Q3 2023 Wolfspeed Inc Earnings Call
Speaker 1: At Low Speed, we are a testament to the power of long range investments in complex technology.
Speaker 1: With Silicon Carbide being rapidly adopted across various industries, our company's mission aligns with the energy efficiency goals of governments across the world, and we are proud to be making a significant impact.
Speaker 1: In the last several years, we've gone from being a global leader in silicon carbide material of production to building a vertically integrated semiconductor powerhouse that started with the expansion of our power devices capacity in the Durham Fab and then turning a field of mud in upstate New York into the world's first
Speaker 1: 200mm silicon carbide device factory.
Speaker 1: I'm proud to share that we shipped our first product from the Mohawk Valley Tab in the third quarter.
Speaker 1: while it's a relatively small number of devices.
Speaker 1: ship to an industrial opt-for charging customer.
Speaker 1: It's an important proof point that we are now producing product on 200 millimeter substrates.
Speaker 1: We have a meaningful head start in executing our strategy.
Speaker 1: And the learnings from rapping the new fab will be important as we continue to expand capacity to better support the industry transition from silicon to silicon carbide.
Speaker 1: Our focus on vertical integration positions will speed for a multi-decade growth opportunity.
Speaker 1: customer demand is robust as we secured $1.7 billion of design in Q3.
Speaker 1: This total reflects a new quarterly record for non-automotive design.
Speaker 1: which included the heat pump application and an EV off-board charger.
Speaker 1: Our cumulative total for design-in secured since fiscal 2020 now totals approximately $18 billion.
Speaker 1: demand is there and we are continuing to lead the expansion of the silicon carbon-carbide market.
Speaker 1: My primary focus is on expanding our capacity.
Speaker 1: especially ramping materials production as it relates to wafer supply to feed Mohawk Valley.
Speaker 1: For most of our history, our growth was driven by supplying the market with silicon carbide vapors. Now we have a best in class tab and we need more materials to feed it. Producing more silicon carbide heavy vapors out of our Durham facility will be the governor of making sure that an
Speaker 1: on our Mohawk Valley ramp in the short term. And our longer term outlook is supported by the wrap of the JP.
Speaker 1: Neil and I are leaning in directly to support capacity expansion efforts.
Speaker 1: We've re-aligned the team with operations leaders now reporting directly to myself and Neil.
Speaker 1: Missies, the Gal is overseeing devices and our radar caps.
Speaker 1: while Adam Milton will lead the materials production for the company.
Speaker 1: We believe this will provide greater visibility into the ramp of substrate as well as our device footprint expansion.
Speaker 1: Our strategic vision and expectations for silicon carbide expansion have not changed.
Speaker 1: Wolfspeed has a deep moat in the industry with a decades-long runway.
Speaker 1: but the journey requires focus, persistence, and patience.
Speaker 1: We'll continue to make long-range investments in this complex technology, expanding our capacity footprint with purpose-built facilities for both materials and devices.
Speaker 1: We believe this is validated by customer demand and increasing investments in silicon carbide across the industry. The world needs more silicon carbide and will speed will continue to lead the pack. Now I'll turn it over to Neil who will provide an overview of our financial results and an outlook for the 4-quarter fiscal 2023.
Speaker 1: and fiscal 2024. Thank you, Neil.
Speaker 1: Thank you, Greg, and good afternoon, everyone. During the fiscal third quarter of 2023, we generated revenue of about 229 million at the high end of our guidance range, which represents a 6% sequential increase compared to the 216 million in the fiscal second quarter of 2023.
Speaker 1: and growth of approximately 22% year over year, with power device products growing more than 50% year over year.
Speaker 1: We recognize our initial revenue from our Mohawk Valley FAB in the third quarter and continue to expect low single-digit millions of revenue in the fourth quarter with a greater ramp in fiscal 2024. I'll go into more specifics in a few moments, but going forward, we will continue to explore ways to show the underlying economics coming out of Mohawk Valley.
Speaker 1: and its relative margin impact. As a reminder, Mohawk Valley will dramatically change the dynamics of the business. As its scale, automation, and weight-versized advantages will lower our overall die cost by greater than 50%.
Speaker 1: We also saw strong revenue growth from our merchant 150 millimeter silicon carbide substrates. As we saw many of the production challenges we had on the taller holes. I'll be at higher than expected cost.
Speaker 1: This results in a one-time inventory drain, and we expect revenue levels to return to more steady state run rate levels in fiscal Q4 and beyond.
Speaker 1: Additionally, from Power Device perspective, as I mentioned last quarter, we now believe that we have achieved both capacity and our Durham Way for FAT, and almost all future top line growth and power devices will come directly from the Mohawk Valley FAT.
Speaker 1: Looking at RF products, we continue to see weaker demand, but within range of our prior estimates. Moving down the income statement, non-GAPRO's margin in a third quarter was 32.3%, compared to 33.6% last quarter and 36.3% in the prior year period for presenting a 400 basis point of decline year over year.
