Q2 2023 Wolfspeed Inc Earnings Call
Speaker 1: is in our press release and posted in the investor relations section of our website, along with a historical summary of other key metrics.
Speaker 2: 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 mention important factors that could cause actual results to differ materially, including risks related to the impact of the COVID-19 pandemic. In the Q&A session, we would ask that you limit yourself to one question.
Speaker 3: 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.
Speaker 4: Thanks, Tyler, and good afternoon, everyone.
Speaker 5: Before we get into the results of the quarter, I'd like to take a moment to remember our late founder and CTO, John Palmer.
Speaker 6: We had a celebration of life last weekend during which we announced that we would dedicate our Siler City manufacturing facility in his memory, naming it the John Palmer Manufacturing Center for Silicon Carbide.
Speaker 7: All of us knew John through his nickname JP.
Speaker 8: And so the nickname for our facility will be the JP.
Speaker 9: He worked for over 35 years to advance and promote silicon carbide, and largely as a result of his efforts.
Speaker 10: The world is recognizing its potential.
Speaker 11: We believe that silicon carbide is on the cusp of mass adoption.
Speaker 12: and that our long-term outlook remains on track.
Speaker 13: First, electric vehicles were the bright spot in the auto market in 2022, despite many headlines that auto sales have slowed.
Speaker 14: Global EV sales grew more than 65% year over year and represented 10% of all vehicles sold in the calendar year.
Speaker 15: We've seen this overwhelming demand play out at wool speed.
Speaker 16: as our recent partnerships with industry leaders such as Jaguar Land Rover and Mercedes-Benz Point to the strength and the demand for EVs and our ability to take share in this space.
Speaker 17: We remain confident in the industry's strong long-term fundamentals.
Speaker 18: and believe wool speed is best positioned to capitalize on the rapidly growing demand.
Speaker 19: Second, our $1.5 billion of design ins in the quarter point to continued robust demand for our power devices. Second, our $1.5 billion of design ins in the quarter point to continued robust demand
Speaker 20: To date...
Speaker 21: 46% of our design ins have converted to design wins, representing more than 1,800 projects.
Speaker 22: We are coming off multiple quarters of record design ends with a total of more than $16 million of design ends over the last three years.
Speaker 23: Now, of course, there will be some variability in our design and numbers from quarter to quarter based on timing of new agreements and decisions by customers.
Speaker 24: We anticipate that as our manufacturing capacities expand with new facilities, we will continue winning in the device marketplace.
Speaker 25: Third.
Speaker 26: We continue our market leadership position in the materials business, the aspect of our business with the highest barriers to entry.
Speaker 27: We recently announced an expanded agreement with another leading supplier of silicon carbide materials, which illustrates the intense demand for silicon carbide.
Speaker 28: From where we sit, the industry remains supply constrained, and this will continue to be the case for the foreseeable future.
Speaker 29: It is clear to us that the opportunity in silicon carbide technology is generational, given the pace of adoption we've experienced over the last few quarters.
Speaker 30: At our investor day, I remarked that I have not seen growth like this in my 30 years in my 30 years in the United States, and that view has not changed.
Speaker 31: While customer interest remains strong across both materials and power devices, as we discussed previously, silicon carbide production and manufacturing can present challenges along the way.
Speaker 32: Our Durham Crystal Growth Operation, which is the world's largest silicon carbide materials factory,
currently supplies our entire device business and a significant share of the merchant market.
However, that is still not enough to support the massive accelerating demand for silicon carbide. With the intense growth in demand for both captive and merchant wafers comes the challenges of growing our materials output as well.
We've continued to refine our crystal growth operations and had a recent breakthrough in our ability to grow taller bulls.
The initial challenges in managing these taller bulls in our back-end processing have been resolved, resulting in significantly higher yields.
It will take a few months before we return to normal production schedule for these materials as the improved product makes its way through the WIP, but we are encouraged by the results that we have been able to achieve with these taller bowls.
Long term, the John Palmer Manufacturing Center for Silicon Carbide is critical to addressing the supply demand disconnect.
It will support our expanding device footprint at both Mulhock Valley and a soon-to-be announced FAB.
as well as the ever-growing demand for merchant wafers.
Construction of the JP is progressing well since groundbreaking in September , and things remain on track as we updated during our last investor day.
Regarding the progress at Mohawk Valley.
We previously said that we anticipate revenue flowing through the FAB in the second half of Fiscal 2023.
We remain on a trajectory to meet that target, and that will largely depend on our ability to complete qualifications and ramp the supply of 200mm wafers.
which we believe we will achieve.
We continue to successfully run test lots through Mohawk Valley, which gives us confidence that we're ready to begin scaling production and recognizing revenue from Mohawk Valley in the fourth quarter of this fiscal year.
As a reminder, Mohawk Valley is a first of its kind fab.
purpose built to produce next generation silicon carbide power devices.
We're in the final stages prior to scaling production in Mohawk Valley, and one of my top priorities over the next few quarters is to ensure that we execute on that plan.
We have a strong team and clear strategy in place and are confident in our ability to deliver strong results for our shareholders.
While there may be some variability in our short-term results as we qualify and scale the world's first 200 millimeter silicon carbide device fab, while also scaling the first production of 200 millimeter silicon carbide wafers.
We are well positioned to capitalize on the explosive growth that we see through the end of this decade.
Now, I'd like to turn the call over to Neil to discuss our quarterly results. Neil? Neil, are you there?
Thank you, Greg, and good afternoon, everyone.
During the fiscal second quarter of 2023, we generated revenue of $216 million at the low end of our guidance range.
which represents a 10% sequential decline when compared to the 241.3 million.
in the fiscal first quarter of 2023.
and growth of approximately 25% year over year.
As Greg mentioned, we continue to see strong demand for our silicon carbide solutions.
