Q3 2023 Enovix Corp Earnings Call
Please note that the shareholder letter press release and conference call. All contain forward looking statements that are subject to risks and uncertainties. These forward looking statements are based on current expectations and may differ materially from actual future events or results due to a variety of factors for a discussion of factors that could affect our future financial results and business. Please refer to the disclosure in today.
The shareholder letter and our filings with the Securities and Exchange Commission. All our statements are made as of today November seven 2023 based on information currently available to US we can give no assurance that these statements will prove to be correct and we do not intend and undertake no duty to update these statements except as required by law.
During this call. We will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. You can find a reconciliation of the GAAP financial measures to the non-GAAP financial measures in our shareholder letter, which is posted on the Investor Relations page of our website.
I will now turn the call over to Raj to begin Raj.
Thank you Charlie and thank you all for joining us today.
I'm going to kick it off with a few high level remarks, and then I'll pass to <unk> to cover some of our financials and the outlook. After that we want to make some closing remarks, and then we'll take your questions.
Now as you can see from the recent announcements that we've made med that they've been making.
<unk> been super busy this quarter.
We started the factory acceptance testing.
As we call it of.
For agenda equipment on time.
And we had a faster equipment lending in Malaysia in November and we remain on track to go into production in April next year with plus batteries from that line.
Now a.
A little bit earlier today, we posted a video of Ajay on site at one of our Gen. Two vendors. Please go check out the video it's very exciting to see the new machines coming online and how everything everything is going on.
Now in Battle.
We achieved our strategic objectives in the fab one here in Fremont during this quarter.
<unk> allowed us to transition from this expensive.
24 by seven manufacturing in fab, one two converting it into a more of a center of innovation focused on R&D and customer qualifications.
It's allowed us to do a shave off.
$22 million of our annual Bun.
Now this quarter. We also completed the acquisition of a route yet.
The company in Korea, which integrates our manufacturing process from electoral coating, all the way to making battery packs now.
Owning our own coding as I mentioned before is a highly strategic thing for us.
Our capex increased our margins enhances our manufacturing capability speeds up access to new materials. So that we can bring new products to market much faster.
Now, we also gain complementary business from Biogen, where she.
Shipping products and do a leading Iot and military customers. This gives us cross selling opportunities to be able to sell.
And our current NOL silicon batteries also like those customer base.
We announced that intermix enabled a product in the market and FDA.
Approved portable multi vital signs monitor this will be sold in a Cvs Walgreens and Walmart next year.
And last but not least we ship breakthrough enable batteries, which is our proprietary technology for keeping battery says two to the U S Army under contract, which drove this quarter's revenue.
Now before I pass it beforehand I'd like to take.
A few minutes to make some big picture comments on how.
How we are positioning the company diseases tremendous opportunity in batteries, that's in front of us.
As I mentioned.
And my first call as NRG yields almost 10 months ago now that my management philosophy is to really start with the customers their products, how our products enable their products and move backwards to making great products and our site. This is exactly what has happened during the last many months.
We've rebuilt our management team, we have driven much deeper relationships with key decision makers at customers and now we understand their unique product requirements.
Now we received consistent feedback from some of the leading smartphone Oems that the analytics architecture offers industry's best path to high density high energy density batteries matched with cycle life and fast charge. All three categories are really important to our customers.
If anything what I noticed all the time I've been the CEO here.
Is our competition competitive position in energy density and consumer electronics is actually even better than when I joined the company.
Talk a little bit more about it in a few minutes.
Our relationship with a smartphone Oems are strengthening and have managed to now understand exactly where our competition is and what kind of batteries are customers who are currently using.
Based on this belief.
I believe that intermix is capable of delivering multiple billions of dollars of revenue with strong margins similar to the businesses that have been associated with Qualcomm and micron.
With a superior product that we're going to make here in the portable electronics market, which the market size exceeds over $20 billion.
Now we're also seeing strong interest from the Oems.
The market is much larger than the consumer electronics market.
