Q2 2022 Navitas Semiconductor Corp Earnings Call
[music].
Okay.
Good afternoon. My name is Dennis and I will be your conference operator today at this time I would like to welcome everyone to the now the task to semiconductor second quarter 2022 results conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one the onshore telephone keypad to withdraw your question Press Star One again I would now like to turn the conference over to Steven Oliver Vice President of corporate marketing and Investor Relations. Please go.
Yeah.
Good afternoon, everyone I'm, Stephen Oliver Vice President of corporate marketing and Investor Relations. Thank you for joining never just semiconductors second quarter results conference call.
I'm joined today by Gene Sheridan, our chairman, President CEO , and co founder and Ron Shelton, our CFO and treasurer.
A replay of this webcast will be available on our website approximately one hour. Following this conference call and the recorded webcast will be available for approximately 30 days. Following this conference call.
Additional information related to our business is also posted on the Investor Relations section of our website.
Our earnings release and this presentation includes certain non-GAAP financial measures reconciliations of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our second quarter earnings release, and also posted on our website in the Investor Relations section.
In this conference call, we will make forward looking statements about future events or about the future financial performance of <unk>, including.
Acquisitions.
You can identify these statements by words like we expect or we believe or similar terms.
We wish to caution you that such forward looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from expectations expressed in our forward looking statements.
Important factors that can affect another test business, including factors that could cause actual results to differ from our forward looking statements are described in our earnings release.
Please also refer to the risk factors affecting other tests discussed in our SEC filings, including our annual report on Form 10-K for 2021, and our second quarter Form 10-Q filed today with the SEC.
Our estimates or other forward looking statements may change and <unk> assumes no obligation to update forward looking statements to reflect actual results changed assumptions or other events that may occur except as required by law.
And now over to Jean Sheridan.
<unk>.
Hello, and welcome to our Q2 earnings call, we have exciting news today with the acquisition of Genesis semiconductor highly profitable fast growing pioneer in silicon carbide.
I'll talk about our recent acquisition of <unk>, while reviewing our second quarter results and our business outlook.
First let me welcome Ron Shelton, our new CFO , who will cover financial details later in the call.
Ron brings rich experience as a public company CFO in semiconductors, and M&A and other strategic transactions, which will be invaluable in our mission to become the leading next generation power semiconductor company.
When it hit the ground running and was instrumental in our acquisitions of Genesis and DVD.
Let me start by talking about why now the cost of purchased Silicon Carbide company.
But as I mentioned to electrify our world as we accelerate our transition from fossil fuels to clean electrical energy.
Gan on Silicon carbide, or both advanced technologies that enable greater energy savings faster charging smaller size lighter weight and lower system cost when compared to traditional silicon based power systems.
Taken together Gan on Silicon carbide make electrical energy more efficient reliable and lower cost across a broad range of applications that read to accelerate our transition from Bob Hope you also electrical energy and accelerate our company's mission, while about Gan on silicon carbide offer similar physical advantages to silicon they do have some fundamental differences.
Silicon carbide has better voltage and temperature capabilities, making it ideal for applications over 1000 volts.
Dan offers higher frequency operation and higher integration, making it the ideal choice for applications below 1000 volt, particularly those that can take advantage of its higher switching speeds.
With the Genesis acquisition now the task becomes the world's first pure play next generation power semiconductor company with proven leading edge Gan on silicon carbide technology and the capability to address a full range of applications from 'twenty, one smartphone Chargers to 20 kilowatt EV charging to 20 megawatt grid Inc.
Cost structure power systems and everything in between as we look to address the aggregate opportunity that we expect will grow to over $20 billion per year by 2026.
Genesis is both a great silicon carbide company and more specifically an ideal silicon carbide partner for <unk>.
Their technology offers industry, leading performance world class robustness, the widest portfolio and abroad, and synergistic customer base with impressive revenue growth and profitability.
Based on the other task Kirsty Genentech delivers the industry's best Silicon carbide performance under high temperature and high switching speeds. This is essential to maximize customer benefits and energy savings size weight and cost for the end application.
Also of critical importance is the ability to survive harsh electrical environment Genesis technology offers industry, leading robustness with the highest 100% tested avalanche ratings and world class short circuit capability.
Both of which work together to ensure the greatest ruggedness and reliability in customer applications.
In addition, genentech offers the widest portfolio of silicon carbide devices in the industry ranging from 650 volts to 6500 volts, serving the broadest set of applications possible.
All of this market, leading technology has led to over 500 customers in production or development across solar.
Energy storage wind and grid installations existing Genesis markets are diverse, but also synergistic with <unk> existing and targeted customers.
