Q4 2023 Wolfspeed Inc Earnings Call
Speaker 1: Thank you for joining the Wolf Speed Q4 Fiscal 2023 results call. I'd now like to turn the call over to Tyler Groenbach, VP of External Affairs with Wolf Speed.
Speaker 2: Thank you, operator, and good afternoon, everyone. Welcome to Wolfspeed's fourth quarter ISCO 2023 conference call.
Speaker 2: Today, Wolfspeed CEO Greg Lowe and Wolfspeed CFO Neil Reynolds will report on the results for the fourth quarter and full year of fiscal year 2023. Please note that we will be presenting non-GAAP financial results during today's call, which we believe provides useful information to our investors. non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. GAAP information should be considered a supplement too.
Speaker 2: and not a substitute for financial statements prepared in accordance with GAAP. A reconciliation to the most directly comparable GAAP measures 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. But forward-looking statements are subject to numerous risks and uncertainties.
Speaker 2: Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially.
Speaker 2: During the Q&A session, we would ask that you limit yourself to one question and one follow up so that we can accommodate as many questions as possible during today's call. If you have any additional questions, please feel free to contact us after the call. And now I'll turn the call over to Greg.
Speaker 2: Thanks Tyler and good afternoon everyone. As we close out fiscal 2023, we look back having made significant strides across all areas of our business.
Speaker 2: our Mohawk Valley fab, which is the world's largest fully automated 200mm silicon carbide fab, began shipping product and contributing revenue.
Speaker 2: Last October , we outlined our plans to construct the world's largest state-of-the-art Greenfield Silicon Carbide Footprint.
Speaker 2: Since then, we've secured $5 billion of the capital necessary to achieve these goals, allowing us to finish out the fit out of Mohawk Valley.
Speaker 2: expand our materials capacity at Durham, and break ground on the world's largest 200-millimeter silicon carbide materials facility, the JP, in Siler City, North Carolina.
Speaker 2: Finally, we have made great strides in diversifying our device customer base across the automotive, industrial, and energy sectors.
Speaker 2: with flagship agreements with key OEMs and Tier 1s including Jaguar Land Rover, Mercedes, Ford Warner, and ZF.
Speaker 2: We are also continuing to see growth in the traditional industrial and energy segments as customers make the transition to silicon carbide.
Speaker 2: We are seeing many opportunities in solar and energy systems, motor drives, UPS.
Speaker 3: heat pumps, air conditioning, and many more.
Speaker 3: The growth in these segments is primarily driven by the need for higher energy efficiency. In addition, emerging industrial applications such as emobility, love, ???in, ginger, til
Speaker 3: Electric vertical takeoff and landing aircraft are also integrating will speed silicon carbide within their initial designs to reduce system weight and improve range.
Speaker 3: From the materials perspective, we were very pleased to secure a long-term wafer supply agreement with Renatis Electronics Corporation.
Speaker 3: widely recognized as a leader in automotive semiconductor devices. Renasis also understands the importance of having access to silicon carbide technology and have signed a 10-year wiper supply agreement with Wolf Speed.
Speaker 3: The agreement includes a $2 billion customer deposit.
Speaker 3: which is one of the largest deposits I have ever seen in my 30 plus years and so I conductors.
Speaker 3: This will secure a capacity corridor as they begin to ramp, silicon carbide, device production beginning in 2025.
Speaker 3: While this agreement is also expected to provide a significant revenue stream over the next decade, it has an even greater significance for the power semiconductor landscape.
Speaker 3: securing this key customer, which is possible because of our forward thinking investments and material capacity at the Durham campus and with the construction of the JP.
Speaker 3: We will be uniquely positioned to drive the industry transition from 150 millimeter to 200 millimeter silicon carbide wafers.
Speaker 3: which will help address some of the supply demand mismatch, which currently exists today and potentially open up new markets for stolen carbide applications in the industrial and energy sectors.
Speaker 3: From a materials perspective, construction at the JP is well underway.
Speaker 3: Fully built out, the JPE will add 10 times more capacity compared to our current operations in Durham, significantly increasing the world's total supply of silicon carbide materials.
Speaker 3: The building foundation is in place, and we've now started construction on the shell of the building.
Speaker 3: We remain on track.
Speaker 3: to begin producing Waker is at the site in the second half of calendar 2024.
Speaker 3: As far as our more immediate strategy to increase 200 millimeter materials production at Building 10 on our Durham campus, we have now installed more than 75% of the crystal growers in that facility. They are currently growing crystals and we've been very pleased with the yield to us far.
Speaker 3: As it relates to Mohawk Valley and our device business, we have continued our ramp up efforts and recorded approximately $1 million in device revenue out of the fab in fiscal Q4.
Speaker 3: So, it's a complex technology that's very difficult to master. And I'm proud of how our team has worked tirelessly.
Speaker 3: to get us ramping device production in a brand new, highly automated tab. This is David Abb Enough
Speaker 3: We still have some work to do at Mulhock Valley as in scale device production and expect a modest increase in device revenues in the first half of fiscal 2024 with a steeper increase in revenue beginning the second half of 2024.
Speaker 3: From a device perspective, we are seeing continued strength across our end markets, and we secured a approximately $1.6 billion in design ends for fiscal Q4.
Speaker 3: For fiscal 2023, design ends total to approximately 8.3 billion.