However, the supply chain issues we discussed last quarter caused variability in our quarterly revenue in the second quarter.
with equipment spare park shortages limiting our durum fab output.
while at the same time we continue to work through the ramp of our taller 150mm bulls.
I am pleased to report that we have made significant progress on both issues and we are currently processing these improvements through our production cycle.
In terms of our power devices,
which grew approximately 48% in the quarter versus last year.
We saw strong performance ahead of our expectations.
mostly resolving the Durham spare parts supply chain issue we discussed last quarter.
From a power device supply perspective, we now believe that we have achieved full capacity in our Durham wafer fab, and virtually all future top-line growth for power devices will come directly from the Mohawk Valley fab.
From a materials perspective, we made very significant progress in improving yields on our taller 150mm bulls.
These yields are now comparable to our historical yields on shorter bulls.
However, back-end wafer processing cycle times recovered later in the quarter than anticipated, hoping in lower than expected Q2 revenues for our materials products.
We believe this past quarter represents the bottom of the revenue trough related to this issue as we exited the quarter at yields, cycle times, and shipping rates that will all support future materials revenue growth.
During the quarter, we also saw weaker demand for RF products.
due to secular headwinds with recession-related pullback and 5G demand.
This resulted in lower than expected revenue for RF devices.
which we expect to remain weaker in the second half of this fiscal year.
Non-gap gross margin in the second quarter was 33.6% compared to 35.6% last quarter and 35.4% in the prior year period, representing a 180 basis point decline year over year.
Gross margin was negatively impacted by the previously mentioned lower yield on the taller 150mm bulls and lower output of the durum fab due to the supply chain challenges.
While we made significant progress on both issues in the quarter and expect to see improvement moving forward, they both represented a drag on gross margin during the second quarter.
In addition, RF devices continue to be dilutive to our consolidated gross margin.
As we discussed, because of the immense demand for our power devices, we have a lot of
We have not been able to optimize the RF manufacturing footprint as we had previously planned.
We expect our RF product line will negatively impact our consolidated gross margin by approximately basis points for the next few years.
As a result of these items,
We generated adjusted earnings per share of negative 11 cents in the fiscal second quarter compared to negative 4 cents a quarter ago and negative 16 cents in the same period last year.
Notably, adjusted EPS this quarter was favorably impacted by approximately 5 cents of non-reputable events in other income and tax.
excluding these non-repeatable items from our earnings, we would have been at an approximately 16 cent loss per share during the quarter.
Before I discuss our guidance, I'll provide a quick overview of our balance sheet position.
We ended the quarter with approximately $2.5 billion of cash and liquidity on our balance sheet to support our growth plan.
DSO was 62 days, while inventory days on hand was 161 days, which is 26 days higher than Q1.
Free cash flow during the quarter was negative 171 million.
comprised of negative 67 million of operating cash flow and 104 million of net capital expenditures.
During the quarter, we incurred startup costs primarily related to the Mohawk Valley FabRamp.
totaling approximately 38 million.
Moving forward, we expect overall startup and underutilization charges for Mohawk Valley to wind down as we ramp the fab. Included a non-GAAP adjustment for these startup costs and the reconciliation table in our earnings release.
In terms of our capital needs, since we last spoke, we have made great progress in securing funding for our Greenfield facility construction and long-term capacity expansion plan. In November , we announced a successful convertible note offering, anchored by one of our largest strategic partners, Board Warner.
We were extremely encouraged by the demand we see in the marketplace and believe it sets us up well to secure further funding.
Additionally, we are still evaluating other avenues of additional funding, including government funding in the United States and Europe , as well as upfront customer payments or investments, to capital markets and debt.
As we stated previously, cost of capital and potential pollution is top of mind for us when we are pursuing additional capital.
Now, moving on to our fiscal third quarter outlook, we are targeting revenue in the range of $210 million to $230 million.
Our revenue guidance reflects continued strong demand as well as supply execution improvement in both our power device and our supply chain.
continued strong demand, as well as supply execution improvement in both our power device and materials product lines.
partially offset by continued softness and RF demand.
Our Q3 non-gaparose margin is expected to be in the range of 32% to 34%, as we expect to see some improvement in both power device and battery life.
materials products.
offset by RF weakness due to the lower volumes.
We expect non-GAAP operating expenses of approximately $98 to $100 million for the third quarter of fiscal 2023. We expect Q3 non-GAAP operating loss to be between $22 million and $30 million and non-operating net loss to be approximately $3 million.
We believe that we will realize approximately $5 to $7 million of non-GAAP tax benefits as a result and expect Q3 non-GAAP net loss to be between $15 and $20 million, or a loss of $0.12 to $0.16 per diluted share.
Our non-GAAP EPS target excludes acquired intangibles amortization, non-CAF stock-based compensation, project transformation, and transaction costs.
factory startup and underutilization costs, and other items as outlined in our press release today.
As always, our Q3 targets are based on several factors that could vary greatly, including supply chain dynamics, overall demand, product mix, factory productivity, and the competitive environment. With that, let me pass it back to Greg for his closing remarks.
Q3 targets are based on several factors that could vary greatly, including supply chain dynamics, overall demand, product mix, factory productivity, and the competitive environment. With that, let me pass it back to Greg for his closing remarks. Thank you, Neil.
Despite some macroeconomic pressures on the silicon semiconductor market, we are confident in our long-term outlook and the strong secular trend for the demand for silicon carbide.
Our design in number continues to be robust.
And the Opportunity Pipeline remains at a staggering $40 billion.
We have a strong pipeline of design ends across a wide range of applications, including automotive, industrial, and energy.
We are increasingly well positioned to capture a significant share of this opportunity and are committed to investing in the necessary infrastructure to support our growth.
