Q2 2024 Wolfspeed Inc Earnings Call
Good afternoon. Thank you for attending today's Wolf speed, Inc, Q2 fiscal year 2024 earnings call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
If you'd like to ask a question. Please press star one on your telephone keypad.
I would now like to pass the conference over to Tyler Grunberg VP of external Affairs you May proceed.
Tyler D. Gronbach: Thank you operator, and good afternoon, everyone.
Tyler D. Gronbach: Welcome to <unk> second quarter fiscal 2024 conference call.
Tyler D. Gronbach: <unk> will speed CEO, Gregg Lowe and <unk> CFO Neill Reynolds will report on the results for the second quarter of fiscal year 2024.
Tyler D. Gronbach: 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.
Tyler D. Gronbach: <unk> are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies non-GAAP information should be considered as supplement to 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.
The release and posted in the Investor Relations section of our website, along with a historical summary of other key metrics.
Tyler D. Gronbach: Today's discussion includes forward looking statements about our business outlook and we may make other forward looking statements during the call such forward looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mentioned important factors that could cause actual results to differ materially.
Tyler D. Gronbach: Lastly, I would also like to note that this quarter, we completed the sale of our RF business to make up the results of our RF business are classified as discontinued operations and all discussions today will be on a continuing operations basis.
Tyler D. Gronbach: During the Q&A session, we would ask that you limit yourself to one question. So that we can accommodate as many questions as possible. During today's call. If you have any additional questions. Please feel free to contact us after the call and now I'd like to turn the call over to Greg.
Greg: Thanks, Tyler and good afternoon, everyone.
As the world's only pure play vertically integrated Silicon carbide company.
We will speed is leading the industry shift from silicon to silicon carbide.
Greg: Across both materials and devices.
Greg: Our focus remains on scaling operations effectively and executing on our long term investment plan that we had in place.
While there are still challenges ahead of US we are proud of the strong progress we've made on our strategic initiatives over the past couple of quarters.
Greg: Importantly, we are encouraged by the developments across key internal metrics.
Greg: The Mohawk Valley Fab delivered improved performance and is on track to achieve 20% utilization in the June quarter.
From a 200 millimeter substrate perspective, there is now ample runway to not only meet but exceed our original utilization target from building 10. During the campaign as we're consistently producing high quality high yielding 200 millimeter wafers out of this facility.
The additional flexibility will be important as we begin producing substrates in the latter half of this year at the J P.
Greg: Overall, I am confident about our execution of our near term operational goals and optimistic around our long term financial prospects.
Operator: Good afternoon. Thank you for attending today's Wolfspeed Inc. Q2 Fiscal Year 2024 Earnings Call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to Tyler Gronbach, VP of External Affairs. You may proceed. Thank you, operator, and good afternoon, everyone. Welcome to Wolfspeed's second quarter fiscal 2024 conference call. Today, Wolfspeed CEO Gregg Lowe and Wolfspeed CFO Neill Reynolds will report on the results for the second quarter of fiscal year 2024. 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.
Showing our unwavering focus on execution, the second quarter continued solid momentum from the first quarter.
Greg: We've said time and time again that all roads lead to Mohawk Valley.
Greg: Past quarter was no exception.
Greg: If that contributed approximately $12 million to our quarterly revenue.
Greg: Luckily triple last quarter's levels at the midpoint of our guidance.
I spent a lot of time at Mohawk Valley this past quarter.
Greg: And witnessed the dedication of our team firsthand.
Greg: Who along with our incredible tool suppliers are.
Greg: We're working around the clock to optimization activities related to this first of its kind grant.
Greg: We'll speed at its core is an innovative company.
Greg: Full of problem solvers.
Greg: I am very grateful to the entire team.
Tyler D. Gronbach: Non-GAAP information should be considered a supplement to, and not a substitute for, financial statements prepared in accordance with GAAP. A reconciliation to the most directly comparable GAAP measures is included in our press release and posted in the investor relations section of our website, along with a historical summary of other key metrics. Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. However, such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially. Lastly, I would also like to note that this quarter we completed the sale of our RF business to Maycom.
Greg: That we are heads down and focused on execution at this fab.
Greg: To give you a sense for the progress at Mohawk Valley.