But the question is how do we get that most efficiently and how do we live up to that promise now I first wanted to.
Today's show you.
The reason why we're so focused on the smartphone market.
I want to show on this slide.
What has happened in the smartphone market from 2025 to 223 now I've been involved in this market very intimately from my time at Texas instruments, and Qualcomm and Micron.
If we look at 2025, the smartphone set at two inch DFT display.
Close to couple of hundred megahertz, CPU <unk> modem single megapixel camera.
Like a $900 million of battery.
Which was about $8 million of Yotzei now as you transition to the right. What has happened is the Cpus that much more powerful and Theres multiple Cpus now now today in 'twenty two 'twenty three there's optical processors.
In multiple gigahertz shipping and this phones.
The displays have gone from the two inches to 6.8 inches HDR 10, I'll talk a little bit more about the displays in a minute.
Multiple cameras five year cellular.
And you can see that the transition along the way and other forms themselves have got increasing capability.
You can now take Great Pictures, you can watch for gay videos you can do.
Your GPS navigation maps you can.
<unk>.
Purchases and so many other things, which has really helped the smartphone market growth because of these innovations that have been launched with the processing power and the displacement cameras from two almost 100 million units.
Now the battery what has happened to the battery during the same period of time, you can see the battery capacity. If you talk about the capacity of a battery in million borrowers.
Has gone from 900 million powers to almost 5000 and $450 million.
Few of the very very very high end devices.
However.
An interesting thing to note is that as the battery Milliampere ours grew.
The size of the battery also grew.
Which means this increase in energy has been achieved were making the battery bigger and bigger.
Yeah.
So the battery grew 7% CAGR.
The battery capacity grew 11%, but if you actually think of the energy density of the battery, which is how much as a capacity grow on par leader, it's only grown 4%.
This is clear if you look at the most recent batteries hold at Lincoln as they got.
Now why is this a problem. This is a problem because now the increase in energy and energy capacity in smartphones has been achieved by making the batteries bigger and bigger the little bit increase modest increase in energy density.
The problem is how you can make the phones in a bigger.
This will make the funds any bigger they don't quite fit in your pocket anymore.
Now we have a problem how do we continue to increase.
And supply the demand of these increasing.
Smartphone applications without increasing the size of the battery.
Now if you look at the next slide here is going to show you that the emerging use cases haven't stopped.
I talked a little bit about the AI and machine learning use cases that are happening at the edge.
Talk about multiple displays larger displays foldable phones, and if you look at the mixed reality headsets, if you look at.
All of these new applications that are coming and recently you've seen announcements from from other chip makers and the much even much higher performance process and much outperformance memories and better displays.
But the battery.
Is not keeping up and the foreign cannot get any bigger. So there is a problem. That's why customers are very interested in working with other dynamics because our technology is one of the few ones that can actually enable smart wants to continue that growth curve of this insatiable demand by increasing the energy density.
This slide shows you.
Our battery technology.
On the left one side I show the average capacity of conventional batteries, which is a graphite batteries.
Of sell at leading smartphone smartphones are actually shipping in 'twenty two 'twenty three if we use that as a baseline our E X one which is actually the currently shipping product that we have had.
<unk> has over 18% increase in capacity or that.
Now it only goes up to 500 cycles and stages at a standard rate. So it is using some iot applications, but not at in smartphones.
To be able to be used in smartphones, you need to get 1000 cycles, and we're able to charge a much faster.
<unk> has that capability. So we're now in our <unk> roadmap the technology roadmap, we will be able to increase the capacity by 30 plus percent or the baseline, but actually still cut and also gave there's a thousand cycles and fast charge that is super exciting for all of the smartphone Oems because that's an area where.
People really need this and it changes the game and how smartphones will be used when we get to that.
This product is extremely well received by customers and we plan to sample. This next year and ramp to high volume production in Malaysia in the millions of units.
With the changes we've made.
Analytics is now of what to go business, which means it's focused on a few large customers.
Where our products are aligned and form fit and function to what they need.
