.
As we continue to make progress on our strategy. We are supported by developments in the broader market. This has been there has been heightened conversations throughout the semiconductor industry and on.
On the projected growth of the market with some anticipating the industry to grow to one trillion by the end of the decade with an increasing portion of which will be compound semiconductors.
Silicon carbide.
This is supported by the recent increase in EV offerings in the automotive market with players, including GM and Honda announcing investments in EV technology.
Our technology plays a significant role in the automotive EV market and we will continue to capitalize on this growth.
The automotive market moves towards a more efficient future.
The momentum in the marketplace continues and we will continue to better position ourselves for success.
We continue to make significant investments in our capacity.
Our talent and product offerings to maintain our industry leading position.
I am confident in our path forward and the significant progress we've made so far.
We will continue to execute on our strategy to create a global semiconductor powerhouse Keira will speed.
And with that we'll turn it over to the operator and we could then begin our Q&A session.
Thank you we will now begin the question answer session again, if you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star followed by the number too.
We'll pause briefly here to allow questions to generate in Q.
The first question today is from the line of Gary Mobley with Wells Fargo Securities. Gary You May proceed.
Thank you Hey, guys good afternoon.
Taking my question.
I wanted to double click on your comments about.
Customer qualification for products coming out of Mohawk Valley, perhaps if you can give us a little more.
Details on the on the timeline there.
The qualifications may begin.
The qualification maybe.
Fully accomplished the different end markets automotive specifically.
Sure. Thanks, a lot Gary so as I mentioned in the prepared remarks, we've begun running wafers in the factory. The initial hitting some of the initial machines and we'll be going full flow then after that.
The products that were.
Ramping while the products that were.
Better in the fab right now are actual real products for customers.
So as we transitioned from this initial flow to our own internal qualification of customers. Then we will get those products and they will do their own internal qualifications themselves. So thats kind of the process.
Typically a couple of quarters to get through all of that.
But I would tell you that.
Or a couple of things one is recall we had a.
A pilot line in Albany, So our confidence in the ability to ramp. This factory is actually quite high because we've already run product on.
200 millimeter wafers.
Through the pilot line.
So I think we will have normal tweaks that we have to do in the factory, but we're not anticipating any big.
Problem is we as we run full flow material and qualify that material as well the second thing that I would say as customers see this fab is a huge benefit to them from a capacity perspective, so typically there would be.
Youre kind of pulling your customer along the way in terms of trying to have them run their qualifications I think it's going to be the opposite the customers are asking us for position inside of Mohawk Valley, and that's why I mentioned that the product that we're actually running through the fab right now, it's a real product that.
As we as we then qualify that product.
The customers and wood wood.
Probably.
On a more expedited fashion run their own qualification and then finally.
I think I mentioned it on the last call, but we actually have orders for product out of Mohawk Valley as we speak so.
Customers are really.
Hoping we can ramp this factory up very very quickly.
And Gary this is Mike.
Color Greg.
Sure.
Yes.
Just as it translates into kind of the revenue trajectory that we've talked about previously really no change. So I think we'll start to see.
Revenues should start to more substantially come out of the fab as you get into the back half of fiscal 'twenty three kind of think of that March and June quarter.
Next year kind of as we've talked about previously and then I think on tract for the supporting the $1 5 billion plan as you get out to 2024, so all of that translates into kind of a trajectory that.
<unk> talked about previously.
Great. Thanks for that color and I had a multi part question as it relates to gross margins I realize there's a big range in gross margins between the different products power devices or gross margin dilutive currently but.
And specifically to the.
Devices coming out of <unk>.
They are in facility currently.
What sort of trends are you seeing there on the gross margin improvement and then specific to Mohawk Valley. When would you expect depreciation to start factor into into the P&L.
Well first of all as I said previously right now the cost structure in Durham at 150 millimeter is lower than what you are seeing.
Durham versus what we would expect that as we start going on 200 millimeter running out of Mohawk Valley. So as we start to grow the revenue you would expect to continue to do that at a Durham here for the next couple of quarters that puts a little bit of a mixed pressure on us from a cost standpoint.