Greg: So far we've qualified over a dozen customer parts.
Greg: Including two of our most complicated automotive devices as well as the largest device in Europe. We are currently producing at particularly.
Greg: This gives us more than enough qualified parts to achieve our 20% utilization goals and we expect to continue to qualify more parts between now and the end of June.
Greg: Further supporting the Mohawk Valley revenue ramp.
Greg: Additionally, we received our IAP automotive certification at Mohawk Valley.
Greg: Which is an industry standard to ship to Oems and tier ones.
Tyler D. Gronbach: The results of our RF business are classified as discontinued operations, and all discussions today will be on a continuing operations basis. During the Q&A session, we would ask that you limit yourself to one question 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.
Greg: As an important milestone and we are pleased to have achieved it on our first attempt.
Greg: On the material side of our operations and building 10, we've now installed all crystal growers necessary to achieve 20% utilization at the Mohawk Valley Fab by June of 2024.
Greg: Wafers out of building 10 are yielding very well.
Greg: We now have plenty of 200 millimeter capacity to achieve our 20% utilization target.
Tyler D. Gronbach: Thanks, Tyler, and good afternoon, everyone. As the world's only pure play vertically integrated silicon carbide company, Will Speed is leading the industry shift from silicon to silicon carbide across both materials and devices. Our focus remains on scaling operations at sector and executing on the long-term investment plan that we have in place. While there are still challenges ahead of us, we are proud of the strong progress we've made on our strategic initiatives over the past couple of quarters. Importantly, we're encouraged by the developments across key internal metrics. The Mohawk Valley Fab delivered improved performance and is on track to achieve 20% utilization in the June quarter. From a 200 millimeter substrate perspective, there is now ample runway to not only meet but exceed our original utilization target from Building 10 on the Durham campus, as we're consistently producing high quality, high yielding 200 millimeter wafers out of this facility.
Greg: In fact, the quality of the material and the current yield give us confidence that building time, we'll be able to support approximately 25% wafer start utilization at Mohawk Valley by the end of calendar 2024, well above our original expectations.
Greg: However, we'd still like to remind everyone that.
Greg: The ramp cadence at Mohawk Valley has not change based on this development and.
Greg: And to be clear the normal challenges of ramping a brand new 200 millimeter fab remain and we are well aware that this ramp will not be linear.
Greg: While we're pleased with the fab performance, our Mohawk Valley team continues to work on optimizing factory utilization and availability.
Greg: It is important to remember that this is the first time. These tools have processed 200 millimeter silicon carbide wafers.
Integration is a critical step as we ramp production.
Greg: Lastly, as it relates to our materials facility at the J P and Siler City, we will begin installing crystal growers in early February.
Tyler D. Gronbach: The additional flexibility will be important as we begin producing substrates in the latter half of this year at the J.P. Overall, I'm confident about our execution of our near-term operational goals and optimistic about our long-term financial prospects. Showing our unwavering focus on execution, the second quarter continued the solid momentum from the first quarter. We've said time and time again that all roads lead to Mohawk Valley, and this past quarter was no exception.
Greg: And we'd expect to begin qualifying furnaces.
The September quarter of this year.
Greg: All of the learnings with 200 millimeter crystal growth that building 10.
Greg: Better position us to hit the ground running in Charles City.
Greg: And we anticipate we will.
Greg: Production, starting by the end of calendar 2024.
Greg: And finally before I hand, the call over to Neil.
Neil: Like to share a few observations about the internal combustion engine to electric vehicle transition.
Gregg A. Lowe: That contributed approximately $12 million to our quarterly revenue, roughly triple last quarter's levels and at the midpoint of our guidance. I spent a lot of time at Mohawk Valley this past quarter, and witnessed the dedication of our team firsthand, who, along with our incredible tool suppliers, are working around the clock on tool optimization activities related to this first-of-its-kind grant. Wolfspeed, at its core, is an innovative company full of problem solvers.
Neil: The shift of course is well under way.
Neil: It's happening at a more modest pace than some had previously anticipated.
Neil: This really has no impact on our business outlook as we were still very early in the adoption phase of our silicon carbide devices across numerous car models that are being introduced to the market in the next few years.
Neil: Underscoring this is our strong design ins and design wins performance this quarter.