In electric vehicles for example, the task and it's optimized for 400 volt battery systems, while Genentech technology is best suited to address 800 volt architectures.
<unk> has existing revenue and development customers, including <unk>, the world's number one <unk> supplier.
Land Rover, Mercedes AMG, Geely, Shinri, LG Magna stop and events are.
Our <unk> focus design center will immediately add developments with <unk> technology and accelerate its success into an even broader range of EV customers and applications.
And solar nowakowski and targets residential applications, while Genesis is already shipping into higher power commercial solar and energy storage customers, including Alpha power solutions Advanced energy Kent, Good week robot doesn't grow the ATL and X side.
Another area agenda fixed rate is an even higher voltage and higher power markets, including rail UBS wind grid distribution industrial and medical imaging all immediate revenue expansion areas for <unk>.
In terms of talent, we're delighted to welcome a very innovative and experienced technical Jennifer <unk> to <unk> <unk>.
<unk> founder and President Dr. Rahm Beer thing has dedicated his life to the mission high performance high reliability Silicon carbide devices, including 20 years in Downing and leading Genesys.
Dr thing is highly respected in the power semiconductor community with several awards over 200 Journal and conference papers in over 30 U S patents.
He joins <unk> as an executive Vice President for the Genesis business, and we expect to retain all gena second points.
As the Genesis team has focused heavily on core silicon carbide design process and technology <unk>.
<unk> has invested heavily in global sales and operations strong technical support and system design centers and bringing our Dan IC technology to market. These capabilities are a perfect complement to Genesis and will serve to further accelerate our growth trajectory.
This genocide acquisition that is also a great combination with our recent acquisition of Bvd Tech. This Belgium startup has developed high speed robust digital Isolator, which are critical safety barrier that interface low voltage logic to the high voltage power required in virtually all power systems.
This digital Isolator technology has already been optimized for the high switching speeds of Gan on Silicon carbide and will allow <unk> to offer complete power stage chipsets or integrated solutions and delivering more value and content to our customers in each target market, including datacenter solar energy storage EDI and others.
We expect digital Isolator will add up to $4 of content per system and open up an additional estimated $1 billion per year market opportunity for <unk>, we anticipate first product to launch in 2023 and appreciable revenue contribution in 2024.
Yeah.
Let me now turn to our second quarter results with a focus on the existing <unk> business. We are pleased with Q2 revenues that were in line with guidance and increased 58% year on year also gross margins came in on the upper end of our guidance.
The future of mobile charging as Dan and now the cost that's a leadership position with nine of the top 10 mobile Oems in production today.
10 of those 10 in development with <unk> for their next generation Chargers.
In Q2 alone our customers launched over 20, Dan fast and ultra fast Chargers.
The number of Gan Chargers and the market is expanding rapidly with new OEM launches that include Devos Exsolve Motorola edge, plus one plus 10 are in turnkey models, including charging power levels that reached up to 200 watts setting a new industry benchmark of zero to 100% charging less than 10 minutes.
New aftermarket Dan charter launches include anchors, New Gan Prime series at 120, 140, and 150 Watts and Bell continue 108 lot for park and fast Charger, which is now available in the Apple store.
Q2's, Inbox laptop charger launches include Xiaomi is red meat, Lenovo as Legion and the Dell Xps 13 pro models.
In Q2, we have also made excellent progress in our expansion markets.
We have four data center power platforms in development at meet or exceed the new demanding titanium plus efficiency standard and are supporting eight customer projects with projected revenues ramping next year. In addition.
We expect the Genesis acquisition will accelerate our revenue plans and data center.
In solar we now have two major solar residential customers committed to a broad transition from silicon to Gan, which is anticipated to drive significant revenue growth in 2024.
And Genesis that gives us immediate revenue with many synergistic solar and energy storage customers as they accelerate their adoption of silicon carbide.
And in electric vehicles, we have three new onboard charger platforms in development, which we expect to set new industry standard benchmarks and charging speed efficiency and power density and are supporting five major customer programs expected to ramp revenues by 2025.
The Oregon Genentech, not only brings us immediate additional EDI revenues and synergistic customers that will be accelerated by our design center, but also opens up new opportunities for organic technology into many of those same genesis customers.
Looking forward to Q3, while our gas position in the mobile market has never been stronger we do see significant headwinds given the softness in the China smartphone market we.
We see a combination of supply chain disruptions from shutdowns and shortages, but also now excess smartphone inventory, which are impacting the timing and sell through of new model launches. While visibility is limited. We anticipate this softness will likely continue through Q4 and possibly into early 'twenty three.