Speaker 3: In the cumulative, total now stands in excess of $19 billion secured in the last four years.
Speaker 3: Our customer wins today to give us the confidence and the growth of our addressable market and our ability to capture meaningful share of the device market between now and the end of the decade.
Speaker 3: More than anything, we're proud of our role in building greater awareness for Silicon Carbide. At the same time, the world is realizing the importance of the global semiconductor industry.
Speaker 3: The secular trends that are driving the adoption of silicon carbide have started to receive widespread public recognition as a truly game-changing technology in the power of semiconductor space.
Speaker 3: I'm now turned over to Neil, who will provide an overview of our financial results and outlook. Neil.
Speaker 4: Thank you, Greg, and good afternoon, everyone.
Speaker 2: Before I discuss the details of our fourth quarter result and outlook for fiscal Q1, I would like to take a moment to outline a couple of changes we are making to the presentation of our financial results.
Speaker 4: Over the last several years, we have presented pre-production costs, primarily at Mohawk Valley, at factory startup cost.
Speaker 4: which totaled $160.2 million in fiscal year 2023. And we have reported these costs as part of other operating expense on the income statement.
Speaker 4: At each earnings call, we have given an update and outlook for these costs and excluded startup costs from our non-GAAP results.
Speaker 4: Going forward, we will not exclude these costs from our non-GAP results and forecast, but we'll identify them in our commentary and in the put notes to our financial statements and finalums.
Speaker 4: As we transition Mohawk Valley from pre-production to an active production facility in the first quarter of fiscal 2024, the EECOS will be categorized as underutilization cost and will be part of cost of good soul. We will no longer exclude startup or underutilization cost from our non-GAAP results.
Speaker 4: This does not change our long-term outlook for free cash flow generation and corporate non-gap gross margins greater than 50%. As we believe that our 200-millimeter silicon carbide technology at scale will provide capacity and cost competitiveness to achieve these profitability levels.
As you recall, for the fourth quarter we were targeting revenue in the range of 212 million to 232 million, non-GAAP gross margin in the range of 29% to 31% and a non-GAAP net loss between twenty-one million and 29 million, or a loss of 17 cents per diluted share to 23 cents per diluted share.
Against that guidance, our fourth quarter revenue was 235.8 million, non-GAP gross margins of 29% and a loss of 42 cents per deluded share which included 39.5 million of startup costs for 26 cents per share, primarily related to Mohawk Valley.
and includes early phase startup costs related to our materials expansion, primarily for the JP Materials Facility in Cyber City, North Carolina.
In our fiscal Q1 2024 outlook, issued in our press release earlier today, we estimate op-x to be approximately 120 million, which includes about 8 million of startup costs related to our materials expansion efforts.
Going forward and in our earnings release today and the form 10K, we will file later this week, startup costs will now be shown as a separate line item on our quarterly income statement. I will go further into the quarter of a quarter operating, expense changes and a moment.
And fiscal Q1 as Mohawk Valley continues to ramp production, expect gross margin at the midpoint of the range to be approximately 14%, which includes about 37 million of underutilization costs, representing approximately negative 16% or 1,600 basis points of gross margin.
We are making these changes in our presentation to align with the Securities and Exchange Commission, which is clarified as guidance for a rate of to non-get measures for public companies.
I also want to mention one last change moving forward. As you will see in our 10K, when we file it later this week, we have included a breakout of our revenue by each of our three product lines, power products, RF products, and materials products. In future quarters, you will see this breakout in our earnings release and form 10Qs as well.
Now let me provide more details of the fourth quarter results.
As I mentioned above, we close the year in a strong note generating revenue of $235.8 million in the fiscal fourth quarter of 2023, which represents a 3% sequential increase when compared to the previous quarter and growth of approximately 3% year over year. This outperformance compared to our guidance is primarily due
favorable timing related to product shipment out of our Durham production facilities. All we will see some variation in our production out of Durham as I said last quarter, incremental contribution from Mohawk Valley is a primary governor of future revenue growth.
As Greg mentioned, we recognize one million in revenue from Mohawk Valley, while we are still allowing them previous expectations that we will reach 20% utilization at a Mohawk Valley by the end of fiscal 2024. It is important to note that it will be the second half of the calendar year 2024.
before we see 100 million of quarterly revenue from the fab that the 20% utilization would represent. This is the counts for the time between fab starts and shipments to our customers.
With the down the income statement, non-GAPROS margin fourth quarter was 29%, compared to 32.3% last quarter at 36.5% in the prior year period, representing a 330 basis point decrease compared to last quarter.
Our smargin was impacted by higher costs and heavier automotive mix for customers that were initially slated to be produced out of Mohawk Valley.
As we shift the higher levels of production out of Mohawk Valley, the anticipate future improvements in gross margin.
We generated adjusted loss per share of 42 cents in the fiscal quarter, compared to a loss of 40 cents last quarter and a loss of 21 cents in the same period last year.
As I mentioned above, loss per share in the current period was impacted by $39.5 million of startup costs related primarily to Mohawk Valley for $0.26 per share.
Before moving to the full year results, I will provide a quick update on our financing initiatives.
So, if in a year ago we laid out a six and a half billion dollar capital expansion plan and has associated financing strategy.
We said we would execute a flexible, low-delusion financing plan that would be balanced across four pillars, including public, private, customer, and government funding.