Speaker 1: Consisting with our outlook, gross margin was impacted by lower yields at higher cost and our taller 150 millimeter bulls.
Speaker 1: In addition, gross margin was impacted by a heavier mix of high-volume automotive customers running on the smaller 150mm wafers in our Durham Fab.
Speaker 1: As a result of these items, we generated adjusted loss for share of 13 cents in the fiscal third quarter compared to a loss of 11 cents a quarter ago and a loss of 12 cents in the same period last year. As revenue growth was offset by lower gross margins and higher investments in OVAX.
Speaker 1: Before we discuss our guides, I will write a quick overview of our balance sheet position.
Speaker 1: We ended the quarter with approximately 2.25 billion of cash and liquidity on our balance sheet.
Speaker 1: We've ended the quarter with approximately $2.25 billion of cash and liquidity on our balance sheet to support our growth plan.
Speaker 1: DSL was 53 days while inventory days on hand was 162 days.
Speaker 1: Free cash flow during the quarter was negative $245 million, comprised of negative $11 million of operating cash flow, and $234 million of net capital expenditures.
Speaker 1: We now anticipate net cat-backs for fiscal 2023 to be approximately $775 million. Down from our previously announced $1 billion, primarily due to the timing of facility spend related to the 200-millimeter substrate expansion.
Speaker 1: During the quarter, we incurred startup costs primarily related to the Mohawk Valley FabRamp, totaling approximately $45 million.
Speaker 1: Moving forward, we expect overall startup and underutilization costs for Mohawk Valley to start winding down as we ramp the fat. We have included a non-gap adjustment for the startup cost in the reconciliation table and our earnings release.
Speaker 1: In terms of our capital needs, we continue to evaluate multiple avenues of additional funding, including upfront customer payments or investments, debt instruments, and government funding in the United States and Europe .
Speaker 1: While we cannot comment on the timing or certainty of any government funding, we believe we have made great progress in this regard. In addition, we believe we need to secure approximately 1 billion of additional non-government financing between now and the end of the calendar year to support an approximate $2 billion of CAPEX in fiscal 2024.
Speaker 1: The majority of this investment will be for 200 millimeter substrate facility construction and tool capacity at both the JP and Tyler City and our Durham campus in North Carolina with the intention of leveraging this investment to ramp the Mohawk Valley FAB as fast as possible. While we are currently investing in modest amount of design work.
Speaker 1: and for the German Saarland path, we don't expect to see significant facility construction related capbacks until calendar year 2024 while we await final incentive notification from European authorities.
Speaker 1: However, we have made good progress on this front and as of now expect final notification later this calendar year.
Speaker 1: We also remind you that our CAPEX investments can get highly variable, depending on the timing of facility construction, tool lead times, supply chain challenges, and other items.
Speaker 1: As we look forward to the fourth quarter of fiscal 2023 and beyond, we recognize that, especially recently, there has been variability in our financial performance compared to our forecasted growth trajectory.
Speaker 1: While predominantly related to the challenges of the timing of the ramp of Mohawk Valley and our 200-millimeter materials production, we recognize the need to help you all assess near-term expectations. As a result, in addition to giving our fourth quarter outlook, I will take a moment to help frame how we're thinking about fiscal year 2024.
Speaker 1: Starting with the fourth quarter of 2023, we are targeting revenue in the range of $212 million to $232 million. Our revenue guidance reflects low single digit revenue from Mohawk Valley as previously communicated.
Speaker 1: As I mentioned before, we are essentially capped in Durham from the Power Device capacity perspective. And going forward, much of the incremental revenue we will generate will be from Mohawk Valley.
Speaker 1: In addition, as previously mentioned, we will see lower materials revenue related to the one-time inventory drain in 3Q as we improved output on our taller 150-millimeter bobbles that will not repeat in 4Q.
Speaker 1: Our Q4 non-gap roast margin is expected to be in a range of 29% to 31% as we continue to work through the cost recovery on the taller 150 millimeter bulls and we shipped our Durham Fab Mix to higher volume automotive customers that were initially slated to be produced in the Lock Valley.
Speaker 1: We expect non-gap operating expenses to be between 105 million and 106 million for the fourth quarter of fiscal 2023. We expect Q4 non-gap operating loss to be between 34 million and 43 million and non-operating that gain to be approximately 5 million.
Speaker 1: We believe we will realize approximately $8 million to $10 million of non-GAAP tax benefits as a result and expect Q4 non-GAAP net loss to be between $21 million and $29 million, or a loss of 17 cents per diluted share to 23 cents per diluted share. Our non-GAAP EPS target excludes acquired and tangible democratization.
Speaker 1: non-cast stock-based compensation, project transformation and transaction costs, factory start-up and underutilization costs, and other items is outlined in our press release today.