Neil: As a reminder, a design in represent business, we've been awarded and.
Gregg A. Lowe: And I'm very grateful to the entire team that we are heads down and focused on execution at this table. To give you a sense of the progress at Mohawk Valley. So far, we've qualified over a dozen customer parts, including two of our most complicated automotive devices as well as the largest device we are currently producing at the facility. This gives us more than enough qualified parts to achieve our 20% utilization goal, and we expect to continue to qualify more parts between now and the end of June, further supporting the Mohawk Valley revenue range. Additionally, we received our IATF automotive certification at Mohawk Valley, which is an industry standard to ship to OEMs and Tier 1.
Neil: And the conversion to design win happens when the customer places production orders.
Neil: 20% of the first year production volume.
Neil: In other words the design win indicate that the customer is beginning to ramp their production with our devices.
Neil: We achieved $2 $1 billion in designing this quarter, marking our third highest quarter on record, which clearly indicate continuing and growing robust demand for silicon carbide.
Neil: More importantly.
Neil: We posted a record of $2 $9 billion of design wins, which were heavily weighted towards Evs and included 28 different electric vehicle model.
Neil: This diverse customer base across the global electric vehicle industry with multiple Oems and tier ones.
Gregg A. Lowe: This is an important milestone, and we are pleased to have achieved it on our first attempt, on the material side of our operation. At Building 10, we've now installed all the crystal growers necessary to achieve 20% utilization at the Mohawk Valley fab by June of 2024. Wafers out of Building 10 are yielding very well, and we now have plenty of 200 millimeter capacity to achieve our 20 percent utilization target. In fact, the quality of the material and the current yields give us confidence that Building 10 will be able to support approximately 25 percent wafer start utilization at Mohawk Valley by the end of calendar 2024, well above our original expectations. However, we'd still like to remind everyone that the ramp cadence at Mohawk Valley has not changed based on this development.
Neil: US confidence to continue with our expansion plan and further illustrates why we believe our supply will be continuing to work to catch up with demand over the next few years.
And these design wins are just the beginning.
Neil: Over the next five years based on our current design and the number of Evs leveraging will speed devices.
Neil: We will increase to nearly a 120 different models across 30 different Oems.
Neil: This represents a significant growth on the small number of vehicles on the road using our silicon carbide devices to date and demonstrates.
Neil: The opportunity ahead for us.
As we continue to pioneer 200 millimeter silicon carbide and embark on our unprecedented greenfield capacity expansion plan.
Gregg A. Lowe: And to be clear, the normal challenges of ramping up a brand new 200mm fab remain, and we are well aware that this ramp will not be linear. While we're pleased with the fab performance, our Mohawk Valley team continues to work on optimizing factory tool utilization and availability. It's important to remember that this is the first time these tools have processed 200 millimeter silicon carbide wafers, and tool integration is a critical step as we ramp production. Lastly, as it relates to our materials facility at J.P. and Siler City, we will begin installing crystal growers in early February and would expect to begin qualifying furnaces in the September quarter of this year.
We maintain our conviction in our strategy.
Neil: It is exciting to see what it is on the horizon and we look forward to continuing this promising momentum, particularly at Mohawk Valley throughout the second half of this fiscal year and beyond.
Neil: I'll now turn it over to Neil who will provide an overview of our financial results and our outlook Neil.
Neil: Thanks, Craig before I jump into the financial results for the quarter I'd like to remind you all that during the second quarter, we completed the sale of our RF business to make up.
Neil: As such all results reported below will be on a continuing operations basis and exclude the impact of <unk> in our results.
Neil: We're very pleased that during the second quarter revenue gross margins and EPS all came in at the high end of our stated guidance range for the second straight quarter, we generated revenue of $208 million for the quarter.
Gregg A. Lowe: All the learnings with 200 millimeter crystal growth at Building 10 will better position us to hit the ground running in Shilor City, and we anticipate full production starting by the end of calendar 2024. And finally, before I hand the call over to Neill, I'd like to share a few observations about the internal combustion engine to electric vehicle transition. The shift, of course, is well underway, but it's happening at a more modest pace than some had previously anticipated.
Neil: Five 6% increase sequentially and a nearly 20% increase year over year.