Since that update, we have raised low-dolution capital across all four of those pillars, securing approximately $5 billion in the last nine months.
and have now fortified our balance sheet to build out the leading silicon carbide manufacturing footprint in the industry.
Moving forward, people continue to evaluate all avenues as it relates to our capital structure and remain nimble of future financing as opportunities present themselves. However, securing financing is not our primary objective at this time.
Moving on to the full year results for fiscal 2023, revenue was 922 million, representing a 24% increase when compared to fiscal 2022, due to the strength in both materials and power product lines.
Time gap met loss was negative 180.7 million or negative $1.45 per diluted share.
Non-gap net loss excludes 149.2 million of adjustments net of tax or $1.20 for the looted share.
Let's see how our balance sheet. We ended the quarter with approximately 3 billion of cash and liquidity on hand to support our growth plans.
ESO was 47 days, well inventory days on hand was 172 days. Free cash flow during the quarter was negative 455 million, comprised of negative 52 million of operating cash flow and 403 million of capital expenditures. Free cash flow during the quarter was negative 455 million, comprised of negative 52 million of operating cash flow and 403 million of operating cash flow and 403 million of operating cash flow.
Moving to our first quarter outlook, we are targeting revenue in the range of 220 million to 240 million.
As we said last quarter, Power Device Revenue Capacity from our Durham FAB is forecasted to be approximately 100 million per quarter and it is subject to some variability positive or negative, which we benefited from positively in the fourth quarter.
This does not change our view in the factories, revenue generating capability, and in fiscal Q1 and beyond, we will continue to forecast power device revenue capacity out of Durham at approximately 100 million per quarter.
While this will be a modest headwind as we transition from fiscal Q4 2023 to fiscal Q1 24, it continues to be in line with our forecast.
As we've said in the past, the main driver of future revenue growth for power devices will be the incremental revenue contribution from Mohawk Valley.
We are also expecting gross margin in the range of 10% to 18% with a midpoint of 14%. At the midpoint, this includes approximately 37 million, or negative 1,600 basis points of underutilization costs as we ramp up revenue at Mohawk Valley.
We expect underlying gross margin performance, excluding underutilization, to improve modestly in the quarter as we continue to serve more automotive customer mix out of the Durham fat.
We are also targeting non-GEP operating expenses of approximately 120 million for the first quarter of fiscal 2024, which is inclusive of 8 million of startup costs related to our materials expansion.
primarily related to the JP Materials Facility in Tyler City, North Carolina.
Excluding startup costs, OPEX increases quarter over quarter, are driven by higher employee-related expenses as we move into the new fiscal year.
We expect Q1 net non operating expense of approximately 22 million, which includes the impact from 55 million of interest expense, inclusive of the recently completed Apollo term loan and interest charges in connection with our Renasau customer reservation deposit.
We expect non-operating expense to increase as the year progresses as we earn less interest income on our short-term investments as we use that cash to invest in our facilities expansion.
We expect Q1 non-GAAP net loss to be between 94 million and 75 million. As always, our Q1 targets are based on several factors that affect them significantly, including supply chain dynamics, overall demand, product mix, factory productivity, and the competitive environment. We expect Q1 net loss to be between 95 million and 75 million.
Lastly, we expect capital expenditures to be approximately $2 billion for fiscal 2024 and continue to expect fiscal year 2024 revenue to be in the range of $1 billion to $1.1 billion.
With that, I'll pass it back to Greg.
I'll pass it back to Greg. Thanks, Neil.
The adoption of silicon carbide is driving the need for more capacity, and we are seeing continuous upward pressure on the demand for both devices and materials.
The EV revolution continues to be the driving force of adoption.
with recent developments further bolstering the EV landscape.
Just recently, a consortium of OEMs, including BMW, General Motors, Honda, Hyundai, and Mercedes, announced their intention to create a new high-power charging network with at least 30,000 chargers in North America to meet the growing demand to charge electric vehicles.
The explosive growth in EV production is just the start as the world continues to embrace more energy efficient technology.
As we close out this year and turn to fiscal 2024.
We are better positioned strategically, financially, and operationally.
Full speed wins this generational opportunity because we are vertically integrated.
Full speed wins this generational opportunity because we are vertically integrated, investing in purpose-built facilities.
and focused on doing so with 200 millimeter silicon carbide substrates.
This is validated by Apollo, a global investment firm that saw an opportunity to assist us with our capital requirements, and Rhenasis, who made a decisive commitment to next generation silicon carbide technology, and intends to do so at 200 millimeter.
In closing, I'd like to thank all of our stakeholders for your continued support.
and I'm excited for what's ahead. I'll now turn it over to the operator, and we'll take any questions you might have.
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.
Yeah, hey Greg, thank you for letting me ask the question. Greg, I've got one for you. It's pretty clear that your future growth of the company lies with Mohawk Valley.
So maybe you could talk about what you want to see happen in that FAB to ramp that facility. You did a million dollars. I think you were pretty clear in the call. You did a million dollars last quarter, but you're talking about a hundred million achievement in the second half of 2024. Would that be
towards the beginning of second half or towards the end of in other words are we talking much or are we talking the June quarter for For you to get to 100 million and then what more importantly what do you need to see? At the fab to get to that kind of a number
In other words, are we talking March or are we talking the June quarter for you to get to 100 million? And then more importantly, what do you need to see at the FAB to get to that kind of a number? Thank you.