This contrast, with how our previous strategy analytics was there to making a horizontal business primarily focused on standardized batteries to hundreds of customers the beauty of the vertical strategy.
Is that the majority of the industry's volume happens to be concentrated in six to 12 large customers.
Five to six to seven smartphone customers a few PC Oems a few available customers.
So by being successful there. This is a large business by meeting the demands of this high volume customers, but our product portfolio or can be a lot more focused in our operational expenses can be a lot more a lot less and much more targeted in delivering value and performance to markets that need it most.
Yeah.
Now we are very well suited for this vertical Saturday because of the tight customer relationships. We have forged over multiple decades me myself and many members of our team have been working with this industry, leading Oems for a long time.
We are well position in smartphones that is a market that we're going after.
Really with a lot of intent because of the requirements there.
From then.
Clearly, we will move from more from smartphones into a into Pcs, along the way, but the <unk> acquisition will also continue to sell into the Iot and wearable markets.
And I am confident that with this <unk> type technology.
We will be able to launch smartphones.
And 25 2006 timeframe.
And that will help us scale into multiple models of smartphones and Pcs in 'twenty six multiple lines with a solid path to profitability with that I will turn out for him to discuss our financials and give some guidance for next quarter.
Thanks Raj.
So I'll keep my comments at a high level.
And just talk about the.
<unk>.
Quarter and the guidance.
And most of the details of the.
Other than the guidance can be found in our.
In our shareholder letter and the press release.
So first talking about the quarter.
We delivered.
Record product revenue in the quarter.
On the strength of the army contracting.
Shipments to for that.
And we continue to manage the opex tightly and.
Control on our spending and ended the quarter with $370 million of cash and equivalents.
We plan to continue to manage our expanding titling and as we do.
Disclosed previously the strategic realignment of sub one.
We'll need to.
Annual savings of about $22 million and as a result, we are lowering our cash use for the year.
Operational cash use for the year $210 million.
Now looking ahead to the fourth quarter of 2023.
We forecast revenue to be in the range of $3 million to $4 million.
Driven by a partial quarter of Roger revenues and continued strength.
From the army contract.
And I'll now turn it back to Raj for closing comments.
Thank you Brian in closing, we had a very productive third quarter.
We accomplished quite a few things as we talked about in the beginning but we remain on track to began high volume manufacturing in Malaysia next year.
While bringing industry, leading batteries to our customers to allow their products to differentiate and excite the consumers, who ultimately will be the ones buying those products and we've made significant moves to lower our cost structure is farhad mentioned, while at the same time, we're also speeding our technology development and enhancing our manufacture ability now we've put in place the right go to market strategy I feel.
The Delaware and the promise of getting our leading edge technology to the market most efficiently now with that I'll open up to questions operator.
We will now begin the Q&A session. Please note that this call is being recorded before we go to questions. We're going to be the two most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is when can we expect <unk> to start.
Generating meaningful revenue.
Yeah.
Somewhat meaningful value I think as we mentioned.
The router yet acquisition, our revenue the aldi getting to grow nicely, we guided to three to 4 million in the fourth quarter and we expect that to continue to grow next year.
And as we start producing millions of batteries from Iran, Malaysia factory.
In 'twenty four 'twenty five is when you'll see the ramp in 'twenty six it'll continue to grow faster.
The second question is with Fab, one closing how will the novack satisfy the contract with the army and the medical device maker.
Yeah. The question on that one so as I mentioned, we've made quite a few batteries.
A production every quarter for the last.
A few quarters and we now have enough inventory of batteries to support the manufacturing, but the production needs of the current customer base and we are still continuing to make batteries here for the army contracts. So we do have.
Have a line on which we can make those batteries and we will continue to do that through next quarter.
And then and that also gives us a very good.
We have to make larger batteries because that previous languid, mostly making small batteries. The army batteries of larger batteries that have also had a breakthrough enabled in them and we.
We feel pretty confident that we can meet the requirements and then when we transition to Malaysia will make what's needed from there.