As far as our infrastructure goes,
Our focus on ramping Mohawk Valley will allow us to better scale our power device production, while our 200mm materials capacity also scales.
The learnings from Mohawk Valley have given us a blueprint on how we'll approach the construction and ramp of our next fab.
We should have an update for you on those plans very soon.
The immense demand for both merchant and captive materials gives us further confidence in our decision to expand the Durham materials footprint and build the JP.
dramatically expanding our materials capacity.
This factory will be a game changer for our business and will allow us to increase supply at unprecedented levels compared to what is currently in the marketplace.
We were encouraged by our convertible note offering in November .
and we are focused on effectively deploying this capital to further our capacity expansion plans and generate return for our shareholders.
Now there will be challenges as we ramp our new facilities.
but we will attack them quickly and use our 35 years of experience to resolve them and keep progressing forward.
Now, I'd like to turn it over to the operator for questions.
If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, it is star one.
Our first question is from Harsh Kumar with Piper Sandler. Your line is now open.
Hey guys, thanks for letting me ask a question. Greg, I wanted to ask about the revenue levels that came into the December quarter relative to perhaps what we were thinking. You talked about a couple of things. You talked about some pool-related issues. There were some equipment issues.
one that was materially bigger than the other. And also, I noticed that the cadence of guidance going forward is a lot smaller than what you typically give. Your midpoint is only $4 or $5 million higher. Is that because you are being conservative or are you being conservative?
You want to get a bigger, better handle on these issues before you go back to guiding sort of bigger increases. And then I have a follow-up. All right.
Hey, Harsh, this is Neil. Let me take a shot here to start. Like you said, there's a lot of moving pieces here. Let me just unpack that a little bit and then maybe think a little bit about where we're headed moving forward just based on some of the comments you made there. So first of all, let me just say, overall, we're continuing to see very, very strong demand.
across both power devices and materials. And as we previously discussed, for both of those areas, that's going to be much more of a supply situation rather than being a demand situation. So bringing on supply is really the critical focus there. But what we did see in the quarter was a weakening in RF. RF markets were weaker. We did see some orders. And depending on capacity…
pushed out in the quarter. I mean, if you look back just to Q1 versus what our outlook is this quarter, it's approximately a 25% decrease. So as you look into Q3 and Q4 and even the back half of the year, it's about a $15 million decrease in revenue versus what our prior expectations are. So,
Weakening from a demand perspective, and RF is a piece of this. Now, you'll point out a couple of other areas. We had two issues last quarter we talked about. One was the lower yields in the 150 millimeter bulls and the taller bulls on 150 millimeter. As we said in the prepared remarks, those issues have been resolved.
from a yield perspective. It took a little bit longer in the quarter to get to the cycle times and throughput, so we built a bit of inventory. So the shipping rates at the end of the quarter were a little bit slower. We saw that in increased inventory, but essentially we are at the bottom of that issue, and we are on our way back up. The last one there was just on the Durham fab. So from a Durham fab perspective, we had some supply changes.
until we start ramping up Mohawk Valley. So I would think about future significant builds in revenue from a power device perspective are going to be coming from ramping up Mohawk Valley. And Harsh, I would just add to that. We're at an inflection point right now, where we are running material through Mohawk Valley. We are. Rogue White,
We are planning for revenue coming out of that factory in the fourth quarter as we, fourth quarter of this fiscal year as we qualify the product. The yields that we're seeing on the pre-production runs right now. Give us substantial confidence.
in being able to do that. And in fact, they're running higher than we would have anticipated at this point. So we're really, really happy with that. And I think as we ramp this facility, which again, recall just three years ago with a field of mud, we're gonna see a substantial increase in capacity coming online.
which obviously will help us satisfy that substantial demand that's out there.
Very helpful, guys. For my follow-up, actually, it's a good segue into the Mohawk Valley schedule. So very pleased to hear fourth quarter, which is June quarter for revenue ramp. I've been already getting some questions from investors on how we should think about revenue scaling to happen there.
You've got a lot of pent up demand, Greg, and I think the industry relies on basically two or three guys for much of the production, of the vertical production. Two guys, actually, you're one of them. And so, help us think about, if possible, how the scaling will happen for that fab.
as the rest of the calendar year goes on. Well, I'll kick it off and then Neil can talk a little bit more detail. So we're anticipating revenue from that fab, kind of think of it in the single digit millions of dollars in the June quarter and the fourth quarter and then we would be ramping up, you know, beyond that.
We're ramping up the supply of the 200 millimeter wafers for that at the same time. There's probably going to be some puts and takes. We'll also ramp it up in a, I would describe it as a methodical process, so it's not just sort of turn on everything at once. But we're very, very pleased with what's happening with the yields, as I mentioned.
both the device field and the process fields are looking really, really good right now. We expected that to eventually be the case. It's actually happening earlier than we anticipated. Yeah, and just to kind of frame up the revenue, as Greg said, we thought we'd probably have around single-digit. Still, there wonderful data.
the first time. We're in the middle of qualification lots, we're matching that up with customer schedules in terms of qualification, so a lot of moving pieces so that'll probably create some variability here you know as we move forward. But from where we sit today you know we really are on the cusp of you know bringing this you know this project we've been working on for multiple years you know and bringing it to reality.
Wonderful guys, thank you for the color.
Thank you for the color. Thanks, Arsh.
Our next question comes from Brian Lee with Goldman Sachs. Your line is now open.
Hello guys good afternoon thanks for taking the questions. Maybe just to follow up on harsh's question, because there's been a lot of intense focus around the exact timing of Valley ramp. You know, Neil, you said there's a bit of a push out here as you alluded to I think people are expecting you know some.
minimal revenue in the March quarter and then ramping through the back half of fiscal 23. Now it's June , so it's a quarter behind. Is this a, you know, a bull back end processing issue? Is it customer calls taking longer? I guess, you know, just a sense of, you know, maybe pinpointing what the issues are. I know there's moving pieces.