Neil: During the quarter, we generated record power revenue of $108 million driven largely by the $12 million of contribution for Mohawk Valley and strong demand, we see for our products.
Neil: Looking at the power device revenue performance in more depth, we saw a sharp increase in revenue quarter over quarter fueled by the additional <unk> device products shipping out of Mohawk Valley.
Gregg A. Lowe: This really has no impact on our business outlook, as we are still very early in the adoption phase of our silicon carbide devices across numerous car models that are being introduced to the market in the next two years. Underscoring this is our strong design-ins and design-win performance this quarter. As a reminder, a design-in represents business we've been awarded.
Neil: However, this was partially offset by lower demand and persistent weakness in our industrial and energy markets, particularly in China and across Asia.
Neil: We had yet another solid revenue performance for materials above our guidance expectation.
Neil: <unk> benefited from an additional week of product shipments compared to the prior quarter and prior year, but also from continued strong manufacturing execution, resulting in approximately 29% growth versus prior year.
Gregg A. Lowe: And the conversion to design win happens when the customer places production orders for 20% of the first year production volume. In other words, the design win indicates that the customer is beginning to ramp their production with our device. We achieved $2.1 billion in design wins this quarter, marking our third highest quarter on record, which clearly indicates continuing and growing robust demand for silicon carbide.
Neil: non-GAAP gross margin in the second quarter was 16, 4%, representing an 80 basis point improvement from the prior quarter driven by increased revenues from Ohio Valley and solid execution in our materials business. Our gross margin includes a $35 6 million or approximately 1700 <unk>.
Neil: Points of Underutilization cost related to the ramp up Mohawk Valley in the second quarter.
Gregg A. Lowe: We posted a record of $2.9 billion in design wins, which were heavily weighted towards EVs and included 28 different electric vehicle models. This diverse customer base across the global electric vehicle industry, with multiple OEMs and Tier 1s, gives us confidence to continue with our expansion plans and further illustrates why we believe our supply will be continuing to work to catch up with demand over the next few years. And these design wins are just the beginning. Over the next five years, based on our current design ends, the number of EVs leveraging will speed devices will increase to nearly 120 different models across 30 different OEMs. This represents a significant growth on the small number of vehicles on the road using our silicon carbide devices today and demonstrates the opportunity ahead for us.
Neil: As a result of the gross margin improvement as well as tighter cost controls and higher interest income our non-GAAP EPS of negative <unk> 55.
Past our guidance.
In addition to the Underutilization cost mentioned above also includes the impact of $10 $5 million of factory startup costs related to the construction of the GP and our materials expansion efforts.
Neil: Before I get into guidance a quick update on our balance sheet. We ended the quarter with over two 6 billion of cash and liquidity on hand to support our ramp and growth plans.
Neil: If I could draw down the remaining $1 billion related to our Renaissance supply agreement in the first half of this year, which will build our cash position.
Neil: <unk> was 43 days, while inventory days on hand was 190 93.
Neil: Free cash flow during the quarter was negative $755 million comprised of $183 million of negative operating cash flow and 572 million of capital expenditures.
Gregg A. Lowe: As we continue to pioneer 200 millimeter silicon carbide and embark on our unprecedented greenfield capacity expansion plan, we maintain conviction in our strategy. It is exciting to see what is on the horizon, and we look forward to continuing this promising momentum, particularly at Mohawk Valley, throughout the second half of this fiscal year and beyond. I'll now turn it over to Neill, who will provide an overview of our financial results and our outlook. Neil.
Neil: As it relates to funding plan, given our strong cash and liquidity position. Our current focus is on government funding to further support our capacity expansion plans.
Neil: Continue to have constructive discussions and correspondence with government authorities, including U S Chips Act officials.
Neil: We're on track with all necessary incentive considerations and are targeting to have our full applications complete within this quarter.
Neil: As always we will continue to seek out ways to manage and optimize our balance sheet and capital structure.