We will now go to the queue questions will be answered in the order that they are received please ask one question and one follow up question that most we will now pause a moment to assemble the queue.
Our first question will be from Colin Rusch of Oppenheimer.
Thanks, So much guys and congrats on the progress.
As we've seen folks like CHL introduce foresee batteries worth a thousand and cycle life.
Performance in the market.
Could you talk a little bit about the competitive environment and how important the breakthrough technology is and other attributes obviously the volume is in part one from a competitive perspective, but what you're seeing.
From your customers in terms of what they want and what's continuing to keep them engaged with you Chris.
Yeah. Thanks, Colin Thanks for the question.
I think that the main reason that our customers are super excited to work with us.
Is the increased capacity and energy density we provide if you look at the batteries in the market today, even if you take all the batteries out there that actually producing.
Thousand cycles are fast charging.
Our energy density that we can provide is still much much higher than anything on the market now.
Now we are current product doesn't hit the thousand cycles that they need and doesn't hit the fast charge as we add those two features to our products, while maintaining LNG entity, that's where we see a clear difference of differentiation from our products from our customer products that is the hardest thing to get is the amount of energy density.
And we feel like we can accomplish all three of those.
And of course safety is very important and we'll continue to work on the safety aspect also.
Okay, and then just with the factory acceptance testing any surprises either positive or negative in terms of what you're seeing in that first down.
Yeah.
No particular surprises.
We are doing quite well actually we have begun all the effort we work up as we said in the letter and the video showed all the work going on not.
No particular surprises there were a couple of changes which is what it's typically expected. During this rigorous acceptance test that had to be made which were already done on the zone to equipment.
Rich I ended up showing in the in the video so no particular surprises things are things are on track.
Thanks, so much guys.
Our next question will be from Derek Soderberg with Cantor.
Yeah, Hey, guys my congrats as well on the progress.
RJ I wanted to start with you in the shareholder letter. It says you guys see a clear path to industry, leading yields as you move to high volume manufacturer in Malaysia, I'm curious, if we should be thinking about a specific number for yield with that commentary, 90%, 95% or what have you.
Just given.
What youre seeing in factory acceptance testing, what's the outlook like for Gen. Two as it relates to overall equipment effectiveness.
Right so good questions.
And I'll answer them in two parts. The first part is our yield learning that we did here in fab one.
No no.
Now I've been here.
It had more days and I'll be here for a year and the yields of significantly climbed or did a climb in fab. One are all the learning software over the Youll losses are happening in that type of thing where it was done very nicely.
We are now Gen two real start rear Gen. One.
And the <unk>.
We chose to stop the Gen. One line as Roger mentioned already.
And Jim who begins there and the ramp begins from there.
He has very.
Rigorous requirements of CP case, which means process capabilities and achieving the you know.
Distance away from the spec so that the yields are very predictable and manageable and yes, you can imagine in the high nineties is what you're targeting for the yield for the line to be but it will take.
Little bit time to climb, but the good news is that we're starting for Gen. One ended.
Climbing from there.
Yeah, that's great and that was my follow up Raj.
You sort of said the plan is to optimize the deployment of Gen. Two lines to sort of match on the timelines with demand you clearly have a sizable revenue funnel or it seems like Gen. Two is on track have you determined exactly how many lines do you feel that mobile app during a 24 hour and if not.
And what sort of are you waiting for.
I know, there's a lot of variables that go into that decision just would love to hear your thoughts. Thanks.
Yes, I mean look.
The demand is very strong I mean, I mentioned in the previous.
Comments I've made a we are working with.
Multiple smartphone Oems, they're making with multiple lapped.
Laptop customers and wearable customers and each of them neither sell off slightly different <unk>.
Form factor in shape and our line is capable of producing them.
What the variables we are looking at an hour to get the first line up and watch how it goes and the same time. It also giving samples to all these customers and they are in various stages of a.
Ah validating them and putting them into the phones and see how it works and as we learn from them what that ramp up their phone models and.
The ramp of the laptops will be we will be putting new lines in keeping and do keep in mind. The lead time that it takes to do that.