As we transition into Mohawk Valley.
We'll start to see some depreciation pickup Gary as you kind of alluded to.
If you look at the P&L now, we've seen roughly $30 million or so a quarter depreciation.
And then when we qualify products as Greg was talking about will start to see that start to step up as we.
As we ship revenue so early in the start of a fab naturally youre going to start to see some depreciation come on just by the nature of it and.
In our nature.
And our position that depreciation is going to be lower than you would otherwise expect you have to remember with the reimbursements that were getting from New York State as it relates to Mohawk Valley, that's going to help from a depreciation standpoint, so and I think the depreciation levels for products coming out of Mohawk Valley will be roughly 30% lower than we would've anticipated previously just because we apply some of those.
Reimbursements to those things moving forward, because that's kind of how we can kind of look at it.
This is obviously something we watch closely and it's contemplated in our plans.
At the end of the day, we see more depreciation come on line kind of as you alluded to.
Our representative of capacity coming online and for US that's a good thing because with a pretty large increase in the design ends.
Very good visibility to fill the fab.
As we start to move forward and we feel really good about that and Thats just a good thing for us and for our customers.
Thanks, guys I appreciate it.
Thank you Mr Mobley.
The next question is from the line of Jed <unk> with Canaccord you May proceed.
Hey, guys. So first question.
Greg and I guess my dogs trying to chime in so apologies for that but I guess first question, Greg If we look at.
Past year or so you've been consistently.
Kind of besting the top end.
I recognize.
Covid and the impact of shipping from from Malaysia.
In China on the sub con.
I guess the question I have though is.
We also saw for the first time a flat.
Design and quarter to quarter. So I was wondering if you might be able to provide a bit more color on the cadence of design in design win as well is.
Whether or not.
How we should read through.
Sort of that that linkage there if there is any at all and then I have a follow up question.
Thanks, a lot Chad.
So let me just make sure it's crystal clear.
The flat design in the last quarters of record to record. So we're pretty happy with that design and and year to date, we're 100% higher than we were year to date in 'twenty. One. So we're feeling really really good about that design and can go up and down on a quarterly basis sometimes.
It's just that customer decision comes out three days after the end of the quarter and by the way, it's a pretty rigorous process in terms of calling something a designer and it's not just a phone call. We get from somebody it's actual document that states that we've won.
Our business and so it's generally gone through.
A pretty rigorous.
Great.
The other thing Thats kind of interesting the chatter over the last three years. Our total amount of design ends is $8 $7 billion over that three year period.
And a little north of 40% of those design ins have moved into what we call. It design win and what that is it's a very.
Clear specification that means the customer has actually ordered product.
Represented at least 20% of their first year's anticipated volume and what that really means Jed is that they've ordered product for their initial production ramps.
And so when you think about 45% of those customers over the last 30% to 45% of those opportunities over the last three years that are designed in have now moved into initial production ramp.
That's actually quite astounding from my perspective, and I think that's what's driving this upward pressure in the steepening.
Ramp that we're that we're having right now.
Got it that's helpful. I mean, it does beg the question and maybe this is for you or Neil on the Capex side of things I mean, I know you alluded, but just doing that math out does seem like if mohawks a $1 five.
All capacity or roughly speaking.
Youre going to need more soon.
And then is it sort of a second part of that Capex question there.
I guess Neal if we look at the increase of Capex for this year. When we were last up there. We saw that the temporary wall was was coming down to open up that ballroom and I know Adam spoke clear.
Clearly about.
Acceleration of tools.
And so while you are not running first silicon yet I'm just curious how much of the increase of Capex. If any is a function of that acceleration of euro of your ramp there.
Yes.
Starting to Neil can give you a little bit more details so.
Obviously in the prepared remarks, we talked about the fact that we would need to be we anticipate that will be.
Needing to expand our materials operation further than what we're doing right now and just to kind of base set on materials. We have one factory here on campus. We have a second factory that we're expanding on here on campus.