Speaker 1: As always, our Q4 targets are based on several factors that could vary greatly, including supply chain dynamics, overall demand, product mix, factory productivity, and the competitive environment. Turning to fiscal 2024, given that our growth will be governed by how quickly we ramp 200-millimeter substrate capacity, and in turn, the Mohawk Valley Fab.
Speaker 1: We will target fiscal 2024 revenue between 1 billion to 1.1 billion. As outlook assumes, we achieve 20% capacity utilization at Mohawk Valley by the fourth quarter of fiscal 2024, while our epic materials product line revenues remain closer to current levels as we focus our efforts and resources ramping 200 millimeter substrates in Mohawk Valley.
Speaker 1: Additionally, as a result of the ramp timeline and continued focus on customer timeline, as I mentioned earlier, we plan to run more auto-related products at the smaller 150-millimeter diameter in the Durham Fab for the foreseeable future to support our customers, which will flatten the gross margin trajectory.
Speaker 1: for the next several quarters until Mohawk Valley reaches critical mass.
Speaker 1: As we are in the early stages of these critical EV ramps, it is important to support our customer ramp schedules, but it will likely keep gross margin in your current levels on the Mohawk Valley ramps to higher output levels. That said, as we reach 20 percent utilization at Mohawk Valley, we would expect the trajectory for gross margin to improve.
Speaker 1: because the economics are significantly more favorable than Durham.
Speaker 1: With that, let me pass it back to Greg for a close of the march. Thanks, Neil. We recognize there is work to be done against executing on our strategic vision and capacity expansion plans.
Speaker 1: That said, we are confident that we are on the right path.
Speaker 1: As Neil discussed, we are adjusting our fiscal 2024 revenue forecast to better reflect the current trajectory for the ramp of the Mohawk Valley tap. We continue to win business at a solid rate.
Speaker 1: And a large part of that is due to our investments in capacity and our device quality.
Speaker 1: As we further our capabilities in vertical integration and continue to innovate, we expect to continue to capture, share in our power device product line for automotive, as well as industrial and energy applications, as the supply of silicon carbide devices continues to expand. At low speed, we have an extremely wide mode.
Speaker 1: in an unbelievably attractive industry with decades-long opportunity.
Speaker 1: We believe we have the best talent, the technology advantage based on our 30-plus years of slick and carbide expertise.
Speaker 1: and cost advantages as we wrap our 200 millimeter production and design in with Premier Automotive OEMs, Tier 1s, and industrial customers. We are the leader in silicon carbide technology and are hyper focused on expanding our footprint to maintain that lead.
Speaker 1: and are focused on executing our strategy as I know we can.
Speaker 1: And now I'd like to turn it over to the operator for any questions you might have.
Speaker 2: to keep an eye session.
Speaker 2: If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by the number 2.
Speaker 2: We ask that you limit yourself to one question and one follow up. Thank you.
Speaker 2: that you limit yourself to one question and one follow-up. Thank you. We have our first question from...
Speaker 2: Jed Dorshima from William Blair. You may proceed with your question.
Speaker 1: Thanks for taking my question guys. First question, Greg and or Neil, I was wondering a couple of quarters ago you flagged the yield issue within six inch in terms of the
Speaker 1: taller bulls and now you're kind of calling out the 200 millimeter capacity. So I was wondering if you could help us better understand some of the limitations. Can you you know clarify if this is a furnace issue if this is a you know sort of a bull height or wafer thickness or sort of maybe give a little bit more color of what's going on.
Speaker 1: on the timelines that you saw sort of thickness, bull height, et cetera, because that would seem like that's a important lever here as a function of until you get Siler City up and running, and then I have a follow-up.
Speaker 1: Okay, Jay, thanks a lot for the question, Jed. Let me frame it this way. First off, we're running wafers right now, 200 millimeter wafers in the Mohawk Valley. As I mentioned in the prepared remarks, we shipped our first product to an industrial customer. We're going to ship a couple of million dollars worth of product this quarter. Our cycle times, our yield, are throughput just short of that,
Speaker 1: really good. The quality of our crystals and the quality of our substrates, as well as the yield in producing those substrates in our materials factory, and Durham is also at or if all, where we have targeted at this point.
Speaker 1: What we're really talking about here is a challenge of scaling and scaling the materials operation to feed MOVOC Valley. And basically there are two things that are basically slowing that down, so to speak. One is some infrastructure delays that we had things like switch gear and things like that.
Speaker 1: to growing the capacity. I think that's a prudent point for us to take at this point. So basically quality of bulls, quality of crystals, crystal height, number of wafers, curbul, all of that kind of stuff, in line, material flowing through the factory, doing really well, just simply a delay from an infrastructure perspective and a more methodical ramp.
Speaker 1: Got it. Thanks. That's helpful. And then on my second question, you know, it begs the question. I know that when you looked at Mohawk Valley, you made a strategic decision to kind of go to eight versus six for all the benefits that you cited in terms of moving to eight. But there were certain customers targeted for Mohawk Valley.