I can't comment exactly when I'm going to do that but we're looking now at exactly that kind of situation and for example, we may not have the out of the whole line at once when they order more lasers for example to get that bottleneck out we may either more backend capacity to make sure that it goes out. So I don't want you guys to think of line says holistic things we need to order like one.
Time, so so that's the kind of optimizations, we are making.
But we'll be ready for ramping 25 with our customers.
And just to add to that the God Roger said building the fab two as we have been sharing with you.
Which is nearly iridium now ready to accept the equipment Jen to equipment that building in itself right now it's really for four lines right. So you'll build infrastructure power in a lot of details.
How that facility has come up it is ready for four lines and the campus itself is expandable all the weird weird lives that is consistent with what we have shown them and shared with you all right now.
That goes hand in hand, with what Roger said in terms of qualification cycles.
The equipment.
Our next question comes from Bill Peterson of J P. Morgan.
Yeah, Hi, good.
Good afternoon, thanks for taking the questions kind of want to follow up on one of the prior questions about adding additional lines lines two to four I guess or or even is adding to the first line I guess the question is.
Are you going to be waiting for line one to be successful before you actually place orders.
I assume there's pretty much lead time, so what would you actually have to place orders for the subsequent lines, let's say two to four.
Order for them to be installed next year.
Yeah. So like I said I think it's not a simple answer of.
This is the whole line lead time, there are pieces of the line that have shorter lead time that pieces that have a longer lead time. So we are looking at those and figuring of making sure that we have the long lead time on scoured. The shortly timed tons. We can right now we're also improving these lines as we start making one agenda steam have figured out how to even improve the performance aligns more reduce the cause.
So the lines more so we want to take all that into account and in and out of them carefully. So that we don't spend too much money too soon but at the same time meet all the demand of the customers that are coming in 'twenty five.
Okay. Thanks for that actually follow up on that so is $50 million sort of the right way to think about a full line or is there opportunities.
To go lower from there that's a follow up to that last question, but I would say that's a separate question related to evs, even kind of talking about <unk> for a while at least in the context of <unk>.
Fast charging that some of the other attributes.
I believe at least in the past the team is at least had an idea to maybe have a least one J D. A by the end of this year now mind you that was the prior management team just trying to get a sense for what is the optimal way you can work with Oems how many Oems are in discussions with.
And when we know when would you really want to I guess take this to another level with a with a partner.
Yeah, I'll I'll take the easy question that I'll highlight you talk about the line question.
I mean, we.
Our challenge honestly has been.
The demand has been so strong.
A challenge has been to prioritize which one we do first and which one do later right. We just had one factory here and we were learning on the yields we are trying to make small size cells that we can get into the customers that <unk>.
Had already early on signed up with us they're trying to learn what we've learned we learned about how to improve the yields for the next generation line than we are in the army contract that we've been satisfying then we got a lot of these demand from smartphones, which we have to make bigger cells to give them samples to work on then the EV opportunity is also still there and we have to make themselves for them.
So it's just been a lot of things to do at the same time, and we've been prioritizing them and getting them as quickly as we can.
Honestly now that we I think we've said in our press release now that we're not making high volume manufacturing in Fremont and now we're able to get our Malaysia facility up quickly we should be able to now start working on those.
EBIT type cells, because they need in a clean room, they need a lot of different.
Materials and so on and.
That's where that is.
The discussions are absolutely.
Going well the Oems.
We've been in the bottleneck of making them and that's just on me because I prioritize making.
The smartphone sells and larger cells for the army first because we felt.
That's where the revenue opportunity in the short term is and we will absolutely get to the results in the in the.
First quarter next year.
And just true.
Answer your other question, which is how many batteries for line you should keep thinking nine to 10 million batteries in the on line, one which is the universal line and as Raj said, we are continuously improving the <unk>.
We are increasing the upa, which I should say and reducing and taking cost out so aligned to will be copy exact where most part with them little bit higher U P. H, removing the bottlenecks and cost reducing the life. That's all we're thinking blind to waterworks.