And that's happening as we speak.
What we're talking about is a third factory for materials. So.
We're pretty deep in that.
And the thought of how and where and when and so forth, we're not ready to announce that yet, but we're pretty deep down that down that path and then in terms of the wafer fab Neil will get into a little bit more detail, but youre exactly right that fit out of the factory in the removing of temporary walls and things like that it's all accelerating.
Versus our previous plan.
We also anticipate that we would be needing another wafer fab sooner than we originally had anticipated and theres sort of two sides to that coin. One is the demand is just simply coming in stronger and our win rate is stronger than we would have originally anticipated and the second thing is.
Just to kind of the the realization that this next fab is probably going to take longer to build than the original fab.
Which is.
All the supply chain issues and the tool lead times and all of that kind of stuff. So.
It's a combination of that and maybe I'll, let neel give a little bit more color. Yes. So as you think about the Capex. One is we mentioned that the capex for this year was a bit higher and Thats really just related to a timing issue related to reimbursements related to Mohawk Valley. This year. So there is a reimbursement from New York, we anticipated getting in fiscal two.
2022 kind of the June quarter, and then we'll probably see it in the first quarter first half of.
23, so that's the difference there however, I will say when you think about the capacity and Vince investments that Greg is alluding to here you mentioned some of the prepared remarks and in response to your question here of jet.
If you look out into 2023.
We'll likely spend as much or more capex as we did this year and it's really geared at increasing the capacity levels.
I just wanted to give kind of an early kind of look at that.
I don't know if it will make a big difference in 'twenty three or even 2004, you talked about sitting out in the back half of the Mohawk Valley I think thats part of the plan here to facilitate that and to build it out faster, but we are certainly looking to address that upward pressure that we shared with all of you soon.
We gave you those numbers on Investor day. So I think you can think about the additional capital being spent.
Really to address materials.
Mohawk Valley Fab as well as the backend as you think about beyond that getting beyond that getting to a new fab I think thats, a little bit of a different discussion.
I think we're thinking about that we're evaluating that right now, but I think we'll wait until we get a better view on that going forward to give you kind of an update on what that total picture would look like probably sometime later in this calendar year and Thats what were kind of looking at right now.
Thank you.
Thank you Mr Dorer Cymer.
The next question is from the line of <unk> <unk> with Jpmorgan you May proceed.
Hi, This is Joe Cardoso on for <unk>.
So first can you disclose what percentage of the $1 6 billion design ins or auto related and then as it relates to those auto design wins awarded this quarter, how should investors think about those how those begin to materialize into revenues for low speed, specifically are the auto design and being awarded now largely related to revenue beyond fiscal 'twenty six or can we still.
Expect some of the design in this quarter and in future quarters to contribute to revenue in fiscal 'twenty six.
Have we kind of hit a point here, where most of the design ins will be for periods beyond fiscal 'twenty six window.
Yes. Thanks for the question I believe our automotive where it was around 70% of the design ins.
So yes, it was around 70% of the design ins this quarter were for automotive and in terms of the ramp typically automotive customers when they go from design in.
Two production can be anywhere from four to five years is kind of typical in electric vehicles. It tends to be a little bit shorter just simply because of the supply chain.
Of all the various different parts that goes into a electric vehicle is substantially simpler than it is in.
For an internal combustion engine car.
And then it also depends a little bit on whether it's a established vehicle manufacturer or more of a pure play.
Electric company car company.
They have different timelines as well so kind of depends I would say that design ins that we hit for the $1 6 billion in the 70% of which were automotive may see some amount of revenue in 2006, the substantial portion of the revenue would be beyond 'twenty six but we're definitely.
Some of them in fact, I know some of them are targeting for inside of <unk> 26 for their.
Ramp.
Production some of them are.
The car companies are actually inside of that.
Window as we speak.
Got it and then just quick clarification, you guys mentioned, obviously that $10 million roughly $10 million.