Neill Reynolds: Thanks, Craig. Before I jump into the financial results for the quarter, I'd like to remind you all that during the second quarter, we completed the sale of our RF business in ACOP. As such, all results reported below will be on a continuing operations basis and exclude the impact of RF in our results. We're very pleased that during the second quarter, revenue, gross margins, and ETS all came in at the high end of our stated guidance ranges for the second straight quarter. We generated revenue of 208 million for the quarter, a 5.6% increase sequentially, and a nearly 20% increase year over year. During the quarter, we generated record power revenue of $108 million, given largely by the $12 million contribution from Mohawk Valley and the strong demand we see for our product. Looking at the power device revenue performance in more depth, we saw a sharp increase in EV revenue quarter over quarter, fueled by the additional EV device products shipping out of Mohawk Valley. However, this was partially offset by lower demand and persistent weakness in our industrial and energy markets, particularly in China and across Asia.
Neil: Moving on to our guidance for the third quarter, we target revenue from continuing operations of $185 million to $215 million with a midpoint of $200 million.
Speaker Change: I think it would be helpful to break down the $200 million revenue midpoint guidance for modeling purposes.
Speaker Change: Revenue for power prices at the midpoint of our guidance will be relatively flat as increases in EDI revenue supported by additional output for Mohawk Valley will largely be offset by lower industrial and energy revenue.
Speaker Change: Revenue from materials will be at our previously stated capacity range of $90 million to $95 million down from $101 million in the prior quarter of.
Speaker Change: As stated earlier in Q2 materials revenue benefited from an additional week of shipment in combination with strong operating execution on <unk>.
Speaker Change: <unk> is now balanced and that capacity. Therefore, we anticipate this being a materials capacity capabilities for the immediate future.
Speaker Change: This data guidance would result in revenue growth in both power devices and material year over year.
Speaker Change: We are targeting $20 million to $30 million of revenue to come from Mohawk Valley next quarter, approximately doubling revenue at the midpoint. This.
Neill Reynolds: We had yet another solid revenue performance for materials, above our guidance expectations. Materials benefited from an additional week of product shipments compared to the prior quarter and prior year, but also from continued strong manufacturing execution, resulting in approximately 29% growth versus the prior year. Non-Gap Gross Margin in the second quarter was 16.4%, representing an 80 basis point improvement from the prior quarter, driven by increased revenues from Mohawk Valley and solid execution in our material system. Our gross margin includes $35.6 million, or approximately 1,700 basis points of underutilization costs related to the ramp-up of Mohawk Valley in the second quarter. As a result of the gross margin improvement, as well as tighter cost controls and higher interest income, our non-GAAP EPS of negative $0.55 surpassed our guidance. E.P.S.
Speaker Change: This will largely offset the decrease in revenue coming from the Durham, fab, which generate approximately $90 million to $100 million of quarterly revenue.
Speaker Change: We'll be below that range this quarter due to the continued softness and uncertainty in the industrial energy markets in China and across Asia.
Speaker Change: Impacts from the industrial and energy softness is expected to be persistent.
Speaker Change: At least until the second half of this calendar year, but as we said last quarter much of the product we slated to ship there hasnt match elsewhere in our pipeline and we continue to work through that inventory now.
Speaker Change: Continuing with our Q3 guidance, we target non-GAAP gross margin of 13% to 20% with a midpoint of 16, 5%.
Speaker Change: Driven by greater contribution from Mohawk Valley at.
Speaker Change: At the midpoint this includes $36 million or 1800 basis points of Underutilization related to the Mohawk Valley Fab.
We target non-GAAP operating expenses of approximately $109 million inclusive of $13 million of startup costs, primarily related to the JP.
Neill Reynolds: In addition to the underutilization costs mentioned above, also include the impact of $10.5 million of factory startup costs related to the construction of the JP and our materials expansion efforts. Before I get into guidance, a quick update on our balance sheet. We ended the quarter with over $2.6 billion of cash and liquidity on hand to support our ramp and growth. We expect to draw down the remaining $1 billion related to our Renaissance Supply Agreement in the first half of this year, which will build our cash position. DSL was 43 days, while inventory days on hand were 199. Free cash flow during the quarter was negative $755 million, comprised of $183 million of negative operating cash flow and $572 million of capital expenditures.
Speaker Change: We target Q3, net non operating expense of approximately $27 million.
Speaker Change: As I have mentioned previously we expect non operating expenses to increase as the year progresses as we earn less interest income on our short term investments in connection with our U S capacity expansion plan.