As noted last quarter, we are making very good progress in regional end market diversification as we're ramping a significant program with a leading home appliance customer in Europe .
This new program represents the first of many anticipated in an entirely new market for <unk>, which uses our Gan Ics and motor drives for home appliance and a broad array of industrial motor applications.
We will share further details on this exciting new market expansion upcoming investor events, and our Q3 earnings call.
The addition of the Genesis revenue together with this Europe motor drive business helps to mitigate some of the China mobile softness in the second half of the year.
Yeah.
To conclude despite near term challenges in the China mobile market now that <unk> has established an extraordinary position as the Gan ICT leader and we've now combined with an industry, leading highly accretive silicon carbide company that creates a diversified high growth business and forms the industry's only pure play next generation power semiconductor company, we are well.
Positioned to electrify, our world and accelerate the transition of our planet from fossil fuels to clean electrical energy.
With that let me turn it over to our CFO , Ron Shelton to discuss our financial results.
<unk> acquisition and our forward looking guidance in further detail.
Thanks, Jane and thanks, everyone for joining us today.
My comments today I'll first take you through our second quarter results I will then walk you through the details on the Genesis transaction and then we'll wrap it up with our guidance for Q3.
GAAP revenue for the quarter grew to $8 $6 million that represents 58% growth from the second quarter of 2021.
This was in line with our guidance, while we began to see the impact of the slowdown in China. During the quarter. This was offset by gains we made in diversifying our end markets and customer base.
GAAP gross margin was 42% in the second quarter and at the high end of our guidance.
As we've discussed before and as was expected gross margins have come down about 400 basis points on a year over year basis, primarily due to tsmc's, 20% wafer price increase earlier this year.
With regard to expenses, we continue to make investments in our research and development field applications and sales and marketing teams as we build out our capability to penetrate new markets and expand into new regions.
We are beginning to see the results of that activity now as we began to see meaningful revenue outside of the mobile space.
At the same time, we are taking a disciplined approach to overall spending in the business.
As a result operating expenses were essentially flat on a sequential basis with total non-GAAP operating expenses of $12 5 million for <unk>.
Both the first and second quarter of 2022.
Our non-GAAP SG&A expense was 6.0 million and non-GAAP R&D was $6 5 million.
Quarter of 2022.
Putting all this together non-GAAP net loss from operations was $8 9 million compared to a net loss from operations of $5 8 million in the.
Second quarter of 2021, ethylene simultaneously across new markets and this phase of our company's growth.
Our basic share count at the end of the second quarter was 124 million shares and our diluted share count was $132 1 million shares.
Turning to the balance sheet. It continues to remain very strong with high levels of liquidity.
Cash and cash equivalents at quarter end and prior to the acquisition, we announced earlier today were $245 million accounts.
Accounts receivable was $9 4 million compared to $9 6 million in the prior quarter, reflecting improved days sales outstanding.
Inventory rose slightly to $14.0 million compared to $13 $1 million in the prior quarter, given the softness in the China mobile market.
We're confident that as the China mobile market recovers over time, our inventory levels will trend towards our long term targets for inventory turns of three to four times.
Turning to the Genesys acquisition as we noted it is highly accretive to our business in all respects. It is a high growth and highly profitable business with greater than 25% EBITDA margins and we expect to realize those benefits immediately.
Total consideration consisted of approximately $100 million in cash $24 9 million shares of <unk> stock and up to $25 million in cash subject to achieving substantial genesis revenues over the four quarters ending September 32023.
After the acquisition, we continue to have an exceptionally strong balance sheet with approximately $140 million of cash and virtually no debt.
As we indicated earlier a major benefit of this genesys acquisition.
It has high profit margins, which will accelerate our path to overall profitability and positive cash flow.
So to summarize we are and continue to be well capitalized and have sufficient capital available to us to fund and grow the combined business and capitalize on the opportunities we see in front of us.
Yes.
Now moving onto guidance for the third quarter of 2022, GAAP revenues are expected to be between nine and $11 million and thats compared to $5 6 million in the third quarter of 2021.
Our guidance for the quarter includes a partial quarter of operations for the Genesis business.
While we are beginning to see growth outside of the mobile market. We do expect revenues to continue to be adversely impacted by softness in the China mobile space.
Gross margin for the third quarter is expected to be approximately 40% plus or minus 2%.
We expect continued impact from the shift in the mix of our products away from mobile as we invest in expanding into new markets, which initially have lower gross margins.
As we noted last quarter, we believe this impact on gross margins as temporary we expect that gross margins will improve over the next few quarters as we transition to our generation four products in the China mobile market begins to improve.
In total our non-GAAP operating expense in Q3, which includes a partial quarter of expenses for Genesis.