$10 million revenue headwind this quarter related to the Lockdowns in China can you just update us on the situation where that stands today and whether you are baking any of that headwind from the disruption in the fourth quarter Guide I mean, it doesn't seem like it I think earlier last quarter you got it at exiting out of $200 million run rate. So you guys seem on target. There. So just curious if theres any.
Lingering disruption that China Lockdowns in your guidance. Thanks.
I'll start and then turn it over to Neil.
First off our team did a phenomenal job of trying to minimize the impact and this was.
The entire city of 25 million people as we're locked down so it was a bit chaotic there towards the end of the quarter.
And yes, absent that we would have been at or above the top end of our range. So it's very very simple. This was just simply a supply issue associated with the Lockdowns in China. The demand remained super strong. So no no issue from that perspective I would also tell you that our team has done a really phenomenal job.
Getting a strategy in place for a.
A more robust supply chain that would not be so dependent on these lockdowns. There. So I am feeling like the team has done a really good job of trying to avoid these things or minimize the impact of these things in the future.
Situation in China remains quite.
Fluid I guess with Beijing, now heading into Lockdown and.
What all that means I guess, it's a little bit up in the air.
Maybe ill have Neil then talk a little bit about what's baked into the into the quarterly projection and as Greg said.
Demand continues to be very strong.
Constraint situation is.
It is very much a supply issue and we're starting to see that demand pick up and we're starting to see a clear up a little bit. If you look at the guide at the midpoint that 10% revenue growth year over year and inside of that represents power device revenue increase of well over 100% now thinking about the impact from the China shutdowns in <unk>.
About maybe a high single digit is kind of $1 million level of what the impact was of some of this was related to actual shutdown. So operators are employees were not able to get into factories and actually run product and some of it was related to just logistics and shipping challenges in getting things through the supply chain and.
And we really saw that in late March and in early April . What this has translated to you I'd say into <unk> is.
I think there are still some some attendance challenges I think that they have.
Improved.
We're seeing some shipping and logistics challenges still and I think that's really the bigger challenge as we get through the rest of the the final quarter here and I think you want to think about Q4 is probably a similar impact some of that high single digit millions impact that we had.
To the forecast similar to what we had in <unk>.
It'll probably take the rest of the quarter for us to kind of sort through that and understand what the kind of true revenue trajectory is coming out of the quarter as we kind of get into <unk> and kind of get into that September quarter, but right now demand remains strong will manage through this China situation.
And we'll see how much of that we can catch up on it's difficult to say only because a lot of it was because of capacity, but just never run maybe possibly from some of the transitory items as it relates to shipments and logistics and that sort of thing. So we'll have to wait and see.
Thank you. The next question is from the line of Craig Irwin with Roth Capital Partners. You May proceed.
Hi, good evening and thanks for taking my questions.
So I wanted to start off.
One question about the pipeline so you said <unk>.
$5 billion across 9000 opportunities.
Can you confirm for us that this is with existing products.
Existing $1 to $1 seven kv, I guess 650 volt MOSFET.
Not products that are on the roadmap that I understand I understand the military is 10 kv MOSFET I know you've talked about 6500.
Mas fits for utility equipment, and some of the industrial applications that could be a really really good fit there, but can you maybe talk about.
What this pipeline represents as far as existing versus anticipated products and the diversification of our portfolio over the next couple of years should we expect a move towards.
Much higher voltages available commercially for.
Adoption and customer products.
Well, thanks, Craig for the for the question.
Pipeline has a pretty strong bent towards automotive.
As we spoke earlier about and.
Most of those voltage ranges are.
The 900 volt bus or 1200 volt products, maybe a little bit higher than that.
And then there is a range of different.
Yes.
Resistance requirements across those different products, so its mostly in that and that kind of voltage range, we definitely have customers.
Better looking at grid type applications or substantially higher voltage type applications, where we've got products and products and our roadmap.
For those type applications as well and I think as the as you know Craig is the voltage goes up the advantage of silicon carbide.
Over Silicon also goes up so I would anticipate that we'd see more and more customers and those higher voltage applications. I don't think automotive customers are going to get to 10000 volts, but certainly the industrial applications, great applications and things like that would certainly do that.