Speaker 1: in terms of, you know, obviously it's a different capacity, or are you able to port that over? I would doubt that you can qualify in Durham, and then that becomes qualified in Moaq Palli. Thanks. That's, you know, Chad, what I would say is there is a very leaning forward.
Speaker 1: aggressive approach from our customers in terms of trying to hurry up the qualification of product out of the Mohawk Valley. They see it very, very clearly. The substantial amount of increased capacity out of Mohawk Valley.
Speaker 1: is very much worth leaning forward in terms of taking material from Mohawk Valley. We have customers that have signed up for risk starts in Mohawk Valley ahead of qualification and so forth. I think typically when you go through a wafer fab,
Speaker 1: There's typically a sort of dragging their customer along, if you will, as you bring them to the new facility. That is not the case here because the demand for the product is so substantially high that they're really look everyone is kind of lining up and raising their hand to try to get into Mohawk Valley faster. So no change on that at all, Ted.
Speaker 3: Thank you.
Speaker 3: Thank you. Thank you.
Speaker 4: The next question comes from Brian Lee of GoldenSax, your organization Brian . Hey guys, good afternoon. Thanks for taking the questions. I guess the first one just on all this additional granularity and the updates on the log value. I appreciate that. But you know, with the target to kind of get to 20% utilization by
Speaker 4: end of fiscal 24. Can you kind of talk about where you'd be targeting or happy with Coast margin, performance across the business by that point in time? Are we talking about forehandle? When you're at 20% utilization in Mohawk or back to the high 30s?
Speaker 4: Just the broader implications of this push out in Mohawk, the more methodical ramp on you do have fiscal 26 and 27 outstanding financial targets in the model. I'm wondering what the implications are for those and then I'll follow up.
Speaker 1: Okay, Brian . So, yeah, so I appreciate the question. So just looking at the kind of the staging of gross margin as we move forward. So for three few kind of landed within the range, but as you look forward, with some of the layers we're seeing in Mohawk Valley, and as I mentioned earlier, we're just going to run some more of the higher volume automotive customers through Durham to try and support those ramps.
Speaker 1: You know, we always kind of thought that kind of this 23, 24 timeframe, we would see some of these automotive ramps start to come online, and that's exactly kind of what we're seeing. So we've really got to support our customers through this period as we start to get the fab ramped out. But what that's going to do is that's going to flatten out margins for the next couple of months.
Speaker 1: We start to see Mohawk Valley start to ramp up. So you can kind of think of margin is kind of flat. It's the next couple of quarters and then as Mohawk Valley starts to see utilization through then we'll start to reap the benefits of the margin, you know, the cost structure that you get out of Mohawk Valley as you start to get closer to that 20% utilization mark. So I said it before, I kind of all roads point the Mohawk Valley both for revenue and margin. But I think that's exactly the case here.
Speaker 4: Okay, I guess and then just any thoughts on your bigger picture fiscal 26 and 27 given the change to the. Okay.
Speaker 4: viewpoint for 24 and I guess when do you maybe just to the chase, when do you think you can get back to some of your prior gross margin targets? I think you had been talking about like 45 in 24. Is there a chance we see the 40% margin level at all in fiscal 24 at the end of the year exiting the year?
Speaker 1: So as you look at, as it gets to the back half of 24, you can think of some of those targets pushing out, you know, think about, you know, 25, as you start to turn the corner on some of those things, you get north to 20% utilization in Mohawk Valley. But we're not going to do, like, a whole guidance update, you think about the long-term model. And the reason for that is, as you get through 24, we start seeing Mohawk Valley start to get to a trajectory where we get up.
Speaker 1: supply coming from Siler City for 200 millimeter to feed Mohawk Valley, you know, there's a pretty good likelihood We will be able to accelerate out beyond that time frame So I wouldn't necessarily take the 24 kind of numbers, you know being somewhat lower than we talked about previously As a reflection on the total plan, I think just a different trajectory
Speaker 1: particularly as you get outside of 24, you start seeing some of the Tyler City materials come on, you start seeing Mohawk Valley out in that 25, 26 timeframe really be fed and start to see some of the utilization rates pick up. So I think we'll start to see an acceleration outside of 24, but I don't see that inside of 24. Please switch your volume and we'll give you a studios timing and then you look through
Speaker 1: is to get outside of 24. You start seeing some of the siler city materials come on. You start seeing Mohawk Valley out in that 25, 26 time frame. Really be fed and start to see some of the utilization rates pick up. So I think we'll start to see an acceleration outside of 24. But I don't see that inside of 24. OK, thanks a lot. I'll take the rest of the line.
Speaker 3: Thank you.
Speaker 3: Thank you.