Our expected to be approximately $14 million, plus or minus 3%, which excludes stock based compensation and amortization of intangible assets.
Our preliminary outlook for revenue in the fourth quarter of 2022 ranges from 13 million to $16 million.
That reflects continued softness in the China mobile market and our outlook for gross margins is in the range of 43% plus or minus 2%.
In summary, we're excited about the growth opportunities in front of us and how the combination of <unk> and Genesis accelerates our vision of becoming the industry's next generation power semiconductor leader.
Operator, let's begin the Q&A session.
If you would like to ask a question simply press Star then the number one on your telephone keypad will pause for a moment to compile the Q&A roster.
Okay.
And your first question is from the line of Kevin Cassidy with Rosenblatt Securities. Please go ahead.
Yeah.
Yes, Thanks for taking my question and congratulations on the acquisition.
Maybe if you could tell us a little more details about gene sector.
Our gentex.
What the revenues might be or how many employees are you acquiring.
Sure Kevin Thanks for your call and its Janice to help on that pronunciation as well but.
It's about 19 people and we are estimating this year's revenue and about $25 million.
Okay, and I think in the press release is growing at 60%.
That's right annualized demonstrated growth rate.
Okay great.
On your generation four is that shipping for revenue now or is it going to be just ramping in the third quarter.
Yes, we're releasing our first customers in Q3, it's not material in Q3, that's more appreciable in Q4 and the biggest impact will be next year.
Okay great.
I'll get back in the queue.
Well thanks, Kevin.
Your next question is from the line of Tristan <unk> with Baird. Please go ahead.
Hi, guys good afternoon.
So some follow up questions on Genesis.
<unk> sorry, how.
How much cash flow impact you think you would incur fund manufacturing equipment purchases as you build capacity.
And.
Would you be potentially a recipient of the chips at EQ build or if you just expand your capacity for that Anthony and Silicon carbide.
Ron made comment, but I'll just explain it is a fabless model just as another top fabless model, while <unk> works with TSMC, who takes care of the bulk of the Capex investments in the case of Genesis They are working with X fab.
Who is aggressively expanding their silicon carbide capacity in their Texas facility, just like TSMC has been rapidly expanding there is for us on gallium nitride in Taiwan.
And in addition in Silicon carbide. It has the added dimension of critical and substrate in ft layers.
And that Genesis team has done a great job of qualifying approving and using multiple substrate and nephew suppliers in combination with <unk>. So it's a very flexible and robust supply chain, but also doesn't require significant capex in the short term.
Okay, and then as a quick follow up then.
How should I be looking at a journalistic gross margin at scale is it going to be similar to current levels.
Or is there any any changes that we would expect.
The revenue continues to ramp up to $25 million this year.
Yeah.
Yeah, Hey, this is Ron.
So the way that we think about it again as we're guiding as a single number as the single company right now.
Of about.
Q3 was $9 million to $11 million and margins around 40, and then going forward in my comments you saw that we were guiding margins up a little bit to 43, plus or minus 2%. So.
So thats the trend in margins and again over time.
The March in Lockstep, I remember, we kind of look at it that way so.
Look at this as a single company.
Power semiconductor company and we're going to report on a consolidated basis I will point out and we put in the comments in the releases.
This business is very profitable so we referred to it as being accretive it's accretive immediately.
It's got 25% plus EBITDA margins.
So we're very excited about it and we think it will generate cash so net net net when you add all of that briefing is.
Really good financial transaction and business transaction.
Yeah.
Great. Thank you very much.
Yes.
Okay.
Your next question is from the line of Blake Friedman with Bank of America. Please go ahead.
Hi, Thanks for taking my question just kind of wanted to further go into the <unk> acquisition I know in the past few years there've been several players who are beginning to enter the silicon carbide landscape. So I was curious if you could further elaborate on the competitive advantages Dennis it holds relative to existing vendors in the industry.
Oh, yes definitely Blake. Thanks for the question, Yes, we're super excited about it we've done of course, a lot of due diligence some intensive testing.
Their technology compared to others and in fact, we share some of those findings and investor presentation, that's going to be posted online, but the findings there as we highlighted in some of the prepared remarks.
A really extraordinary performance, particularly in high temperature high frequency switching applications, which is really how you want to use. These devices of course has the benefit of our wide bandgap technology speed Gan on silicon carbide. So excellent in circuit switching performance, but they also want a step further.
And develop some of the best robustness, we've ever seen parameters like Avalanche in short circuit, a really world class and if that combination of reliability robustness and in circuit performance that's.