Yeah, thanks a lot, Harsh. A couple of things. So first off, in ramping that fab, we obviously have to ramp the materials flowing into that fab. I'll give you a brief update on that. The 200 millimeter crystal growth operation in Building 10 is well on its way in producing excellent quality.
material, which is translated into very nice, very excellent defect density wafers.
EPI at 200 millimeter is also excellent and we are ramping that as we speak. Now we're obviously shipping products from the Mohawk Valley tab.
We have three products that are currently fully qualified in 200 millimeter at the Mohawk Valley SAB. We have eight additional products that now pass all reliability testing and are working through the final end of qualification for that. So that's all in really great shape.
Now as we as we ramp this out, obviously a million dollars of revenue in the fat that's capable of two billion dollars It's kind of early innings of ramping as we ramp the fat We'll be dialing in the processes and dialing in the equipment which will take our yields up to entitlement yield
And as we ramp this out, that will absolutely be happening. So what I would say is the fact that we're ramping a new 200 millimeter crystal, the fact that the crystal quality is excellent and the quality of defectivity on the wafers and seeing how the Vicodin hasbara is surprising? Yeah, that's a good question.
as three qualified devices this early and eight that have passed reliability gives me great confidence that we're going to be, that this fab is going to deliver, the entire supply chain is going to deliver everything that we expected out of this. In terms of the ramp of
of the production and the expectation for the amount of revenue. Our expectation is that we'll be at 20% utilization by the June quarter. And I'll let Neil translate that into what you can expect out of revenue. Yeah, just remember, Harsh, as you think about utilization, the timeframe from the time you actually load the FAB, wafer into the FAB from the utilization perspective.
Utilization level so as we get the 20% towards the end of the year, you wouldn't expect to see the revenue translation of that. That's we get a 20% utilization say by the June quarter. You wouldn't expect a revenue translation of that. The equivalent of 100M to be sometime after that. In the second half of calendar 24.
1st, half the calendar 20, sorry fiscal 25. As you think about that timeframe, so there's a timing of the revenue after the fact is we did about a 1Million dollars or so last quarter. We'll see a bit of a tick up here in Q1. A modest pick up, I think again into Q, and then a super random to get to the back half of the fiscal year into the March and June quarter.
and then we should be on our way from there. Wonderful guys, very helpful. And then for my follow-up, so there were customers that were expecting to get product off of MOC rally by now. I know that was part of the original plan. So I guess my question to you is, how are you managing those expectations for those customers?
and how important is that commitment to the customer for you guys? And more importantly, how are you balancing that supply demand game in the near term as you ramp all up.
Yeah, thanks for that question. Obviously, near term, it creates an impact with the delay of the ramp of Mohawk Valley. We're doing a couple of things. First off, you're seeing more automotive shipping out of Durham, so obviously we shifted that mix to Durham. We're obviously engaging with customers and being transparent as to what...
We're engaged with them on an ongoing basis and in some cases that's weekly, in some cases that's nearly daily, so there's a lot of communication going back and forth. Many of them have come to Mohawk Valley and they remain.
very encouraged about the scale of production that we've got coming online. They obviously love it to come online faster, but they really can't see this level of capacity coming online anywhere else. And then you combine that with what we've got going on and what we've been able to execute in building 10 and what we've got going on with the JT.
We've had several customers out at that and it's just an enormous site. And the fact that we're now going vertical and we're tending to be producing product in there around this time next year, actually a little bit earlier than that, this time next year. It gives them encouragement for the...
you know, that the capacity is actually coming. And then also to add to that, Harsh, I think customers have taken notice that we've done a very good job just on the financing element here and creating our, giving ourselves the ability, you know, to fund a very significant capacity expansion. So when they look forward and see what the opportunity is,
based on the manufacturing footprint that we're building out and we're funded to build out, you know, it gives us a, you know, gives them a, you know, something to look forward to in terms of our capability to live apart and into the future.
Thanks, guys. Thank you so much for the clarity. Appreciate it.
so much for the clarity appreciate it.
Our next question is from Jed Dorsheimer with William Blair. Your line is now open.
Thanks for taking my questions. For my first question, I don't know if Neil or Greg you want to address this, but the change in accounting begs, why now? You spent the past year defending
You know, the, the underutilization and 1st quarter that you're out of the gate, you're changing that. So what what caused that change? And, you know, that was this driven by your auditors seeing something in the business or or maybe some color around that would be helpful. And I do have a follow up.
Yeah, sure, Jay. So I think first of all, this is a presentation change only. This doesn't change our business plan or our long term outlook for driving greater than 50% gross margin. It's a presentation change in terms of how we want to talk about the financials on a quarterly basis. So a couple of things drove that in terms from a timing perspective.
I think as we said in the prepared remarks, we updated our presentation of our results really just to adhere to updated guidance from the SEC. Also, if you think about Mohawk Valley that's now transitioning from a pre-production facility to a full production facility, the utilization of the fab will start to play a much bigger role in our market trajectory.
be clear though, was this your decision to change the presentation or you know, I guess I'm, you know, I'm going to be answer getting asked these questions. What drove this was it SEC that that you couldn't do the underutilization?