Yeah, thanks a lot, Brian . You know, I would say that we're ramping this in kind of a conservative-type way. We are bringing together, first off, the world's first 200-millimeter silicon carbide wafer fab on the world's first 200-millimeter silicon carbide wafers.
So there's a lot of variability in here. We're very, very pleased with what's...
the results out of the fab right now, but the last thing we want to do after three years of hard work is sort of drop the ball right as we go into the end zone. So we're going to ramp it up in a very methodical way. We've got material running through the factory right now, as I mentioned, it's looking really good. We anticipate qualifying it and then shipping this first.
a few millions of dollars of revenue in the June quarter. We've got customers lined up for that. And then we'll be getting, we'll be wrapping in the following quarters as well. So I think, you know, I think we feel pretty confident at this point that we'll be able to do that. There's gonna be some puts and takes. We still have to qualify, but.
Based on all the data we see today, we feel pretty confident in that.
Okay, fair enough and then follow up for you Greg. I think you mentioned the design ins. I caught a 46% kind of conversion number. I think you were talking about in terms of projects. So I'm taking that to assume it's units. Is there somewhat of a kind of similar...
conversion metric you can provide in terms of design ins to revenue, just whether that's in the quarter or something you've seen cumulatively and if that's sort of the right framework to think about success on the design and pipeline go forward. Thank you guys. Sure Brian . So when we talk about that 46% number, that's the.
of the total dollars, it's a percentage of the project. So think of it as 46% of the projects that we've won, where customers have given us a design in, have now transitioned into that initial phase of production ramp, which is...
really remains an astounding percentage to me. It's a lot faster than I would have anticipated. Most of those are going to be more industrial type projects because they typically have a shorter ramp profile compared to automotive, but we're seeing good traction on the automotive ones, you know, as well.
So, that's how to think about that. Okay, but presumably, unless the project values, you know, the project scope were to change, the projects converting at 46 percent or so would also translate pretty similarly on a dollar basis. So, that's how to think about that.
Yes, and what we do from a forecasting perspective is we start with obviously our overall opportunity pipeline and then we have design ins. When we look at going from design ins to revenue, we put a pretty conservative filter on that assuming
some projects aren't going to make it all the way through, some customers are going to not go into production with the project, you know a lot of things can happen in between now and then. So we've put a pretty conservative factor on there in terms of kind of framing the revenue compared to what the design ends are.
And that 46% number.
gives us a lot of confidence in the amount of conservatism we've had on that.
Thanks a lot, guys. I'll pass it on.
Thanks, Brian .
Our next question comes from Samik Chatterjee with J.P. Morgan. Your line is now open. Your line is now open.
Thanks for taking my questions. I guess for the first one, a near term and then maybe a longer term question on the second one. I know last quarter there was the guidance about sort of exiting fiscal 2Q or the December quarter at roughly a 1 billion run rate of revenue.
And based on your commentary today, it seems more you're saying the scaling to that 1 billion revenue run rate, even when we think about fiscal 4Q, if you put Mohawk aside, is maybe a bit difficult because RF demand has moderated and
Essentially your terram is a bit more gapped in terms of power devices. Am I getting that right? In terms of even moving sequentially from March to June , it sounds like you're saying it's a bit more limited in terms of getting to that 1 billion run rate, or is that unchanged? And then I have a follow-up. Yeah, I think that's mostly correct.
rate, kind of quarter of a billion dollar revenue number run rate sometime during Q3. You can think about that as between 225 and 250 sometime in Q3. Now, our rep has been a drag on that with the demands. It is about $15 million a quarter. And we did anticipate having some revenue from Mohawk Valley, some smaller amounts potentially in the quarter. And that has now pushed out. So.
As you start to think about revenue timing going forward, with Durham now I would say essentially capped in what we've had here. We see the RF numbers kind of staying lower. We're going to get a little bit of benefit off of the better yields and shipping rates in materials. So what we'll see here is really going to be a function of when and how we ramp Mohawk Valley.
So, essentially our revenue and even our margins for that matter will really be a function of the timing of Mohawk Valley. So, it'll be somewhat limited in the amount of revenue we can drive in the back half of this year outside of RF until we start bringing out more supplies for Mohawk Valley. And that timing is, I think all roads are going to lead to Mohawk Valley in that sense.
For my follow up, I saw in your press release you announced the partnership that you have with ZF and there are press reports out there indicating you have an agreement in terms of a new plant in Germany. Maybe sort of a two part one, it seems like what you're indicating is that you're
direct approach to the OEMs in the past. Just curious given that more recently you've been more set of announcing engagement with the tier ones. Thank you.
Yeah, thanks for the question. Recently, in fact, in early January , we made an announcement together with Mercedes. We've had a consistent theme of both Tier 1s and the OEMs in terms of announcements. These OEMs that have been announced have been General Motors.
Jaguar, Land Rover, Mercedes, Tier 1s, of course, Set-F, BorgWarner, a number of others as well. So there's no change in that. I think we've been pretty consistent that we've been winning long-term agreements with both the OEMs and the Tier 1s. And as this transition from internal combustion engine to EV, we're going to have to make
you know, has such a dramatic change for the automotive makers, I think you're going to see a lot of engagement in both of those. In terms of our next fab, and we mentioned that our investor day, that the demand for our products is so strong that we need to have a new fab in place.
kind of ramping up in the 2027 timeframe. If you subtract then from that, the amount of time it would take us to build and ramp, you know, that factory, it says that we need to be, you know, starting to put that thing in place in 2023. And so what I would say is just kind of stay tuned for that. You know, we've got a lot of work going on.