Thats impressive and hard to achieve and a real credit to the Genesis team and Dr. <unk>, saying in his work over the last 20 years that his company and really his whole career. So it puts them in a very strong industry, leading performance position and I think it speaks to and explains why they are growing faster than the market and gaining share in the market, even though it's a later entrant to the.
A market.
Thanks for that and then just kind of quickly following up more on the legacy business I know you called out softness in the China smartphone market similar to peers. I was just wondering if you can kind of quantify that weakness both maybe in Q3 and Q4.
Yes.
Yes. This is Ron so so the way to think about the businesses and as Jim pointed out is this a little soft and so relative to the first half of this year.
Think about it it's flat to slightly down.
After first half for the second half and again.
Right now our visibility is limited.
Similar to what you've seen in other companies. So it's really kind of a two to three quarter thing, where we're looking at it and saying this is going to be a little bit limited. So so revenues out of China are muted right now and expect to be certainly through the rest of this year.
Great. Thank you.
Yes.
Yeah.
Your next question is from the lineup of Ross Seymore with Deutsche Bank. Please go ahead.
Hi, guys. Thanks for letting me ask question, Ron and welcome to <unk>.
Just wanted to go into.
Genesis as far as the revenue growth rate side of things I know you talked about the proven revenues are demonstrated I assume thats kind of backwards looking what sort of growth rate should we think of forward looking that that 60% number is incredibly impressive, but I'm not sure if that applies going forward just as much as it has looking backwards.
Yes. Thanks, Ross Good question Youre, right Thats demonstrated annual growth rate of 60% or more.
We're not giving any official guidance for 'twenty three just yet we plan to do that in our next quarterly announcement in November and that will give us some time to better judge the poor visibility with the China smartphone business as well as do some more deeper integration and financial planning with the <unk> team.
At this point I think we're still bullish that that growth rate should be in that same ballpark going forward and we'll tell you more in November .
Got it and then on the core business. Ron you gave that half over half that color was helpful to a prior question, but generally Jean <unk>, Ron what do you see as the core problem here was it excess inventory is it anything that's specific to an avatar. Obviously, we all know the end markets weak, but was their excess inventory of your component.
On top of the customers' side of things and I guess, what I'm really getting at is you guys are gaining share you've gone from six to eight to nine of the top 10 vendors. It doesn't seem like the share gains are significantly offsetting the weakness in the broader market. So I just wanted to kind of.
Get a little bit more color on the interaction between those two dynamics.
Yes, I could.
Our design position in the charter market globally and in China has never been better 20 brand new launches some really amazing brands benchmark fast charging experiences.
We have not lost a single design.
So there is no loss of market share, we're just continuing to gain share against silicon and even against other discrete Gan. So I think the real dynamic is that the existing models built up some inventory of the smartphones themselves and when that happens we see the major players hitting the brakes on new model launches because they don't want to launch the new ones while they.
Pushed the sell through on the existing models and when you're in a very strong print position on the new models, although as premium new models. Those 20 years. So a lot of them are in China.
Is that right.
You'll have an impact there.
Good news is though all of those wins are done they're queued up they're launched and either have limited volume in the early stages, where they're holding them back to launch them until they complete the sell through on some of the existing production model. So I think we're in a very strong position is stronger than we've ever been before and as that market recovers, we will see significant revenue gains to go with it.
Perfect. Thank you.
Thanks, guys.
Your next question is from the line of Sam Peterman with Craig Hallum. Please go ahead.
Okay.
Hi, guys. Thanks for taking my question.
A two part question, but I wanted to ask first just to clarify on those three electric vehicle onboard charger programs on the five customers I just wanted to clarify those are all from genentech and not from.
From an avatar and then curious kind of onboard chargers seem like.
Just in the industry like a place where.
Again could potentially win against Silicon carbide. So I'm curious kind of how you think about where again, you're damn products could slot in and an easier as you go to market now with kind of both solutions.
Thank you Sam and declare Phi the three EV platforms in development supporting those five major customers are actually just on the Gan side.
And those programs are tracking really well, probably a little bit ahead of schedule for us, but as we've said in the past those would probably start really contributing significant revenue out in 2025 with the Genesis acquisition were immediately shipping to dozens of EV.
Customers, we named a few of them in the prepared remarks, Mercedes AMG BYD.
Many others. So those are really all additive and effectively we've just accelerated our participation in some of our target high power markets like solar like EV and energy storage by two to three years compared to our prior plans so those altogether.
Got you okay. Thanks for clarifying that and then.
Second I wanted to ask on the acquisition earlier in the quarter of Bvd can you describe a little bit more kind of what that technology brings.