Understood understood.
Second question.
Touches on your disclosure.
The additional.
So silicon carbide gross crystal growth facilities that youre.
We're expecting to put in place.
We have been hearing from some of your largest customers that they could take substantially more wafers. If you are able to deliver them.
One specifically talked about 20% to 25% as far as sort of a gap as far as what they wanted versus what.
You were actually able to deliver.
That seems to suggest to me that.
There's heavy allocation going on.
Quite probably a favorable pricing environment.
For the next round of.
Negotiations for contracts extensions can you, maybe unpack that for us a little bit.
Do you expect the market to stay really tight is this something thats accommodator for pricing on wafers for Korea over the next number of quarters.
Well, thanks, Greg for the question.
I would say across the board the demand for Silicon carbide is.
It's growing at a rate faster than we originally anticipated and I think there is many different things that are that are driving that I think the the efficiency gains that customers get using silicon carbide is now clear.
The customers, who look at it from a.
Our system viewpoint realized at paying a little bit more for silicon carbide chip allows them to have a substantially less.
Our cost for their system and.
That I think is a very very strong viewpoint and then I think there is.
As an additional element that's been happening and that is the.
<unk>.
The silicon industry has been in a bit of disarray with supply and demand for the last geez.
Two years I think.
And.
So customers are trying to figure out what to do about that and they're trying to.
As you can imagine.
Secure their supply chain, so what's happening is.
They're taking this opportunity as they look to redesign their systems to secure the supply chain to reevaluate, whether they want to stick with silicon or move to silicon carbide and more and more of them are just saying, while I can't get the silicon chips, So I'm moving to silicon carbide, so that all of that Craig is driving demand.
<unk> higher than we originally anticipated and thats across wafers and it's across devices. So.
That's why we're we're pulling in the fit out of our Mohawk Valley facility and Thats why if you drive on campus here today, you'll see a bunch of trucks and a bunch of.
Construction going on and what we call building 10. So this is building across the street from where we are right now and we are taking office space and basketball previous indoor basketball courts, and tracks and things like that and turning into crystal growth.
And materials operations, so that expansion is going.
It's going according to plan.
Neil has set a couple of times on previous calls that we've got unfulfilled.
Demand exceeding our our supply to the tune of around $100 million.
So.
We're working real hard to two.
To grow the capacity as fast as we can and then from a materials perspective as I mentioned in the prepared remarks, and even one of the questions. We're also looking at a third site. So we have two buildings here on campus and we're looking at a third.
Building to further expand our materials operation just simply because the demand is is just.
Outstripping the supply and we see that happening for the foreseeable future from a materials perspective, we've actually grown I think.
Pretty substantially as you look both over quarters and if you look year over year as you go to the midpoint guide here. So we're adding capacity growing the materials revenue I would say pretty handily here right now and we're adding capacity to triangle.
Close some of that opportunity that Greg mentioned.
Thank you Mr. Chairman. The next question is from the line of Edward Snyder with Charter equity Research you May proceed.
Hey, guys. This is Jack.
Thanks for taking my questions I had wanted to follow up.
The first is on your outlook for modules versus discrete power devices. So I mean, a few years ago Silicon carbide device market was pretty small only a few hundred million dollars and most of that was discrete schottky diodes in MOSFET, but now it seems like demand for modules is growing so.
Im just kind of curious on your stance there because in the past you've talked about wolf speed, focusing a bit more on the high end high performance segment of the device market, which would maybe suggest a greater emphasis on modules. So how will the mix towards modules trend for both the broader silicon carbide market and then.
Speed in particular, and then I had a follow up I think.
Sure. Thanks, Jack for the question.
I think it's pretty clear that both modules and device.
Markets are going to grow pretty substantially over the over the foreseeable future what percentage are we going to participate in modules versus devices. It a little hard to say, but but I would say both are going to grow pretty substantially with the announcement that we did with <unk>.
With.