And we would we would like to get to that 15 minute, we would like to get to that $50 million range that you talked about.
I am pushing the team to make it less cost but.
Alright. Thanks.
Our next question comes from George January cash Concord.
Everyone. Good afternoon, and thank you for taking my question.
Just very quickly I watched the video with RJ and I'm curious.
Look very automated high parallelism, so when I'm, assuming that you werent operating at the full tilt in terms of <unk>, so when that happens.
What's your confidence level that you can continue with that level of automation with all the metrology happening is there what's the risk that those things start to break down as you as you speed up the process. Thank you.
Yeah, good good observation.
We were not operating anywhere near full tilt I just wanted to make sure that we're capturing videos.
Of exactly what's going on per station. So we have slowed the line down quite a bit.
We will require it to run what we called marathon run for a certain number of hours at the 13 and 50 <unk>. So that's part of the buying.
Criteria or qualification criteria for the line. We will we will continue doing that and only after that then you have a green light to ship that.
So that's what we were doing in my confidence and making sure that the line runs without having to stop the MPA meantime between assists in meantime between failures.
Is exactly meeting the specs that we rewrote which means the R. E has to climb up to about 85%, which is equipment effectiveness the equivalent.
Equipment and effectiveness.
Yes.
Definitely not running at full tilt in the video.
And maybe as a follow up question.
Then recently been discussions from China around export restrictions around graphite.
I'm curious what do you think that does to the.
Long term business and also actually to rotate our cargo now that you can continue to get graphite supply to your existing business. There. Thank you.
Yeah ourselves don't use any graphite so.
The silicon cells that were making.
We haven't seen any effect to that I'll get cells in an effort restrictions so far so as I, let me know about it will hold comment.
I just read as much as you have I havent seen any restrictions.
Thank you.
Our next question will be from Gabe Daoud of Cowen.
Thanks, Hey afternoon guys.
Hoping we could maybe just just.
Sure.
Start with.
Fab two hoping Rajiv could you, maybe just give us a bit more color around the smartphone launch.
The cells coming off of those lines is that the <unk> two and then with the second half 'twenty for launch.
Yes, the qual period would only be a few months, if you're anticipating commercialization and twenty-five with multiple Oems is that right.
Yeah, So I shared <unk> as a roadmap to what we can get to.
We will be doing something in between the <unk> Dx due to start.
Third we will improve the cycle life and will improve the fast charge, but maybe not push the energy density all the way to where we need to because as you saw in the slides rex's one LNG. The entity itself is much higher than what a shipping in the market.
So we're actually pretty confident on the technology. We have so we will probably get that to production first that's what we had in the discussion with our Oems.
How quickly they wanted which one do we want it.
Our program is running on that we have programs running on <unk>.
So clearly our goal is to get.
Get cells into the hands of the smartphone Oems.
Next year.
And as we are able to do from a militia line and then get ready for production by end of the year. So that will be in will mean funds early 'twenty five.
Okay. Okay, great great. Thanks for that and then I guess, just as a follow up.
Noted the.
The new vertical strategy as you mentioned could you maybe just talk about if some of those customers that you're that you're focused on now.
Would that include the quote unquote strategic accounts that was mentioned by the previous team. Those are the companies would agree then towards 1 billion of market cap I guess, just trying to get a sense of you know.
The Mou with Samsung like is that the move in move in.
Are you pushing the field the ball down the field there with Samsung is there maybe anything that you could speak to there just just curious again, if theres an update on specifically those six strategic stake that you guys had previously mentioned.
Yes, I mean, if you I mean, it's very consistent if you think of strategics has having larger market cap and shipping millions of units would that is what vertical first strategy is we are actually focused on people looking by millions of cells from us for each product not aggregate. So that's very important because each product needs accustom cell of a certain shape.
And certain characteristics. So it's very important that every product we make ships in the millions of units that way, we get direct auto and that and and they are all the top customers that that we talked about and by the idea that the same customers that we are in the funnel that we used and its just that were focusing more strongly on those and not on all the hundreds and hundreds because the opportunities have been.