Speaker 1: Gary, maybe a Wells Fargo, you may proceed. Hey guys, thanks for taking my question. I wanted to revisit something Greg addressed earlier and that is the revision of fiscal year 24 revenue. So back in October on Halloween at your annuals day, I think the projection was
Speaker 1: that fiscal year 24 revenue. So I'm just curious where we've seen that 35% reduction in revenue forecast. Is it all just because you're having a hard time ramping specifically in Durham, 200 millimeter, and now it's purely contingent on Siler City? Thanks, Gary. And I think it's not so much about Siler City. It's about the timing of
Speaker 1: think really about bringing up any more methodical pace. So I think you got a little bit of the lay. And I think the curve will take on bringing that up. It'll be very methodical with. Obviously, we've seen the challenges in bringing up so-called carbide capacity. As you talk about many kinds, the difficult material to work with.
Speaker 1: And we'll bring it on in a way that we think is in a thoughtful, methodical way to ensure that we bring up that capacity in a reasonable manner.
Speaker 1: Okay, so I follow up. I wanted to ask about your design and conversion rate. Greg, I think you mentioned 18 billion accumulants of design is 1.7 billion for the quarter. Does, you know, this slower than expected ramp in, you know, 200 millimeter substrates and let it's more quality.
Speaker 1: Does that reduce the outlook for the conversion rate on these design ends? And maybe if you just get to the general sense of how that conversion rate has been trending.
Speaker 1: Well, the conversion rate has actually been very, very positive. So over the first three quarters of this year, we've actually converted $1.7 billion of design ends to design wins. So that conversion rate is actually quite good.
Speaker 1: And so I don't think it slows that down at all. In fact, the conversion rate that we've seen over the last couple of years has been substantially stronger than we anticipated or I've seen before. And I think it's a reflection of the demand for the product from a customer's perspective.
Speaker 1: the demand is pulling in and steepening. From an electric vehicle perspective, there was an article out a couple of weeks ago that suggested that by 2032, greater than 62%, 60%, and I think they actually said 62% of vehicles in the United States would be electric.
Speaker 1: And that's substantially faster than anyone anticipated. You know, you heard us getting designed into heat pumps and to other applications. We actually had a record quarter this year on design ends for non-automotive with nearly $700 million of design ends.
Speaker 1: just for automotive. So I think the design end rate continues to be very, very strong. In fact, our design ends for the first 3 quarters of this year are greater than all of last year and all of last fiscal year was a record. And the design and conversion is happening faster.
Speaker 1: That obviously puts a lot of stress on customers looking for more product. Universally, they point to Mohawk Valley. They see a light at the end of the tunnel. They see us running wafers in there right now. They saw that we shipped product out of that facility to a customer. We're going to have a couple of million dollars worth of revenue out of that facility right now. While they'd like more, they're not alone and when they get the exclusively Reasons toTT it really makes it difficult to complete.ey can tell you how you can afford it and it's only like one or twoISS, the ability to build items to lower orders we takeür they can even.
Speaker 1: product sooner. They also note that we've invested several billion dollars in the world's largest solar carbide fab, so there's sort of the proverbial light at the end of the tunnel.
Speaker 3: Thanks, guys. Thank you. We now have Mark Van Zee of PD, Callum.
Speaker 5: Thank you very much guys. Greg, I wanted to kind of...
Speaker 5: backtrack the clock six months or so, you guys had the analyst day back at Halloween and revised some of the fiscal 24 targets and added the fiscal 27 model at that point. I guess I'm trying to understand some of the variables around 200 millimeter output to see what the easiest way of doing it is to display the MERC
Speaker 5: Mohawk Valley that were considered then and I think the bull heightening issue on 150 was already sort of known publicly at that point and I would imagine you guys had risk adjusted the 200 millimeter ramp for that so maybe you could just walk us through I guess
Speaker 5: The chain of events since then that's now allowing Durham on 200 millimeter to ramp more slowly on materials and just what those variables were over the last six months and the model was adjusted the last time. Thanks. Thank you. It's very straightforward. Number one is some supply chain issues that we had with infrastructure type.
Speaker 5: things for the expansion of Building 10. And again, this is switch gear, basic electrical infrastructure where lead times on the product and capability to get it all in and get it all turned on was just longer than we had anticipated. And in fact,
Speaker 5: You know it it's lengthened during the time that we were we were actually in between that October timeframe and and the beginning part of the year, so it was just. You know that's pretty straightforward the the amount of time it took us to actually get that those infrastructure pieces of equipment in and turned on and.
Speaker 5: and get certificate of oxygensia was longer than we anticipated. And then the second thing is that we've made a decision to be more methodical and ramp the product in a more methodical way. You know, as opposed to just going from, you know, sort of 0 to 60, you know, real, real quick.
Speaker 5: taking it a step at a time. This is a very, very tricky technology. We have great output in terms of quality from the crystal growers right now. We have quite a few crystal growers now turned on in that building 10 facility. The quality of the crystals, it's really good. The yield that we're getting is really good. The taller,
Speaker 5: And so I.