Most recently with lucid, it's actually a module that we're supplying to them and.
So that's obviously.
Okay.
A very substantial growth opportunity for us as a as they ramp their own production.
But we don't we don't have we don't haven't taken a position that we're only going to do devices or we're only going to do modules or what have you I think this this market is expanding at an extremely rapid rate.
And I think it's too early to decide.
Only go after one aspect of it so we have module business that we do with customers we have.
Device business, we do with customers some of the customers are interested in doing their own modules.
We're pretty flexible in terms of working with them on that.
Great. That's helpful. And then from your analyst day about 90% of the customers that you gained last year were through distribution and given how tight the supply of power semiconductors is just across the board have you seen an uptick in customers coming directly to wolf speed to secure future capacity I mean I know.
Automotive customers, probably already come straight to want speed and don't go through arrow or distributor, but how should we expect the mix of direct and distribution for non automotive customers to change over the next year or two.
Well I think for the broader market, we're going to remain.
Very focused on the partnership we have with arrow.
Have done a phenomenal job of.
Working with supply chain type challenges, but more importantly, designing us in and getting US designed in with the customer base. They have the world's largest footprint from a sales perspective, and an application engineering perspective.
They brought.
And I think it was something like 25 ish 30 customers up the Mohawk Valley.
Two months ago, I guess it was.
And brought them through the <unk>.
The facility and all of these customers were broad based customers. So it wasn't we didn't have any car manufacturers.
And that.
So I think for the broader market, we remain very focused on.
Expanding our partnership together with Arrow.
And that has been fantastic in terms of the big customers in the automotive customers. There certainly is a dramatic change that's happened with the with the car manufacturers over the last two years, they've been hit quite hard with the supply issues with silicon and so what they are.
<unk> learned from that is they need to have direct.
They need to have direct relationships with the semiconductor players.
And in an electric car.
The majority content.
That goes into an electric car from a semiconductor perspective is in the inverter, which is largely silicon carbide based and so we have and I personally have a lot of direct contact with very senior executives from many of the car manufacturers around the world and they are very interested in our.
Our Capex plan, our expansion plans, our manufacturing plans and so forth some of them want to have.
Direct contracts with us that is what we announced with general Motors back in October of last year. Some just want to have relationships.
But.
They've definitely learn.
From this past two years.
Having a connection with key players in the semiconductor industry and I think especially in the compound semiconductor industry and silicon carbide is going to be a real key.
Thing for them going forward.
Thank you Mr. Sneider. The next question is from the line of Pierre <unk> with New Street Research you May proceed.
Yeah.
Hi, Thanks for taking my question can you hear me fine.
Yes, we can hear.
Hello, Yes, sorry.
So I like to ask you so now that the moment.
But it probably is up and running so thats 200, maybe the sub.
In the world.
I was wondering how you see the 200 millimeter.
Ecosystem developing liberty.
So questions I have in mind around.
Youll substrate business waste business do you see interests from your clients.
Two 200 lean at the auto do you see them at scale.
Like our wafers to start working on them and do you have a sense for where you would see.
Getting into.
Into that.
And then back to you that if you could comment on the recent move the recent announcement, but so you're taking the trends who.
Having known.
<unk>.
Two to call us.
Smart.
Wafers.
And I was wondering if that's like the projects.
Youre Ingalls.
In books.
If you have any.
But given how its going to be to.
Yield already but you said.
Yes, so Peter Thanks for the question.
I'll start by saying this industry is growing at an extremely.
Fast rate right now and whenever you have something like that it always attracts attention in new ideas and so forth. So answering the second question first we are always looking at different technologies and different.
Possibilities in terms of driving the cost of Silicon carbide down we've got 35 years of experience of doing that and we feel very comfortable with the path that we're taking right now I'm sure there's going to be a lot of different.
Does that are coming in and some.
Some of them are going to pan out some of them or not but we're very we're very.
We're really pleased that the path, we're taking right now and feel like it's.
It's.
It's going in the right direction, and I think quite frankly.