So am I is that we need to pick the ones that you can ship a highest volume.
Got it makes sense. Thanks Raj.
Yeah.
Our next question will be from Gus Richard Northland capital markets.
Yes, thanks for pronouncing my name correctly, and letting me ask some questions.
Could you guys give us.
Split of Army revenue.
Our road Jay.
Fourth quarter and sort of a little bit of color on how you see workday business in 2024.
Sure I can take that so in terms of the fourth quarter revenue.
Army should be similar to third quarter plus minus some.
And then the remaining should be Roger Roger we have talked about 18 million annualized run rate in the first half of the year. So I think of it like a million and a half per month.
The fourth quarter tends to be a little bit stronger than that so just a little higher maybe.
So that gets that you, maybe 3 million to $4 million of guidance. So.
So that should give you color.
I'll give you a fourth quarter revenue in the breakup.
We're talking about 24.
We should expect some growth from 'twenty to 'twenty three.
Talked about 18 million annualized run rate in the first half of the year.
And so from that 24, we should expect more growth.
Would expect some growth in revenue from that number as we have talked about it. This is a company with a very good cost structure.
A remote part of Korea, so the cost structure, what we're paying per employee is actually very good.
And even at that level of revenue and the profitability is comparable.
To what you see with the large.
Companies in the graphite space.
And so I'm very competitive cost structure up there.
Got it very helpful. Thank you and then in terms of production and shipments out of that one can you give us the numbers for what you produced in the quarter and what you ship.
A number of approaches and accordingly, I think we talked about what what we produced and I don't know exactly how much we shipped a knowledge, we need but we kept quite a bit in inventory because as I mentioned, we have to make sure that we're not making any more of those.
In third quarter, so we need to make sure we have enough to satisfy the needs of.
The people that are already designed is in.
So some of it is we had holding dissatisfied that market and some also we are using to but our experiments quite a bit but our <unk>. One five weeks do we need a lot of cells to do that so that's where the majority of that.
<unk>.
Got it.
Thanks, so much.
Sure. Our next question will be from Ananda Baruah loop capital markets.
Yeah. Good afternoon, guys. Thanks for taking the questions really appreciate it.
He also on Pcs rise.
I think you had mentioned.
The kind of the.
Volume revenue in 2000 and sex and so.
Is it 25, when you start volume sampling.
Yes on the on the PC side, and then how does AI Pcs.
Kind of play in as well.
Looks like HP has talked about I think in three years, they expect 40% of their Pcs to be AI enabled.
So does that does that play into the demand backdrop is Walter Piecyk and demand backdrop and I have a quick follow up thanks.
Yeah, Great question, Ananda so but.
Key thing about the PC market is the.
The time it takes to qualify at the customer.
Is actually much longer even longer than smartphones just in terms of the qualification process that they go through in that market.
So we will be sampling them in 24 actually.
And then and also more than 25, but by the time they get to production.
Volume production meaningful millions of units of production it will be 26%.
But some of the PC makers may actually go to production sooner I'm, hoping in 'twenty five.
Using a smartphone like cells.
So that's kind of how I see that.
But your point on <unk> is actually clearly what has been.
Tremendously exciting for us because as you saw in the slides in the slide that I showed when you run a Gi egest hogs, a battery like there's no tomorrow.
So it's very very and Thats why we are seeing a lot of interest from from <unk> I actually wanting a higher capacity battery.
The use cases that are little bit different for example.
How long they keep it how many cycles it needs charge fast charge, it's not a big requirements like in the phone. So we are optimizing our.
Our recipes to actually target those more precisely so that we can give them more energy density maybe give them less fast charge and so on but that's another super exciting market for us because of this push of AI at the edge.
Super Helpful. And then just a quick follow up.
Jay you mentioned.
I forgot exactly language on yields, but it would take to just take a little bit I think you said to get to the IV.
Do you think you would be at the 90% yields.