Hey guys, thanks for taking my question. I had a follow up on the potential for a new silken carbide wafer processing facility. Since you brought it up and you're heard, Greg, I'll probe a little bit deeper.
potential for that with a joint venture.
Would that mean the joint venture partner would take the bulk of the output of that facility, if not all of it, not too dissimilar from, you know, BorgWarner and Mohawk Valley?
And how would such a build impact fiscal year 24 CapEx relative to prior communication?
Yeah, so what I would say is we really can't get into a lot of details on that. I would say just kind of stay tuned on that and then we can be very, very clear.
And what I'll add there, Gary, just from a CapEx perspective, when we laid out the plan at the end of October as it relates to CapEx, as I mentioned before, that really includes everything. We knew at that point we would need a second fab and a materials facility, and what we've laid out from a capital planning perspective includes all of those things.
And right now we don't see that any differently. Got it, got it. For my follow up.
When you announced Siler City, I believe the communication was that all that 200 millimeter output would be consumed internally. Has that view changed at all or will you be supporting some of these, you know, merchant LTSA wafer supply agreements with some of that output and then maybe if you can just give us a sense of...
the trajectory of your wafer related shipments based on some of these new LTSA.
Yeah, so basically we're at the early phase of really ramping up 200 millimeter and we're doing all we can to ramp it up and feed the Mohawk Valley fab. And we're also doing all we can to drive the costs and the commercialization of that product to a point where we can decide.
you know, at that point, what makes sense from a long-term agreement perspective. At this point, it's looking like the vast majority of what we'll do at the JP now will be 200 millimeter. We do have the ability, if we wanted to, to run 150 there.
And so if there was continued need and demand for 150 millimeter, we could do that at the JP facility. But yeah, the vast majority of what we're going to be doing in the JP is going to be the 200 millimeter.
Our next question comes from Colin Rush with Oppenheimer. Your line is now open.
Thanks so much. You know it's up to getting a little bit more mature in the auto industry around their their platforms. Can you talk a little bit about the cycle times that you're seeing in terms of some of the design ends as they look at you know scaling some of these platforms into multiple vehicles and moving into multiple geographies?
I would say we're seeing a couple of different things. First off, the cycle from when a customer begins thinking about implementing a new platform to when it goes into production is still in that kind of that four to five year range, I would say. This means that you have a large number of hosts, but then that whatever has happened
Some of the more startup type companies can be a little bit faster, but that's kind of the range. What I would say is happening though is customers are taking the platform that they're going to use for vehicle X and they're reusing it for vehicle Y. www.microsoft.com.com jazzt
And so obviously the cycle time for that is dramatically shorter to be able to just kind of rinse and repeat and reapply the same platform for another vehicle. And we've seen that numerous times across just about...
I don't know about all of our design wins, but many of our design wins we've seen where we were in one platform and now we're in two and now it's four and I think that kind of is driving some of the steeper ramp that we're seeing in the demand for the product.
And then in terms of some of the industrial applications, are you seeing anything new on the horizon that are real accelerants in terms of demand for you guys? Are there areas outside of Bob Modib that are real highlights that we could think about as demand drivers for fiscal 24 and 25?
We're seeing a lot of different applications. They tend to all be small individually and collectively they can be large. Anything that's basically converting energy at a high power or high voltage range is really making a move towards silicon carbide. We're seeing that in solar systems, wind systems are.
You know, doing the same thing in terms of green energy server farms, we've got design ins into.
non-vehicle but other transportation applications like vertical takeoff and landing equipment and personal watercraft is another example where people are, you know, customers are designing it in. Every single something is a productus belongs to another unit. Our customers.
So yeah, we're seeing it across a large number of different kinds of industrial applications. In this regard, the exposure we have to that is really led by ARROW. That's done a really terrific job of...
getting us access to their footprint to be able to engage with customers. From a sales perspective, where we have a relatively limited footprint and Arrow has the largest sales footprint in the world. So they're able to go after customers across all different.
geographies and sizes to be able to penetrate that market and evangelize silicon carbide.
Our next question is from Jed Dorshimer with William Blair. The line is now open.
Hey, thanks. Hey guys, thanks for taking my question. Greg, first one to you if you would.
I don't want to trivialize how difficult it is in terms of what you're doing with 200mm, but as we've gone through this process over the past three years and forging this path, are there any lessons that you can share in terms of what you're doing with 200mm?
areas that things have kind of gone better in areas that maybe have gone a little bit worse that kind of get you to the to the end result and I'm asking this question kind of on the eve of you know or in the near when you do announce that second fab how to sort of gauge timeline relative to this
And then I have a follow-up question.
I would say a couple of things. First off, we built this fab during a crisis and we weren't expecting that. Nevertheless, three years from when it was a field of mud to today, we're beginning production. It's actually quite astounding, I think, what the team has accomplished.
And I think they did that through really a good plan, but probably more importantly, a good adjustment when we were throwing curve balls and so forth. And you guys remember what all those curve balls were. The second thing that I would say is, from a super positive side of things,
The decision to go fully 200 millimeter and to go fully automated was really solid. Originally, we were saying, well, maybe we'll start at 150 and then convert it to 200. I think that would have been such a distraction. We had to get to a point where we were confident in 200.
But we did get to that point, oh gosh, it was maybe two years ago, I think. And I think, you know, kind of thank goodness we did that because I think it would have been really difficult to convert a 150mm fab to 200mm.
And I think the automation has been just stunningly awesome for us. I was talking to this team about process field expectations and so forth. And the fact that we don't have humans interacting with these wafers that can be pretty brittle has been really positive. So I would say...
That's all you know. I think those are some of the positive things I think you know we've had obviously a number of different challenges, but you know the you know, but I think the experience of the team has allowed us to kind of clear it as well.