Speaker 5: You know, it's just we've just made a decision to that, you know, things are going really good and to try to go You know to to just amp it up too quickly is probably just not prudent. So it's a combination of those two things that are driving that.
Speaker 6: Thanks for that. I guess this is my follow-up question. It sounds like with the 200 millimeter limitations on how quickly the
Speaker 6: Mohawk Valley will ramp and you guys have been very clear for a while that the their own device fab was sort of tapped out in terms of capacity.
Speaker 6: and you guys have been very clear for a while that their own device was sort of tapped out in terms of capacity. But it sounds like now...
Speaker 6: prioritizing some of the automotive customers that were going to be served out of Mohawk Valley and pulling some of those devices back to one fifteen and serving them.
Speaker 6: I guess my question is, if that facility was going to be full before on devices, what happens to the customers that were depending on that capacity that's now going to be back filled on the automotive side? If it was going to be full the whole time, presumably you had customers for all those devices.
Speaker 5: What's happening there and what sort of the ramifications of the non-auto business over the next couple of years from those decisions? Thanks. Yeah, thanks a lot. So essentially what's happening, we're not sort of pulling back to Durham. We currently are shipping product in automotive.
Speaker 5: to or what have you. And then essentially on the non-automotive customers we've already shipped our first product out of Mohawk Valley to a non-automotive customer. We have several of them that are ramping and excuse me and that's out of Mohawk Valley and we have several of them that are ramping out of that. So you know basically it's a you know it's going to create a situation where we've got a supply and demand situation that's going to be tight.
Speaker 5: We're working with customers. Neil and I had personally a meeting with the customer last night talking about this. So we're working with customers, but again, they see a light at the end of the tunnel. They see that we've got this giant fab coming online and they're working with us to prioritize getting their products out of that fab in New York.
Speaker 7: to earlier sort of your own expectations. And I just, I'm wondering with the more methodical approach you're taking to ramping the materials capacity, as we think about sort of the flow through of this into the future years, does this sort of mean there's a six month delay to all the sort of ramp.
Speaker 7: projections that you had or does the more methodical approach really drive a greater delay or do you sort of pass an S-curve at some point where you say okay this is the inflection point we can catch up to some of our earlier targets because we are now more confident about not having to go slow in terms of this ramp.
Speaker 1: Thank you. And I have a follow-up. Yes, sure. I think it's very much a second one. I think we're seeing a delay now in terms of bringing this on. We want to do it methodically for the exact purpose you just mentioned. So when we get to a certain level of volumes, both in materials and through the fab from a utilization perspective, we'll have the right level of confidence to ramp it faster as time goes on. So I wouldn't say this is a –
Speaker 1: sure we get that right. And once we get that to certain levels of volume, as Greg said, we feel good about the fab and we're at that from a capability perspective. We feel good about the crystals and the yields and everything else we're seeing from that perspective. So once we get enough volume under our belt, I think we'll be able to accelerate that faster kind of later in the timeframe of that kind of outlook.
Speaker 7: Just as a follow-up, I think the cash burn in the quarter itself was higher than the last couple of quarters with now sort of forecast for next year being similar gross margin and probably OPEX does go up into that timeframe. How should we think about cash burn next year? Any sort of guidance on that?
Speaker 1: So overall, look, right now we have $2.25 billion on the balance sheet. As I talked about in the prepared remarks, we're looking to fund another billion dollars this year and we've got a $2 billion CAPEX plan next year. So I think we'll be in pretty good shape. It probably pushes out the operating cash flow capability out by maybe that same type of time frame until we can accelerate.
Speaker 1: But I don't see that as moving the needle substantially versus what I just talked about. So I think about it as two and a quarter on the balance sheet with a $2 billion CapEx plan next year. And we raised some money between now and the end of the year. And I think we're right on schedule from a funding perspective. And then I think the operating cash flow will get pushed out a bit, but I don't see that being a significant factor in terms of building out what we're trying to do. I think that just keeps us on schedule.
Speaker 7: Okay, thank you. Thanks for taking the questions. Yep.
Speaker 2: Thank you. We now have Edward Snyder of Charter Equity Research. You may proceed with your question.
Speaker 8: Thank you very much. Neil, you kind of warned about the delicate process of getting new material fat up and running last quarter I think.
Speaker 8: even if it's just across the street from the existing fab. So I guess you shouldn't be surprised by this, but if you're having that kind of a problem with the 200 millimeter expansion in Building 10, why won't we see a similar, if not greater, issues with the massive expansion you're applying for Siler City, which is not across the street from the existing fab. But I know approximately doesn't have that much to do with it, but.
Speaker 1: From all that you said and all that JP had told us, etc., this is obviously very slight changes in a number of different metrics and can cause big deviations in what you're actually putting out in terms of wafers. So why shouldn't we expect the side of the city to see some more delays in that follow-up? Thanks, Ed. Let's look back up a little bit. What we're seeing here is the major delay we're seeing is not really related to the Crystal Grove technology or the 200-millimeter technology really at all. That was really related to electrical infrastructure and building up a facility.