Is this your decision to change the presentation? Or I guess I'm going to be getting asked these questions. What drove this? Was it SEC that you couldn't do the underutilization? That's what I'm getting at.
Yeah, so we, there's updated guidance from the FCC, we've had correspondence with them and then upon completion of that, we decided to make the update to the presentations.
Got it, thank you. And then I guess just follow up, and there were a bunch of different numbers, so forgive me if you can help stick these together for me. I heard, and if it's true, congratulations, that 75% of the growers in Building 10 are operational. Is that correct? Yes, that's correct.
And the reason I'm asking that is, could you help me better understand the sequential guide down in revenues while you're producing more materials to load Mohawk Valley? How should I think about that and then the six month push out in the 20%?
get to 20% by the end of the fiscal year. So I think that's all online. As we bring up... Oh, sorry. I thought you said calendar year on the call. So it is fiscal year 24 for the 20%. Yeah. So no change to the outlook in terms of the timing and bringing the staff up online up to 20%.
Anticipating getting the 20% utilization by the end of this fiscal year. We continue to see good positive momentum in crystal growth here in the Durham campus. Out of building 10, we're turning on additional crystal growers. We're seeing positive signs from the yield and the outputs.
That we're seeing from that so that's in pretty good shape so now it's a matter of bringing the capacity from a substrate perspective up to the fab and getting the process of Bringing up the yields to entitlement as Greg mentioned You know treating the tools and tuning things in and that's really what we're working on right now is bringing that back to capacity what that means
Revenue perspective is we'll see a bit of a pickup here. He wanted revenue will see again some pickup in Q2 But as we drive those waivers to the back, we'll see a more dramatic pickup in the revenue to get this back happen.
So, Neil, if that's picking up, though, what's dropping off?
So, so there's 2 pieces here, so from a, from a Q1 perspective, we saw better performance out of the Durham campus both. I think power devices out of Durham and and materials as well. There was just better performance. And of course, that'll be a bit of so what we'll do is. We'll forecast that back to the means of speak so durable have some good quarters and good performance.
But that's what we've always had a forecast and how we looked at Durham. It's an older campus, an older facility. There's going to be some variation there requires maintenance from time to time. So, we'll forecast Durham just kind of back to what we've always kind of talked about like. You know, 100 billion dollars or so order for power devices.
And we were headed that last quarter and this quarter we'll just kind of forecast back to that kind of normal. And meantime, then, if you look out to the future, you know, any substantial growth from a revenue perspective really comes from. Thank you I'll jump back in the queue. Our next question is from Brian Lee with Goldman Sachs.
Your line is now open. Hey, Greg. Hey, Neil. Thanks for taking the questions. This is Grace on for Brian . I guess my first question, maybe this is more for you, Neil. Just trying to understand the cadence of these startup and underutilization costs moving through 2024 as you continue to ramp up.
Thanks. Yes, they'll eventually go to zero. Once you get the utilization up to, you know, worth, let's say, 70% or so, you'll see the 100% utilization back on. That's kind of the marker we use, so to speak. But I think it is important that I unpack maybe the gross margins a bit to kind of explain these different pieces. Okay. Okay.
If you look at the midpoint of what we just guided with these presentation changes, gross margin is going to be at about 14%. At the midpoint, as I said, in the prepared remarks, that's about negative 16 points of impact from under the utilization. Which represents about 37M dollars of impact. So. As you look forward, gross margin expansion is going to be driven really by 2 things.
First, as we start driving higher levels of utilization in the fab, and at 20% utilization, if you look out to the end of the fiscal year, we'll see that 37 million of unutilization get down to the low 30s, just as we drive more revenue through the business. So that'll be a significant positive. So based on the new presentation, utilization will actually be the largest impact on gross margin.
As we start to move forward now, there's a 2nd piece of that as well underlying performance excluding utilization should improve modestly as well. So. As we drive more of the business through Mohawk Valley, we'll start to see the benefits of those 200 millimeter substrates and we'll start to see that margin expand as well. So overall, we expect, you know, take a look at the both of these areas or these 2 areas.
We would expect to get on the new presentation basis to the low to mid 20s from a gross margin perspective as you look at the new P&L out into the end of this year.
Great, that's super helpful. And my second question, just to follow up to the previous question on the ramp of the Mohave Valley fab, now you got like all the financing overhang out the way. Is there any ability to pull forward the Mohave Valley ramp? Why or why not? What's the extent the Huh. Alright.
Look, I think from a Mohawk Valley perspective, if we look across our business, we have a couple of focuses right now. And really what that is, is drive Mohawk Valley to 20% utilization and build out the JP. And I can, you know, if you look across our business today and you look at our employees and our resources, that is our, those are our top 10.
Sorry, that's what you see here in the outlook today.
Okay, thank you. I'll take the rest offline. Thank you.
Our next question is from Edward Snyder with Charity Equity Research. Your line is now open.
Thank you. Charity Equity Research. Give it away.
Guys, Neil, I want to come back to Jed's question here, and I'm kind of confused to be frank. We spent most of last year with all the operational problems talking about the ramp of Mohawk Valley and how your targets were for yields and margins and how you would pro forma out those numbers so we could get a good glimpse of if it was living up to expectations or not.