Got it. That is helpful. In a broad way, for maybe you and or Neil, but as we think about the ramp, there is, you know, and it sounds like your strategy, you know, some strategies are to build, you know, high buffer inventory and sort of ramp higher or harder, and it sounds like...
you're still taking a very methodical approach just by the in terms of the ramp up. I'm wondering if you could help us understand if ramping on lower volume, you're going to be taking on the fixed cost and depreciation on a unit number or unit basis which
I would think we will have a near-term headwind from a margin, but how should we think about the crossover of those vectors? Because at 200 millimeters, you're going to have a fundamentally lower cost basis. Is that a 40 percent load? Yes.
or utilization or 60% or where do you see that crossover? Where what might be a little bit of a headwind, you know, all else equal kind of becomes that tailwind to really accelerate things. Thanks. Yeah, I'll kick it off and then kick it over. I'll start it and then kick it over to Neil.
We're definitely taking a more methodical approach. As I mentioned before, we're in really good shape right now. We've got yields that are looking really nice right now. The last thing we want to do is just turn the...
the accelerator too hard and kind of mess it up at the end here. So I think we're in the mode of let's do this in a methodical way. Let's take it step by step. We're really pleased, I said, with the yields that we're seeing out of this. We'll be qualifying.
the product in the fourth quarter and ship it to customers and then we'll turn on the fab step by step.
Yeah, that's from just an overall cost and I think fixed cost absorption. I think it's kind of where your question is going For the first time first of all I think I don't know exact number But I think if you recall from the investor day we said Mohawk Valley kind of breaks even At least from a cash perspective from kind of that 30 to 40 percent kind of utilization level which I think is probably still valid everything we're seeing now from
every quarter. We'll also think about an underutilization adjustment going forward to get to get the fab being marked to about 70 utilization and then we'll start to wind that down as we build inventory in the fab. So right now I think what you see is the kind of the peak under you know start up an underutilization number that'll just start winding down over time.
And that should give people a really good view of what the FAB capability is from a cost perspective, even at a relatively low level of utilization. And what you see there is when we talk about the FAB having die cost that's 50% lower than our current cost in Durham, that's really based on that kind of lower utilization number. So we'll be able to kind of manage through that. We'll give an update on it every quarter. But we think we but I think
Hi, this is Blake Freeman on for Vivek. So just touching on the 5G weakness that was mentioned earlier, just curious if it's related to any specific geography and with weakness to continue in the second half, is there any way you can quantify how much you expect second half RF sales to be coming in relative to first half?
From an RF perspective, I'd say overall we're seeing a lot of choppiness across the customer base, so it probably depends on which customer each of the suppliers is dealing with. So I don't see, but I do see some, we do see flattening or even market weakness across a lot of different vectors as we look across the industry.
I said earlier, we see that about a $15 million drag per quarter versus what we had previously expected from a revenue standpoint. And I think we'll continue to see that as we go through the back half of the year.
And then just kind of quickly too, just touching on the CHIPS Act and your CapEx cadence moving forward, is there any benefit there specifically that you can size or just even high-level comments would be useful? Thanks.
On the CHIPS Act, we're very pleased with how things have progressed. We're waiting on final regulations to come out, but clearly not just the CHIPS Act. I think we'll get, like I said, the final regulations will come out, but the investment tax credit that came along with that is very positive as well. We've already started baking some of those benefits into our numbers, and it's all in line with what we kind of anticipated when we laid out the plan last October .
Thank you very much. Good afternoon, guys.
For my first question, I wanted to ask a bit on the RF business. I was going to be this.
100, 150 millimeter transition and you guys talked about on the last call and then at the analyst day that the margin headwinds that were going to come from maybe not making that transition and that was.
pretty clear, but as I understood it, the reason for not making that transition was things were so tight in that in that facilities that you couldn't sort of shut things down to make the transition and if now we're seeing
cyclical demand weakness in RF devices? Is there an opportunity to make that transition now? And maybe you can just help me square that circle a bit. Thanks. Yeah, just recall that that facility also produces our power products as well.
And so there's really not, you know, although there's a little bit softer demand on RF, there's really still not that opportunity to make that transition.
Got it. Okay. So it's a shared facility then, Greg, that you're leaning into any flex for the silicon carbide device side rather than making any transition. Is that kind of the way to read it?
That's right. And you know. That's right.
So changing out an RF line in a shared facility creates a lot of disturbance for everything, and we can't afford to do that for our power device customers.
an RF line in a shared facility creates a lot of disturbance for everything and we just we can't afford to do that for our power device customers.
Got it, that makes sense. I guess as my follow up I wanted to...
We've had a lot of discussion here on the call about the timing of ramping Mohawk Valley and the variables to get there. I just wanted to...
to double click on the 200 mil materials side. How are you guys thinking about the
the steps needed to really scale there to sort of feed the beast. I'm just trying to get an understanding of
checking off the boxes to really scale mohawk. Are the things on your priority list, Greg, on the material side on 200 mil? Or are they still in the Mohawk Valley devices side and sort of where the variables are to the ramp?
It's definitely both. And so we've got, we're working obviously the fab itself and I've given you inputs on that that that's going, you know, pretty well. You know, a one quarter delay on revenue notwithstanding, you know, we feel real good about what's been going on there. We are expanding capacity on our Durham campus as we speak.
and turning on additional capacity.
this week to be able to feed more product into Mohawk Valley. Where that expansion took over, I think it was a basketball court and some other facilities, and turned it into a 200 millimeter.
silicon carbide crystal growth operation in what we call Building 10. And then of course, the big dramatic increase in that is going to come with the construction of the John Palmer Manufacturing Center for silicon carbide or the JP.
That expansion we're estimating is going to increase our capacity by more than 10x. So it's a giant capacity expansion. And we're super happy that we made the decision back in September to kick that thing off. And to put things kind of in perspective.