And then can you elaborate a little bit on the I think you said, an additional $1 billion a year of market opportunity.
Across Gan on Silicon carbide and kind of.
No.
Is that across all your markets any color on that would be helpful.
Yes, definitely Sam and we've talked about it since the IPO to become our mission in next generation power semiconductor, while we're not investing in legacy Silicon power devices. There are silicon controller or complementary chips that are very important to get the most out of Gan on silicon carbide Silicon digital isolator like developed by.
<unk> are exactly that.
These little Isolator are needed.
Almost all of these high power system, sometimes 610, and even 12 of these little digital Isolator are needed here again, we're releasing an investor presentation, which give some more detail not only on the Genesis presentation, where acquisition, but also on the Bdd Tech one.
That company in particular, because they've already optimized those digital isolator for the high speed.
High frequency capability of Genesis.
It can carbide technology and Gan, so it's a perfect.
Fit for us and we will be integrating and commercializing products with that technology to launch next year and then it'll be ramping shortly after that we did estimate that it could be up to 12 of these isolator and every system as I mentioned that could be up to $4 of content and as you said up to $1 billion market potential that is really separate and additional or increments.
So to the Gan on Silicon carbide device Tam and market opportunities that we've described.
Okay.
Yeah.
Your next question is from the line of Jon <unk> with CJS. Please go ahead.
Hi, Thanks for taking my question and congrats on the acquisition.
I wanted to ask Eugene how the regions are doing outside of China. I think you gave some color last quarter.
You'd actually picked up some wins outside can you just give us a little more detail.
Everything is growing by geography.
Oh, yes definitely.
Certainly been very successful in diversifying into other.
Regions Thats, obviously been accelerated by the softness in China, but in particular in Europe is the one to highlight we see good stability.
And all of the regions and growth in almost all of the regions, but Europe . In particular is that major program, we highlighted last quarter and now we've given more color that this is a major premium home appliance company, that's adopting <unk> for the first time for motor drive applications.
Really put Europe as a significant percentage of our overall total revenues.
So it's a pretty balanced view now across China, the broader Asia U S customers, who are generally building in Asia, and then the Europe business.
Got it and then second I was wondering if you could just talk a little bit about how you model.
Going forward than these high power markets and not the charger market, but.
EV solar.
In light of the climate buildup, passing how is that going to move a lot of units of these types of.
Applications have you done any work as to how much that would actually move the needle for you guys.
Yes, it's a great question and obviously that world is still unfolding as that climate Clean Energy Act gets passed and implemented but between the chips Act in the U S to.
To encourage semiconductor companies and manufacturing and now thats dramatically larger $300 billion plus clean Energy Act.
This is perfect for what we do and especially as we become the only pure play next generation power semiconductor company that both Gan and sick.
Sure our customers our markets and our business is really going to benefit from those.
Investments in fact, if you break down what we know of those bills. They are very focused in two key areas driving energy efficient home appliances in the home and electrifying the applications like heating, which is commonly gas based and not electric based to move to things like heat pumps, but also of course, continuing to incentivize and accelerate electric vehicle and EMA.
Mobility more broadly those are all obviously right up our alley, not just with Gan on what were already working on over the next few years, but now immediately going to benefit our silicon carbide business, we're already shipping into those.
Market. So we're very excited on the government initiatives and we're looking forward to learning more.
Quantifying how that exactly translates into an acceleration of our business.
Great one more if I could with the combination with Genesis what market can you go after where application can you you go after that neither of you can do by yourselves is there any centered platform that requires both <unk> and SFC or some way that.
One helps you get into another.
Yes, Peter both interesting diversity to it in a synergistic nature its opening up all new customers and applications that we would have done Gan only and Conversely, I think the same for Genesis and the silicon carbide side, but also there's good overlap and synergies I'm, probably most excited about the overlapping synergies because a lot of these markets. There are choices to be made by the <unk>.
Customer and a lot of supplier show up either with Gan technology, but not silicon carbide or may be trying to push the older legacy silicon devices, or Conversely might have silicon carbide, but not again.
<unk> is going to show up with leading edge Gan, leading edge silicon carbide and really help the customer find the right technology and I think there is overlap there that's a great opportunity for <unk> to be Davita, one who delivers the best technology whatever that might be I think theres a lot of overlap in electric vehicle, whether it's a 400 volt battery on 800 volt battery.
There's a lot of overlap in opportunity in solar and energy storage. So having this unique combination is I think kind of pay a lot of dividends to guide the customer to the right optimized next generation solution and no matter. What is the winner in any of these sort of overlap markets of course avatar is going to be there to benefit.
Great.