When youre going to volume and 25 on smartphones and that's it for me. Thanks, guys, Yeah, absolutely Ananda.
The plan right now, which we are tracking we will get to the main people as a percent closer to the higher nineties before the actual you know good nice ramp begins online one.
Yes, 25, yes, absolutely in the high nineties.
Awesome. Thanks, guys.
Our next question will be from Chris Souther of B Riley.
Hey, guys.
Wanted to kind of get a little bit more color around.
Focusing more on specific kind of higher volume customers.
Does that mean there is so big.
So the factors here that are very small today, but might be carbon kind of volume that you might miss like how do you evaluate potential where some of the stuff is pretty kind of cutting edge I guess, you concern as far as the customer base.
Yeah. So.
But what I've seen in my my my history is.
The 30 years I've been doing this kind of consumer electronics chip business is that.
At this stage of the company, it's very important that we focus on a few customers that can drive very high volume.
And satisfy the requirements of those customers.
Fast charge cycle life energy density form factor, how they're used how the PMA contracts is that how that charged how they're discharged once we get that nailed and we're able to.
Have a few of those customers drive meaningful volume. We now will have the scale and then those exact same cells will have the ability to sell them.
Into all the other markets, which may not take as many of them, but they are more willing to compromise on the form factor of the battery and so on.
And those will be some new cutting edge markets that could come up.
We are in a few other ones like that but then we can then optimize to those as they get bigger. So the idea is to get your product ready for the vertical markets get to volume get to scale get to the right yields.
Therefore, our manufacturing lines, then use them to seed this broad market and then grow into those markets. So I expect in time 80, 85% of our business will probably be in large verticals and 20% to 25% will probably be in broad broad market so to say.
Vertical first horizontal second strategy.
And our next question will be from Tim more of the EF Hutton.
Thank you.
Thank you.
A question I had was just about the <unk>.
Purchase closing of your recent transaction for the acquisition.
When do you expect it to be fully integrated to achieve your forecast cost savings.
Separately, how many months, maybe until you get beat up the battery development cycle there.
Yeah, So I want to be clear the cost savings that we have talked about.
In there depending on the coating capacity and how we are utilizing that.
The shift to the coating capacity and the cost savings from that are related to how the manufacturing lines ramp up so most of those cost savings you will see it in 2025.
And beyond that.
We are.
Keeping gouge it pretty much is a separate identity for their existing business.
Where we are focused on is primarily on you.
Using their coding and making sure that all the innovation in coding that we wanted to drive for cost reductions.
And also for yield improvement in our manufacturing processes that.
But we are really executing towards that plan and so yeah look there.
Things there are going well and we are on track to execute towards ramping with now Jade and our manufacturing.
2025.
Okay.
Yeah that makes sense.
Just out of curiosity for the accurate method.
Meditech many.
How many months in advance would you maybe you start to recognize revenue before selling and Cvs Walgreens and Walmart.
So look like.
What I can tell you is that our revenue recognition is not contingent on.
On there.
Shipments.
But when we ship.
The batteries to them and we get paid for it we will recognize revenue after fulfilling all of our obligations.
We do expect those to start selling sometime towards.
In next year.
I don't want to be too specific on that but.
That's what we know.
Okay.
Okay fair enough.
Last question is you know a comment you had on the last earnings call was you know that capital expenditure next year will be higher than this year, which makes sense given all the great strategic expansion and moves you're making.
Is there any way maybe to give us a sneak peak maybe about how much higher the capex might be next year now that we're about seven weeks away from the year end.
So look we are not guiding next year Capex at this point, but we will control.
Capex spending very tightly and spend as needed.
Right now we are not expecting capex to be up year on year next year.
And we will continue to manage it tightly.
Okay. That's it for my questions. Thank you.
There are no further questions at this time with that I'd like to turn it over to Dr. Raj <unk> for closing remarks.
Yeah. Thank you all for listening to our earnings call and thank you for all the great questions and looking forward to talking to you next quarter. Thank you.
Yeah.