And it sounds like, based on your answer, what Jed said, you were not forced to make this decision by SEC. Correct me if I'm wrong. Did SEC tell you you had to do this? And if they didn't tell you to do this, why, in the very first quarter we do this, would you now mix it up so that your public state, your public report, looks just terrible?
Right, I mean and I get you're printing in the document, but to be frank to be frank As we've talked about before Four quarters in a row of significant disappointments to what? Expectations have been have not treated your stock very well, and it doesn't look like it's going to go well tomorrow for you yet So I'm very curious. Why would you do this out the gate? You?
if you had any discretion in sticking to what you said you would do, just to make it easier to digest what's going on with all these different moving pieces. So maybe you can first of all tell me were you forced to make this decision by SEC?
First of all, I think as a presentation change, we're gonna give you the same math and the details that we've given before. So we'll do a non-GAAP presentation and we'll give the same underutilization startup cost disclosure that we've always given before. So there's really no change from that perspective.
Secondly, it's our job as a company to comply with the FCC guidelines. We had correspondence with the FCC around how to deal with the changes in the accounting and made the decision that we would, based on their updated guidance, that changing the presentation was appropriate.
Will you then in your press release include another set of numbers other than just calling it out saying without these Charges rolled into our cogs. This is what you would have had for both cogs I mean we can't calculate it obviously, but the stocks gonna react to what people see when they look at the press release
And it's going to take a lot of legwork on your part and analyst parts to explain all the different moving parts now that it's not clearly in the press release. I know it sounds trivial, but as you're going to see tomorrow, it's not going to be, especially after all these quarters of problems that we have to do this. So other than just calling it out and saying, hey, this is the charges that were rolled into COGS.
Are you going to call out this would have been EPS if we didn't have those charges? We're disclosing what the impact is on gross margin and the underlying components. And the way that we presented it today, we will do it in the future, we'll be in compliance with the way that is in alignment with the FCC guidelines.
Okay, and there may be a question for Greg. You mentioned that building 10 is looking good. You've got 75% of it in. I know there's a relatively long delay from the time you put powder in your growth machines to getting revenue out of Mohawk Valley, which is what building 10 is feeding, but you seem to focus on epi. In the last quarter the bottleneck was epi.
for 200 millimeters. Is that no longer a problem? Is that not the bottleneck in Durham? Is it just growth? Maybe you just give us, I'm sorry, in building 10, could you just maybe give us a little bit more clarity on how the material side of the business is ramping out the door to Mohawk? I would say both.
With the building 10 crystal growth operation is in excellent shape right now. The quality of the crystals is great and that's translating into very good defect density at the wafer level. The quality of Fe is also very good and we're ramping that capacity.
I would say it's a dramatic bottleneck right now. There are some pinch points, but that's expanding as well. And then we flow the materials to Mohawk Valley, it runs through the fab, and then it goes through test sites and back-end packaging and so forth. So pretty... Are you ready?
I would say there as we ramp this fat there's going to be different pinch points. But I would say right now there's not.
There's not a dramatic.
capacity shortage right now as we ramp towards 20 percent utilization.
Great, okay so it sounds like the chain is moving along as it should have versus some of the stuff we had in the past. And then Neil real quick, I mean you you had a taller bull problem several quarters ago and you built a lot of material where the COGS was higher because your yields were lower and that's working through your revenue line now or correct me if I'm wrong is it already through there and if it isn't through there how much of an impact to gross margins was
was the bull problem in the quarter. I think from a longer bull perspective on the O. That's mostly behind us. I think we kind of worked through that during the fourth quarter. So as we move to one key, we're seeing more consistent performance from the materials perspective on our 50 millimeter platform.
and anticipate to see kind of the same, you know, solid performance from there going forward. So you weren't you weren't passing any high-cost inventory through revenue this this in the in the June quarter? There were some in the Q4 quarter and I think that's behind us now. Okay, and and does that provide any relief? I mean apples to apples if nothing else changed.
Before we were down several points of margin going from 3Q into 4Q. It was really related to two things. I would call the quarter somewhat transitional, really based on two pieces. One was working through the yield challenges. We had longer bulls. Again, I think we've seen good solid performance from that. He's done a good job there. We worked through that during Q4. That's right.
And the other piece was a transition to more automotive output for customers that were originally slated for Mulholland Valley and were going to feed those out of Durham. So we've made that transition as well. I think what you're seeing in Q4 is kind of a transitional period. We've kind of hit the bottom in terms of managing through those things and I think from a Durham perspective we anticipate seeing.
you know, sustained performance going forward. I think that's reflected in the, again, the tickup and gross margin versus Q4 going into Q1 on an underlying basis ex-
Okay, okay. And so that, sorry, but it's a confusing quarter. So it's safe to say then as you move into Mohawk Valley and you build more product out of that, you don't have the problems with the 150 millimeter automotive stuff out of Durham so that improves gross margins, but the 200 millimeter bull, I'm sorry,
the thicker bull problems that had plagued the June quarter or the March quarter are pretty much wound out by the time you get into September and December ? Correct. So we'll talk about previously is behind us and as we get more
utilization and benefit from 200 millimeter wafers and mohawk value, you'll see more revenue and we'll see improved margin.