We made that announcement on a Friday at the Governor's Mansion here in North Carolina.
on a Friday at the Governor's Mansion here in North Carolina. And we had...
Earth moving equipment on site the following Monday, so we knew we needed to go from Decision to to get stuff going very very quickly
Our next question is from Katya Evstrativa with Canaccord Genuity. Your line is now open.
Hi, thank you. I'm going in for George.
Greg and Tyler and...
Neil, maybe if you could speak to the demand that is coming from all your design wins and if you are to contrast and compare what's happening in Europe versus what's happening in the US, where do you see most demand coming from, especially given in the tailwinds of your recent announcement with Mercedes? Thank you.
You know, I don't have the exact numbers in front of me. I can say we're winning very well in both the US and in Europe . We've made announcements with GM and BorgWarner, the US-based companies or North American-based companies. We talked about Jaguar Land Rover, Mercedes, ZF, European-based companies.
Some of those tier ones have business across the globe, so we're winning in Asian markets as well. But I don't have the exact breakout, but I would say kind of globally we're winning pretty nicely.
Thank you Greg, and if we are to get the 1.5 billion in designing, could you assess how much of it is coming in the US versus Europe ?
in terms of automotive ones.
I don't have that breakout right now, but what I would say is if it follows the pattern that we've seen over the last couple of quarters, it's going to be pretty heavily automotive related. Think of it as 70%, 75%.
automotive related and then 25% would be either industrial type applications, RF applications and so forth. I'm sorry I don't have the regional breakout right handy.
And then 25% would be either industrial type applications, RF applications, and so forth. I'm sorry, I don't have the regional breakout right handy. Thank you.
Our next question is with Edward Snyder with Charter Equity Research. Your line is now open.
Thanks a lot guys. First of all, I think it's fantastic you naming this facility after John . I think it's really, really great guys.
A couple things, first of all, Neil, housekeeping, can we give just a general breakdown of materials versus devices on this in terms of the revenue? Where you were, you know, not 50-50 yet, but can I get a general idea where that is?
Well, like I said, let me just point out a couple of things, Ed. So the Durham facility is now capped, I said about $400 million a year, and that only provides power devices in that number. So about $100 million a quarter were kind of capped on power device revenue until we start seeing more revenue out of Mohawk Valley. That's all I want to say.
RF device perspective, we're down about 25 percent from our peak, which back in Q1. So that represents about 15 million a quarter. So I think that should give you the pieces there.
down 15 million a quarter or it is 15
million a quarter. 15 million less than our previous expectations. That's roughly, I think, approximately 15 million lower than where we were back in Q1.
Yeah, okay and so.
Given that it's capped, given that your RF is on the way down, can you move some of the capacity? I imagine you can't. The RF line can't be converted, and RTP cannot be converted into device. So you can't sop up the extra capacity, maybe freeing up an RF with devices and expand your RTP. You said Durham is capped.
100 million, but that didn't include RTP, right? So you've got some revenue coming out of RTP for devices too, right? Yeah, we've actually, Ed, we do have some power product going through the RTP facility. We've been working that for a little while to do as much as we can.
but basically there's just no room at the end right now. Yeah, I can imagine. And so if you're capped at $100 million there, plus what do we get out of RTP, then the real growth is just going to come out of materials, which I understand now that you've got the bull issue corrected. So you're going to have to be able to get the bull to the market, right? So you're going to have to be able to get the bull to the market, right? So you're going to have to be able to get the bull
could ramp, but until you get to the city based on, I would expect, and correct me if I'm wrong, you're going to see rather limited ramp on revenue on materials, even though demand far exceeds supply at this point. So that probably means, I'm not looking for guidance, but I just want you to reality check on our big picture view here.
With single-digit millions out of Mohawk Valley in June , we're going to be kind of flat-ish, slightly up revenue for most of the fiscal year. And then it's all going to turn, as you guessed, I guess you said, Neil, on the ramp of Mohawk Valley for any real revenue growth in 23.
millions out of Mohawk Valley in June , we're going to be kind of flat-ish, slightly up revenue for most of the fiscal year, and then it's all going to turn, as you guess, I guess you said, Neil, on the ramp of Mohawk Valley for any real revenue growth in 23. Is that a fair assessment?
I think that's right, Ed. I think we're going to see some, you know, we'll see some audits picked up in materials as we get, you know, better performance off of the longer bowl.
In reality, with the size of what we're talking about here, as Durham is capped, the capability of Mohawk Valley is just going to be tremendous. I think it's something like 15% of Mohawk Valley utilization already can double our power device revenue capabilities. It's kind of a digital thing here. Mohawk Valley turns on.
I think we'll start seeing the revenue growth pick up very quickly. If it doesn't, then we'll kind of stay in this kind of maybe flattish to modestly up until we start to see that revenue get turned on. But when it does, we're going to see the first $1 million of revenue for a facility that can be north of $2 billion a year.
It's got tremendous capability. Just got to I think I think like I said earlier all roads are leading to we got to get mohawk valley off the ground and we're on the cusp of doing that.
It's clear that's the, like you pointed out, the 1-0 function here. Margins will probably decline then because as you turn it on, you're not going to have anywhere close to 30% or 50% utilization. So you're going to have an utilization. So I appreciate you breaking that out. So I'm just trying to get a concept because consensus was way off.
and it continues to be off here. So I want to get it calibrated for the rest of this year. And then to the point of Mohawk, have you provided customers with products that they are now qualifying? Or is that to come? And is that the revenue that you recognize when you hand that over to them to qualify? Do they pay you for it? So I'm just trying to get an idea of where we are in a customer qualification.
material out of Mohawk Valley? We would give customers qualification material after we qualify. What we've done is we've talked to them about doing kind of parallel qualifications and then officer may be sent along to our product delivery.
and kind of risk orders out of Mohawk Valley. There's a tremendous amount of demand for the product. So we've got many customers that have kind of signed up for they'd like to be first, and they would have sort of a very rapid qualification process. Typically that second qualification is one where you're...
pushing pretty hard the customer to do things. We're seeing the opposite impact right now where you know customers are you know raising up their hands saying can they please be first and so we anticipate that that would go through relatively quickly.