Speaker 1: methodical approach. We'll ramp this up and we'll do the same thing as we move over to to Siler City. We'll bring that also up in the same fashion for this exact reason you mentioned. It is a tricky technology and you want to make sure we're watching it very, very closely with the right team overseeing it. I think that's what the plan we're laying out is designed to do.
Speaker 8: We talked a link last quarter about the capacity issues at both RTP and Durham, and it sounds like none of that has changed. I want to revisit previous question. You're running, is it fair to assume that the 100 million quarters about the limit for Durham and plus or minus a bit, I'm assuming that's still a valid estimate? If it is, and you're now ramping more autumn mode of there, it's necessarily the case that you're...
Speaker 1: get my head around the dynamics of occurring at Durham in power devices because you just don't have the capacity anymore to even address the customers you were last quarter. Thanks. Yeah, thanks. So you know one of the key things we're obviously doing is staying very very close to all of our customers. In fact we just had
Speaker 5: I think industrial customer of the Mohawk Valley last quarter, I believe, taking a look at where we're at in terms of that perspective. What I would say is, of course, they want more now, but when they look out at the landscape of what's
Speaker 5: coming down the pipe in terms of capacity. All the eyes keep coming back to the world's largest 200-millimeter silicon carbide fab that is turning on as we speak. We ship an initial product out of it last quarter. We'll do a couple million dollar fist quarter. We're going to get the 20% utilization out of that fab in the end of fiscal 24.
Speaker 5: which will have pretty significant output. So if we didn't have anything as close to turning on as Mohawk Valley, I think it would be a much bigger issue. But quite frankly, I think when they look around the world and scout for alternatives, I don't think they see anything.
Speaker 5: quite like what we're doing in Mohawk Valley. So the customers are sticking with us. And the best testament of that is we just delivered $1.7 billion worth of design ends in the quarter. And over the year, over the first three quarters of this year, you know, $700 million of that has transitioned to
Speaker 5: Has transitioned to actually 1.7 billion dollars has transitioned to design win and Finally, I would say at this quarter was a record quarter for non automotive design. So
Speaker 5: You know we're not happy that we're not shipping everything that they're looking for but I think at the same time we're also very proud that we you know four years ago we made a decision to build a factory and it's coming online now because the you know have we not done that we'd have nothing to show them.
Speaker 8: So it sounds like really basically it's growing planes in an industry that's very tight on capacity all the way around. That's right.
Speaker 8: It sounds like really basically it's growing planes in an industry that's very tight on capacity all the way around. That's right. That's right.
Speaker 3: Thank you.
Speaker 1: Please go ahead. Thanks so much. Thanks so much, guys. Just given the denat
Speaker 5: You know, I would say quite robust. We've had a lot of discussions. We've had a lot of wins where customers have put up front money to help us.
Speaker 5: with our capital needs and the expansion needs, and they see a huge benefit from that. So those are pretty good conversations that continue to this day. And I think it's something that's probably gonna continue for the foreseeable future.
Speaker 1: Okay, and then just turning to OPX, as you guys look to optimize cash here over the next mean-called six day course, can you talk a little bit about what you're going to need to spend to support the work that you're doing both with customers and with multiple facilities ramping here and how we should think about that OPX then growing. Yeah, good question. I'm glad you touched on that because I think if you think about, you're going to What you can do.
Speaker 1: now are a lot of charge outs from the FABs on kind of new products. We're going to see expect us to pick up again as we move into next quarter and even the next couple of quarters. As you get into Q1, we'll see kind of our kind of annual merit, you know, increases and those types of things. We'll see kind of a larger step up as you get into the Q1 quarter and then start to, you know, accrete again kind of as we have been.
Speaker 1: as you get out to the end of 24. So that's the way I think about the OPEX, is you're thinking about both Q4 as you start to work into Q24.
Speaker 5: Appreciate it. Thank you. Thank you. We now have Vivek Ahler of Bank of America. Hi, yeah, this is Blake Ahler, thank you for taking my question. I just wanted to drill down more into the fiscal 24 guidance.
Speaker 5: because I believe in the past you guys have given a rough breakout between device and material sales in your long-term target and with the new F-24 target, curious if you can break that out again between devices and materials. Yeah, so I think what we said is our devices, you know, are...
Speaker 1: supply today out of the Durham fab and that's going to run about a hundred a quarter. That's what it's been capped at that. You know we saw the RF numbers kind of come down. They've been more or less in line with those expectations and we'll see you know the materials business be somewhat muted as we focus on you know the 200 millimeter wafer. So you can kind of look at this kind of you know starting point here. You know we got the last quarter at 220 million.