Hi, this is Blake Friedman on from Vivek. Thanks for taking my questions. First, just wanted to clarify and answer a previous question. Just exiting this year, did you say that the gross margins would be somewhere in the mid-20s? Just want to make sure I heard that right and it wasn't for the full year. And then secondly as well, that 50% target that you mentioned that remains unchanged. If I look at the last analyst day, I believe you had a 50 to 54% gross margin target in fiscal 27. Is that still the –
You know, you'll be well ahead of any underutilization challenges, obviously, because the facility will be utilized. So over time, it will dissipate. So I think the way you want to think about the timing of the gross margin is, is you work into 2024 2025. There'll be a bit of an overhang from underutilization as we start to bring the factories up. We'll start to see that come down somewhat.
And then we'll see a faster ramp out in the 26th and then to 27 and just start to utilize the, the factors more and get better substrate capacity both out of the Durham campus and other side of the city. And we'll see a. You know, trajectory that brings that back up to that level of north of 50%. And to get out to that, you know, 26 and 27 timeframe.
And then just as my follow-up, just kind of thinking from a capacity perspective, I know there's kind of a lot more of a focus of several vendors entering the market with their own internal capacity. There's a growing ecosystem in China as well. So I guess from a supply perspective, both from maybe a material standpoint and a device standpoint, maybe just the growing entrance into the market.
explosive right now.
You know, many of the forecasts are that it's going to have 40, 50% compound annual growth rate for quite some time. So that's obviously attracting a lot of new players. You know, we've been at this for a long time and.
And what I would tell you is that silicon carbide is a tricky technology, it's very difficult to master. We do have, and we do have our, many of our materials customers have plans to have their own materials capability and they've got different time frames for that. So I would say that silicon carbide is a tricky technology, it's very difficult to master and it's very difficult to master. So I would say that silicon carbide is a tricky technology, it's very difficult to master
I think it's expecting to be fully internal by the end of this calendar year. Another is, wants to be, I think, 40% internal, 60% external over a long period of time. And we have all of that modeled into our plans in terms of revenue. So it's kind of fully expected that there would be more materials capability coming online, and we've got that
get into our plans. Great. Thank you. Our next question is from Colin Rush with Oppenheimer. Your line is now open. Thanks so much, guys. Could you talk a little bit about the magnitude of the OPEX growth that you're expecting to the balance of the year and kind of the key areas of...
A focus for that spend. So, from an op ex perspective, you know, including the startup expenses that we'll see that came right in line with where we expected in Q4. We'll continue to invest in R&D and anything really that helps us drive the Mohawk Valley up to the 20% utilization exiting year. So that continues to be.
You know, a major focus for us, we both see as you get into Q1, we'll see some employee related expenses as well underline. Now then on top of that, we'll see some startup costs and prepared remarks. We mentioned about 8,000,000 dollars. From primarily related to the J. P. and Tyler city and Q1. So, if you look at the end of the year, we'll see that probably.
At 8M double probably by the time we get to the end of the year. So we'll see some. In some some modest pick up in the non startup expense. As we get up to the.
And thanks. And then on the customer side, you know, given this massive agreement that you've signed, you know, are you starting to see any real change in behavior from some of the other customers in terms of wanting to make sure they have access to supply? Is that dynamic changing? You know, are folks more willing to put deposits on the table for, you know, long dated contracts? What's the sense of...
We've got probably the most important transition that's happened in the auto industry in the last 100 years, which is the demise of the internal combustion engine being replaced by electric vehicles. All the OEMs are very interested in making sure that they're lined up with folks that need it better.
Installing capacity, building capacity, spending money on CapEx, etc. There's a lot of activity on that. And then, you know, I guess you can point to the Rhenasis deal.
From my perspective, it's the largest customer product I've ever seen. Two billion dollars for a capacity corridor is quite a commitment. I think it shows from a Rhenasis perspective that silicon carbide is an important technology and it's one that they have really strong access to.
in these sort of upfront capacity reservation problems.
All right, thanks, guys. Our next question is from Joshua Bushalter with TV Cowen. Your line is now open.
Hey guys, thanks for taking my question. I wanted to follow up on a couple of previous ones. So if you're running, first of all, I think you mentioned the Durham Building 10 is 75% of the furnaces are installed. I guess, StarFi is installed means running. And it sounds like you're pretty close to being able to support or having the furnaces installed. Like another author that's been doing like new research and like amazingaries out here
to support 20% utilization at Mohawk Valley, but you're not expecting to get there until the June quarter of 2024. Is this sort of the normal cadence of time from furnaces turning on to devices out of Mohawk Valley that we should be expecting going forward? Thank you.
Yeah, basically yes Joshua is the answer to that. And I would point to a couple of different things. We are ramping the production of 200 millimeter crystals.
We're ramping the production of turning those into wafers or the wafering process, the EFI process, and then feeding that all into a brand new system that we have. So all of that is coming online. And the fact that we can go from...
you know, a million dollars worth of revenue to 20% utilized in, you know, basically a year. It's actually pretty good, I think.
Got it. And I also wanted to follow up on some previous comments. Any more details you can give, I guess, given on the volatility of 150-millimeter device output at Durham.