At this time I would like to remind everyone in order to ask a question simply press star one on your telephone keypad.
Your next question is from the line of Mark <unk> with Jefferies. Please go ahead.
Hi, great. Thanks for taking my questions I had two so Jean just to I wanted to make sure I understood that.
That last comment, which I think was very clarifying. So this is not this is not necessarily an orange R&D cost synergy.
Reduction opportunity and then refocusing you you have you had a.
Before he picked up Genesis you had like kind of a roadmap for higher voltage applications on your Gan product, you're pushing forward with onboard Chargers Europe , you have solar roadmap and you completely ex expects to spend that and then you have the <unk>.
Silicon carbide portfolio that would sit on top of it and that would be a portfolio of products is that is that the right understanding.
Yes, I think thats definitely the right.
Way to think about it Mark as you said with Gan It was going to take us two to three years.
<unk> long development cycles, we're optimizing our technology for the higher power were doing great in on track or even a little bit ahead of schedule in that regard, but with Genesis. This puts us immediately in production with significant relationships and revenue a lot of those same EDI customers solar customers energy storage customers and how we show up very quickly with not only leading edge silicon carbide.
But leading edge can to make sure we've got the right tool in the toolbox to deliver whenever it's going to get them. The very best next generation power system capabilities. So it's a real game changer for accelerating and diversifying our business completely in line, where we're intending to go but it's a real accelerant to that plan.
Got you Okay. That's helpful and then.
Follow up question on the about the slowdown in China I don't know.
You started to talk about this and I didn't I don't think I was able to take the notes fast enough.
What is the what is your own inventory strategy.
This is this a market you believe in and so therefore, you just continue to expect to build inventories because you know it's going to be there or do you do you kind of try to tap down on on the wafers getting produced for you and then wait until the market comes back and then kind of trying.
Trying to manage the working capital that way and in line with that is there.
Is there a risk of a write down on any of the inventories that you are carrying thank you.
Yes sure good question so.
With respect to inventory I think what we want to go as well align inventory over time with with the state of the business and by that I mean.
Our inventory turns of about one five times right now.
And as we go forward, we will target three to four times a year so.
It's just we'll keep inventories on hand.
Your line with with our outlook at any point in time I mean, so so.
Put it another way the intent is not to just keep building inventory to build inventory, we're going to align it with the market and our outlooks as we go forward.
I think the second part of your question.
About write downs and.
There is no reason for us to.
Think about write downs right now I think those are the kinds of things we look at every quarter.
And a lot of it's based on the outlook and the state of the market. So.
We do that every quarter and we didn't have any of this last quarter.
Got you. Thank you.
Yes.
Your next question is from the line of Quinn Bolton with Needham and company. Please go ahead.
Yes.
Just wanted to follow up on Mark's question, there about inventory write downs I guess, you know if the current designs current chargers or sort of inventory it up you've got a slew of new design sitting behind them, possibly based on your fourth generation products why wouldn't there be a risk that some of this gen. Three stuff might have to see a write down just.
Given our lower overall demand for those older generation Chargers.
Yes, I think there is.
There may be lower demand currently for it but again I think it's not as if the product is bad per se I think it's yes.
We have existing inventory.
Outlook, some forecasts and the idea is certainly not to write anything off and at this point and again what I can tell you is we will look at it every quarter that's based on outlooks at that period of time.
When we looked at it in Q2.
There wasn't any write offs like I said, we will look at it again in Q3, and we'll look at it again in Q4 and so on.
And I could add a little color to in terms of where our rail volumes are it's really spread over maybe a dozen part numbers. So we're not looking at a real high mix situation. We're looking at clearly a delay in consumption in the China market in particular, but not really high mix generation four in particular, each generation can be different generation four in particular.
It is what we call a dye shrink and a pin to pin replacement. So the good thing is there if customers want to move to Gen. Four they're required to do it we have flexibility in whether we're shipping them Gen three or generation four even if they've designed in one versus the other so generationally that helps to reduce risk and the fact that where our volumes are spread over.
No more than about a dozen partners also helps to reduce inventory risk related to mix.
Got it and then just wanted to follow up maybe I missed it I apologize if I did did you say what date you close the Genesis acquisition.
Today.
Today, Okay, alright, so you've got about half a quarter of Genesis than in your third quarter guidance roughly speaking right.
Got it.
So if I just do some quick math, you gave us a $25 million run rate for genus sick, they're probably about six $6 5 million of revenue to Q4, which would imply your gan revenue probably increases sequentially is that sort of being driven by the non mobile markets are this European motor driver opportunity and sort of related question.
Does the margin increased to 300 basis points margin is that really more a reflection of just getting the full quarter of Genesis or have you seen an improvement in again margins as well in Q4.