Speaker 1: You add a couple of million from Mohawk Valley, 222 million in Q4, and all growth after that will come from Mohawk Valley. So you can kind of get an idea of what the trajectory is and really its power device growth from here out through to the end of Q24 is what's represented in those numbers.
Speaker 5: Great. Helpful. Thank you. And then just as a follow-up from a CAPEX perspective, I know – I believe you said it kind of came in under expectations for this year, but just moving forward, kind of at lower revenue levels at this point, I just want to confirm that the plans you laid out your analyst day are still roughly in line with what you're thinking.
Speaker 1: Yeah, yeah, no, I don't think there's any change to the total build out or cost to build out or anything like that versus what we talked about. I think we're seeing a little bit slower spend on some of the facilities and structures that we're seeing from a CapEx perspective, particularly on the installer city project, but I think of that more as, you know, timing. We'll see about, like I said in the prepared remarks, about $2 billion of CapEx in 24. It could be a little bit more than that. But, you know, I think that's a good thing.
Speaker 9: as fast as possible.
Speaker 10: Thank you.
Speaker 2: Thank you. Our final question on the line comes from Mary Freggan from New Street.
Speaker 11: Hey, thanks a lot for taking my question. So it's going to be the last question. I'm sorry, I'm going to ask again about like the delay and things like that. But what I wanted to do is really to make sure I understand it at a high level.
Speaker 11: What I'm understanding is that roughly at the end of this fiscal year, so in the year from now in June 2024, you'll be about 20% behind schedule compared to what your previous guidance was meaning. And it's just because
Speaker 11: it's taking you maybe about 20% longer to get started in ramping materials production. And I think in the numerous questions we heard about that, you qualify that as being like maybe running three or six months behind plan.
Speaker 11: So I just wanted to make sure at a high level that's the way we should understand it. Everything is doing fine, the yields are fine, things are just like working through all what you have to do to run this collection capacity is just running 3 to 6 months behind schedule. Is that the right way to think about it?
Speaker 1: Thanks for the question. I think that's the right way. The goal is to get the utilization of the FAB to 20 percent by the end of 2024. And that's what's baked into the model. And I kind of consider that kind of a risk-adjusted plan because it's got a lot of different moving pieces right now and we'll have to work through any bumpiness. But I think that accounts for that as we look at that.
Speaker 1: And as it relates to the three to six months behind, or whatever you want to call it, I think that's true. I think initially we had planned, we kind of said in the back half of fiscal year 2023, we would ramp the FAB, and we're all the way kind of out in the June quarter with roughly 2 million of revenue. So it's probably a little bit further than that. And the other piece of it is the slope of the ramp, right? We're gonna be more methodical in terms of how we bring it up. So I think it's really about, so if you think about the overall financial impact.
Speaker 9: first time.
Speaker 11: Okay, excellent. I have a much broader question and I hope it's alright to ask that for you today. You know that in March Tesla talked about a new architecture for their low-cost models that would mix silicon carbide and silicon carbide.
Speaker 11: and silicon. And there has been an interesting debate in the industry and the investment community about that's a negative because it's not 100% silicon carbide, so it's not great for silicon carbide. And the other view being, wow, if they're innovating and creating a way to make silicon carbide even more affordable by mixing it with silicon, it probably...
Speaker 11: expand the addressable market. So I'm sure you've been looking at that, you've had a lot of conversation on that. And so I'd like to hear your perspective on the matter. This like innovation communicated by test at USEZ, that expanding the opportunity and the addressable market are potentially as a risk of limiting.
Speaker 5: the scope of silicon carbide? Yeah, thanks for the question. Essentially, what we understand the situation is is they're focusing on an entry level car that has a pretty significantly lower power point. When we look at the market for silicon carbide,
Speaker 5: we take an assumption that there's going to be a certain penetration of electric vehicles in the market and a certain penetration of silicon carbide in the electric vehicle market. And obviously as we look at entry-level cars, you know, historically we would say there would be no silicon carbide going into that.
Speaker 5: So we view this as incrementally expanding the TAM for silicon carbide because it takes a silicon carbide down to a level where we weren't anticipating it being at this entry level, I think they mentioned $20,000 or $25,000 type vehicle. So this is a plus.
Speaker 5: It's more silicon carbide going into lower power applications. We have obviously spent a ton of time talking to our customers that are building vehicles that are more mid-range in terms of cost perspective. Their view is it's silicon carbide all the way.
Speaker 5: No change from our customers that have been and are designing silicon carbide for sort of the mid-range of vehicles, but we view this as a positive. This is silicon carbide now being used in an entry-level vehicle, which is incrementally positive to our assumption.
Speaker 3: Excellent. Thank you very much. Thank you. I'd like to hand it back to Greg for any final remarks.
Speaker 5: Well, thanks a lot everybody for participating in today's call and we look forward to chatting with you next quarter. Thank you.
Speaker 3: Thank you all for joining this talk to conclude today's call. You may now disconnect your line and have a lovely day.