Given how constrained Silicon Carbide is, I would have expected it to be smooth and just run at full utilization and capacity to generate that $100 million of revenue pretty smoothly going forward. I guess I'm just surprised by the interquarter moves coming out of that site. I guess I'm just surprised by the interquarter moves coming out of that site.
should be expected to remain volatile from here or sort of stay in the 100 million dollar range. Thank you. Yeah, I wouldn't call it volatile. I think we said I think pretty clearly for the last couple of quarters that Durham site from a power device perspective will be 100 million plus or minus you know five or seven percent I think is probably pretty reasonable.
had projected previously. So I think just from a good forecasting perspective, I think you're going to see about that level going forward. And then as you think about revenue trajectory for the power devices and generating revenue above that in a meaningful way, it would come from all of our values. It's going to require a bit of pressure on an electric design thing that we define as being the average ElizabethII. Because for a human asset, I think in the sense that it's going to need a bit more extra growth.
Thanks, guys. I appreciate the call. Okay. Thank you. Thank you.
Our next question is from Matthew Prisco with Evercore. Your line is now open. Your line is now open.
Hey guys, thanks for taking the question. To kick off just on Mohawk Valley, as we look at the 20% utilization rate with Tyler City starting to ramp right at 20%, how are you thinking of that cadence? How quickly will you turn, ramp up that utilization rate of Mohawk Valley? How would you expect to hit that 30-40% level?
We are in construction right now on the J.C. in Tyler City. It's going vertical right now, so the shell is kind of going up. And the expectation is that in the June quarter, we would begin June quarter of next year, we would begin June quarter of next year.
Producing 200 millimeter crystals out of that facility and that lines up pretty nicely with the increase that we, we would want at that time coming out of coming out of mohawk valley. Or yeah, coming from mohawk valley. Additionally, we have.
other projects going on here locally in North Carolina that are working on getting more capacity out of our current footprint. Those come in two kind of flavors. One is R&D where we've got projects that will get...
more wafers per crystal run. So obviously higher throughput for the existing facility. And the second is expansion into a couple of nearby sites and one in Dallas area that are going to help us with expansion. And another way of describing that is giving us a little bit of cushion.
On the ramp of the JP, so getting a little bit more capability out of our existing and our local facilities.
Interesting. And then I guess as you think about that ramp, obviously some some delays going on at Durham, what gives you the confidence that Siler City will be able to to ramp on time? Is it just taking a learning curve here and applying directors because it's a new fab, maybe a little new process? I think it's just taking a learning curve here and applying directors because it's a new fab, maybe a little new process. I think it's just taking a learning curve here and applying directors because it's a new fab, maybe a little new process.
It's completely new on them So there's a lot of work to be done on that for sure, but we are right now
tracking to the schedule that I just talked about. We have demonstrated that we can increase our capacity and create 200 millimeter crystal growth machines and are producing them in high quality. So we've already demonstrated that we could sit out at a new facility, which is this so-called building 10 here on our campus here.
Doing it again will be, I would say, something we've already learned from.
Just quickly on the material side, a few changes recently with the Renes-Sassil competitor announcement and given your delays that you've seen from having to use more internally, how were you thinking about the material targets that you provided at your last analysis? Are those still?
right ballpark to think about from a revenue and share perspective or have things kind of changed in front of your eyes? Well the the one thing
First off, no, we wouldn't be changing the target. But I would say in between then and now, we've obviously signed up a very big supply agreement with Renasis. And that is now part of our plan. And I would say, as I said in my prepared remarks, that we're going to be changing the target.
The demand right now for silicon carbide, both devices and materials, is very, very high.
Thanks, guys. Thank you. Our next question is from Natalia Winkler with Jeffries.
Your line is now open. If I take my question, I wanted to follow up on that Siler CD-RAMP. Could you guys please remind us how large is that GP related capex? What's the kind of the timeline for the entire ramp? And how should we think about any potential depreciation had went from the GP ramp?
Yeah, so from a investment perspective, we've talked about 2 billion in CapEx this year. I'd say the vast majority of that's related to the build out of the JP. We also have some tools we're putting into Mohawk Valley. We have some material expansion and some back end semiconductor equipment putting in.
So I think the vast majority of that would be done here in 2024, which then indicates that to get into 2025 we should be able to start ramping that facility. As you think about the fixed costs or startup costs, we talked about $8 million related to that this quarter. That and the risk associated with more than 700,000 cars an hour being crystallized by
Should double by the end of the fiscal year about 15 million and Q4. And then we should see some additional increases in 25, but as you bring that on to on to capacity that will see similar to what we just saw in the valley that will transition to cost of sales and just be part of our cost of sales moving forward as we transition that factor to production in 2025. Understood, thank you.
I think the overall kind of environment has been somewhat weak in line with our expectations. We see that kind of flattish here for the first half of the fiscal year with maybe a modest pick up in the back half of the year.
Thank you.
I'd now like to turn the call back over to Mr. Lowe for some final thoughts.
These are feeding Mohawk Valley, which is open for business, generating revenue, and beginning to scale. Matt Managing Group Program at N Calclock, stepped up to turn this light into bigger Keshet7
Construction at the JP, our new 200 millimeter materials factory, is underway and will pave the way for a substantial increase in supply as demand continues to grow at unprecedented levels.
And that is demonstrated by the 8.3 billion dollars of design ins that we were awarded in fiscal 2023. Finally, we've steered 5 billion dollars of funding in the last 9 months to ensure we are well positioned to support this multi-decade growth opportunity. We appreciate your continued support.
and look forward to speaking with you next quarter. That concludes the conference call. Thank you for your participation. You may now disconnect your blame point.