The best compliment that we can get on that is customers are choosing us. So it's $1 6 billion of these items this quarter matching our previous record so it seems to be.
It seems to be coming back to us through what customers are doing in terms of awarding us business that the path. We're on is a good one in terms of 200 millimeter.
We've got a whole lot of.
Getting up to do to ramp our own factory. So there's there's a lot of work going on inside of inside of that this is the world's first 200 millimeter wafer fab and we're building the entire ecosystem as we right now to be able to support that.
In terms of.
Interest from <unk>.
Long term supply agreement customers I think across the industry Theres a lot of interest certainly.
To do that but right now we're just focused on trying to drive the cost down of the 200 millimeter substrates and get that ecosystem fine in after we're after we're done with that we'll kind of know what the best path forward is.
Yeah.
Makes sense. Thank you.
Thank you.
Thank you Mr. <unk>. The next question is from the line of Bruce <unk>.
<unk> you May proceed.
Okay.
Alright, Thank you very much.
Neil and Greg I, just wanted to make sure I got the commentary around the Capex rate.
I thought maybe you said that fiscal 'twenty, three capex will be higher than fiscal 'twenty two.
In 2023 will be at or above what we spent in fiscal 'twenty two and that's a change in that to address some of the higher demand that we're seeing.
Right so that that.
That is not inclusive of any additional investments that you would need to make for the.
The <unk>.
Second the wafer fab.
That's correct.
Okay, Okay, and then Greg if you think about the second wafer fab.
Is the size capacity and then get the timing that you are not really too.
All the details, but how should investors think about the outlook for that in terms of.
Whether the Capex.
Would be similar in size to what you have undertaken or are spending for the Mohawk Valley.
The.
So we will be able to give you a lot more color on that I think before the end of this calendar year. We're in we're in pretty deep discussions.
Discussions in terms of where and when and how and so forth.
But what I would tell you is this I would anticipate that the second.
<unk> that we just put in place the Mohawk Valley Fab is the world's largest.
Silicon carbide fab when we build the next fab Mohawk Valley will be the world's second largest wafer fab. So the wafer fab that we would be building would be bigger than what we have for.
In Mohawk Valley, and that's just based on the demand we see coming online.
Right.
Going back to something that we have seen occur in the semi industry.
The 10 plus years ago, ASML was able to get all the investments from the small group of companies.
Having any discussions with your customers because thats, a pretty large risk that.
We will speed is taking are you having any conversations.
With customers big customers, who are willing to step up and.
Under a part of that investment.
Yes, and in fact, we offer customers.
A assurance of supply program that will speed assurance of supply program that does include in it.
Same thing with our long term agreements that generally includes an upfront.
Deposit that is.
Kind of proportional to the amount of commitment that were we are willing to.
That they would like us to do from a capacity perspective. So there is there is some of that.
And to that end.
<unk>.
I think thats a.
That's a big part of it I think Theres also something that is going to be.
Thats widely acknowledged right now is that the governments around the world are very interested in semiconductor fabs and their regions of the world. The U S has to chip tacked European has the European Chips Act there.
There is different.
Entries around the world that are also enticing folks. So I think I would anticipate that there would also be some pretty substantial government support.
For this next fab that we would be putting in place and recall the fab in New York came with $500 million worth of support from the state of New York, who have been absolutely terrific to deal with by the way you would think about the fact that we built this fab. We started building. This fab two years ago, and we took it from a field of mud.
To a clean room environment running wafers in two years during a pandemic.
Couldnt have been done without the very strong support.
The state of New York and the various different agencies that were helping us out there. They did a terrific job, but I think government support is also going to be a piece of this equation.
If you will.
<unk>.
I think it's going to be.
I think thats going to be a very strong part of it.
Thank you Mr Service Saba, that's all the time, we have for questions today, I would like to pass the call back over to Gregg Lowe for concluding remarks.
Well, thanks, everybody for taking the time to visit with US today, and we look forward to chatting with you next quarter. Thank you.
That concludes today's conference call you may now disconnect your lines.
Okay.