Yes. This is Ron let me, let me start so.
Yes. It was a few questions in there so let me let me start.
At a high level. So yes, we did say.
<unk> about $25 million a year.
We also talked about the gas business being flat to down sequentially kind of from the first half to the second half I think when you look at margins going forward and they are starting to move up in Q4.
It's really part of it is mix.
On the Gan side, both end market and customer base.
And then also Gen. Four we're introducing gen four and the full quarter of Genesis. So there are few things leading into the margin improvement in Q4.
But again thats at a high level of that.
Let's again business like I said, it's flat to down in the second half.
<unk>.
That's fine.
No I think thats right. Those are the main drivers that are leading to some incremental margin improvement in Q4, and we expect that will continue into next year.
Great and then last one from me Jean and I know, you've given us sort of the update timing with Gen. Four I think previously you'd expect Gen five which brings you to price parity with silicon.
To sort of shift or to be introduced by the end of calendar 'twenty. Three just wondering how are you guys still sort of tracking to that late 'twenty three introduction of Gen. Five it brings you to price parity with silicon.
Yes, no that's good memory and good notes Quentin and no change to that guidance.
Great. Thank you very much.
Thanks Glenn.
Okay.
Once again, if you would like to ask a question simply press Star then the number one odd your telephone keypad.
Question is a follow up from the line of interest in Gara with Baird. Please go ahead.
Hey, guys. Thanks, again for the opportunity so I understand genetic accelerates and diversify.
It's very synergistic.
Should I look at your positioning relative to some.
The company said, a one paying silicon carbide, but they are targeting.
<unk> not seen.
Silicon carbide, whether you next year, if I kind of look at you know.
Let's say you do $65 million in three years, and if I divide the psyche.
<unk>.
He can carbide content <unk>.
At a fairly low unit number so.
How differentiated you they can be relative to the higher volume guys in silicon carbide or are you going to be targeting.
Lower volume applications within those markets.
Yeah. Thanks, Tristan yeah to give a little bit more color as I stated before stated before where we're starting with a very impressive capability. Jennifer is not well known it's kind of the new Kid on the block is not been aggressively marketed we're about to change all of that but with that said that technology is already driving that fast faster than market.
Adoption and market share gains.
And I think that's all a reflection of the significant performance and robustness differentiation that's already been designed into the silicon carbide by the Genesis team and Dr. RMB are seeing with that said <unk> is going to bring a whole lot of capabilities system innovation circuit innovation package innovation and further device innovation that we think are going to combine together.
Including other technologies like the digital isolated from the Bdd Tech acquisition. So we have a lot of variables we have a lot of.
Other layers of value and novel tests has already been demonstrating in integrating inorganic technology and we're very anxious to do the same with the Genentech technology. So all of those I think are going to layer in over time, adding to the strong starting point, we have with technology differentiation.
For the Genesis Silicon carbide MOSFET.
Great.
Earlier this year I think Q you talked about how your gen four product in gallium nitride was going to be.
Enough said to the higher wafer pricing.
<unk> so to the extent that the gen four migration potentially gets delayed a little bit as you continue to reduce your inventories in gen. <unk>, how should I look at the puts.
And it takes vocalists margin over the next several quarters.
Results.
Yeah.
<unk>.
We are quite on track first of all with our Gen. Four we've mentioned it before we started sampling in Q2, we're releasing to first customers in Q3, and then seeing that ramp in some material contribution to the margin reduction margin improvement and cost reduction in.
In Q4, as we talked about we've been pretty conservative in our outlook in the China market as we talked about while we want to wait and make sure that we see that recovering better judge. It. So I think all of those things are pretty well baked into the guidance. We shared today and again, we're in pretty good shape here in terms of hitting our plans or even running a little bit ahead of our plans.
On Gen four rollout and customer adoption.
Great. Thanks again.
Thanks Kristen.
Okay.
This concludes the question and answer portion of today's call I'll turn the call over to Jean Sheridan for any closing remarks.
Thank you very much operator, and thanks to all of you who joined this call. It's really extraordinary time in our company's history. After just one year since our IPO to have completed some of the acquisitions that we alluded to in our company's strategy of not just being again leader, but being that next generation power semiconductor leader.
Now, adding silicon chips with the Bdd digital Isolator now, adding an extraordinary company with Genesis and the silicon carbide capability really positions us to follow our strategic plan very well and positions us as the only pure play next generation power semiconductor company. So we're very happy about our position and very happy all of you could join us.
Thank you very much.
This concludes today's conference call. Thank you all for your participation you may now disconnect.
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