Our next question is from Matthew Priscill with Evercore. Your line is now open.
Hey guys, thanks for taking the question. Just wanted to drill in on gross margins a little bit here. I'm surprised with the guy down in March now, the kind of pool issue is behind and revenue is kind of guided up modestly. So can you kind of talk about the levers you have for gross margins in the March and into the June quarter and just to understand something you said before.
When you rent Mohawk Valley, will that be immediately accretive to your non-gaf growth margins or dilutive? Thanks. Yes, so just a quick one on the transition in the margins. We did have an improvement in the yield as Greg mentioned before in the taller bulls. We had to get the cycle times to match that. We've since subsequently been able to do that as well. But we did have a bit of an overhang there. So we'll have some whippage.
from those things, but I think overall the underlying performance we should see improving. And then as it relates to Mohawk Valley, as we ramp the fab, that will be accretive to non-gap gross margins, and we'll make an adjustment for underutilization there just to ensure we can get kind of an apples-to-apples view of what the fab will look like from a performance perspective, and then we will continue to give.
updates every quarter as to what that number is. That's helpful. And then as a follow-up, maybe CapEx for the year, given your spending now in the first half, are you guys still targeting 1 billion net for the year and...
It's so where's that spending going in the second half? Can you help us think through what FADs are equivalent or shall and all that good stuff?
Yes, so yes, a billion dollars for the year, that's correct. We should see a pickup in the back half of there. We've talked about that before. There are some expansions that are going on in Durham right now. Greg talked about turning on portions of the 200-millimeter. We'll continue to expand the 200-millimeter substrate capacity on the Durham campus in and around Durham.
That's a big piece of what's going on now. In addition to that, we'll be working on bringing the Siler City to the next phase and getting that facility completed. So I think those would be the bigger pieces. On top of that, we continue to invest in tools in Mohawk Valley and we'll continue to tool that out as quickly as we can. So I think those would be the big pieces of what we're going to be spending in the back half of the year.
That's very helpful. Thanks, guys. Our next question is from David O'Connor with BNP Paribas. Sorry, but the line is now open.
Great, thanks for taking my questions. Maybe first on the Mohawk Valley ramp up, just trying to understand that if the yields are ahead of your expectations, why the language now is more cautious on the ramp up.
Just trying to understand where exactly is the remaining risk and uncertainty, where does that lie with the Mohawk Valley ramp up given that the finishing line is in sight here. And kind of related to that as well, so we have a couple of million in the June quarter. How many quarters will it take to hit that 150 million a quarter run rate?
to kind of get to help me do a FY24 guide and I have a follow-up on depreciation.
Thanks a lot for the question, David. We are exactly taking a conservative approach on this because we're so happy with the results that we see right now. If we try to jam too much in too quickly, we'll see how it goes.
cause an issue that is unexpected right now, so we just want to be methodical on that. We're not going to be lazy on it. I mean, we're going to be pushing it, you know, as hard as it makes sense, but we don't want to do is over stress it and this is not an expected issue.
We're real pleased with the results right now. Let's just take it step-by-step, and I think we'll be well-served by that.
Yeah, I think from a timing perspective, like I said, it depends on how many wafer starts we can get into the fab and ramp it up at volume. And once we do that, you should see a pretty nice ramp up in revenue. I think we've got the pieces together. It's really just a matter of putting it all.
putting all these puzzle pieces together, ramping the 200 millimeter substrate, driving starts into the fab, driving the power device back end performance for test and inspect and all those types of things. And on top of that, we've got to match up with customer schedules in terms of when they're going to accept material. We're matching all those variables up.
I think from an execution perspective, I think it goes relatively quickly, but there are a lot of variables. We just want to be very cautious there in terms of, look, there's a lot of pieces that we need to pull together to get off the ground. We're working through that right now. But if we can get the fab up and running, I think if you look at the economics of what we're seeing.
and the technical capability of what we're seeing, that all looks on track. Okay. That's helpful. Thank you. And my follow-up on the – just, Neil, on depreciation. As you turn on the lines in Mohawk Valley now, how should we be modeling on the depreciation side of things? And also, just your comment earlier on the underutilization charge.
depreciation and some of the other fixed costs for about a 70% FAB utilization number and then adjust that every quarter. So right now what we had last quarter was a $38 million startup number. So you can think about that as the run rate cost of running the FAB. And as we bring up the FAB, that number will start to decline over time. And we'll take more and more of that into inventory. And that will just start to bleed off as we get...
to higher levels of utilization. Now any other performance cycle time yields, all these other things, I think everyone's interested, that will kind of fall through, so we'll have pretty good visibility as to what the performance is of the fab, just excluding some of the fixed costs related to the utilization.
There are no further questions, so I'll pass the call back over to the management team for closing remarks. Thank you for joining us today.
Well, thank you for joining us today. I'd like to welcome Stacy Smith to our board. Stacy is a great addition. He's got a career that spans many, many years in the semiconductor industry and spans many different functions including,
finance roles and operations roles, sales and marketing roles. So he's going to bring a wealth of experience to our team and really look forward to locking arms with him as we move forward here.
We're at an inflection point and very near the ramp and production of the world's first and the world's largest 200-millimeter wafer fab. We're excited about what it's doing right now and look forward to continue driving that inflection point forward.
Thank you very much for taking the time with us and look forward to chatting with you next quarter. Thank you.
That concludes the conference call. Thank you for your participation. You may now disconnect your lines.