Speaker Change: We target Q3, non-GAAP net loss to be between $87 million and $71 million. Our Q3 targets are based on several factors that could affect them significantly including supply chain dynamic overall demand product mix factory productivity and the competitive environment.
Speaker Change: Before I hand, the call back to Gregg for closing remarks, I would like to remind you of a few data points pertaining to our facility ramps that may help with your modeling.
Neill Reynolds: As relates to funding plans, given our strong cash and liquidity position, our current focus is on government funding to further support our capacity expansion. We continue to have constructive discussions and correspondence with government authorities, including U.S. CHIPS Act officials. We are on track with all necessary incentive considerations and are targeting to have our full applications complete within this quarter. As always, we will continue to seek out ways to manage and optimize our balance sheet and capital structure. Moving on to our guidance for the third quarter, we target revenue from continuing operations of $185 million to $215 million, with a midpoint of $200 million. I think it would be helpful to break down the $200 million revenue midpoint guidance for modeling purposes. Revenue for power devices at the midpoint of our guidance will be relatively flat, as increases in EV revenue supported by additional output for Mohawk Valley will largely be offset by lower industrial and energy revenue. Revenue from materials will be at our previously stated capacity range of $90 to $95 million, down from $101 million in the prior quarter.
First while we are on track for 20% utilization Mohawk Valley Fab at the end of the June quarter, the full revenue benefit of $100 million per quarter from that 20% utilization level will be realized in the December quarter.
As we have said there was roughly a two quarter lag, we can remove restart and revenue contribution in.
Speaker Change: In addition, as Mohawk Valley Fab utilization increases.
Speaker Change: Heart to see incrementally less underutilization, however, as J P moves towards being ready for production you will see incrementally more startup call, which hit different lines in our P&L.
Speaker Change: Once the JP phase one construction is complete those startup costs will come down and we will start to incur underutilization cost at the J P.
Speaker Change: Or to what has occurred at Mohawk Valley.
Speaker Change: Now I'll turn it back over to Greg.
Greg: Thanks Neil.
Greg: While we remain confident there is a significant and long term demand for our products. We also understand that the silicon carbide marketplace will continue to evolve for the next several years.
Greg: During transformative industry shifts there will always be many twists and turns.
Neill Reynolds: As stated earlier, in Q2, materials revenue benefited from an additional week of shipment in combination with strong operating execution. Production is now balanced and at capacity. Therefore, we anticipate this being a material capacity capability for the immediate future. This data guidance would result in revenue growth in both power devices and materials year over year. We are targeting $20 million to $30 million of revenue to come from Mohawk Valley next quarter, approximately doubling revenue at the midpoint. This will largely offset the decrease in revenue coming from the Durham job, which generates approximately $90 to $100 million of quarterly revenue but will be below that range this quarter due to the continued softness and uncertainty in the industrial energy markets in China and across Asia. The impact from the industrial and energy softens is expected to be persistent.
Greg: We believe we are uniquely positioned to leverage the deep domain expertise, we have compiled over the last several decades into a clear advantage.
Greg: Today, we are the world's largest producer.
Greg: Silicon carbide material.
Greg: We have long term supply agreements with the major power device producers from around the globe.
Greg: For those customers signed an initial agreement with us several years ago.
Greg: Then expanded those agreements a few years ago.
Greg: And expanded once again more recently.
Greg: Two of which happened in the last 90 days.
Greg: And its demonstrated ability to service and grow the silicon carbide materials market for the last couple of years didn't go unnoticed.
Greg: As we secured what I believe to be is the largest capacity reservation deposit.
Neill Reynolds: At least until the second half of this calendar year, but as we said last quarter, much of the product we plated to ship there has a match elsewhere in our pipeline, and we continue to work through that inventory now. Continuing with our Q3 guidance, we target non-gap gross margins of 13% to 20% with a midpoint of 16.5%, driven by greater contribution from Mohawk Valley. At the midpoint, this includes 36 million or 1,800 basis points of underutilization related to the Mohawk Valley Facts.
Greg: And the history of semiconductors.
Greg: The 2 billion dollar agreement with Renesas to supply 150 millimeter and 200 millimeter substrates beginning in 2025.
Greg: We know from the more than 30 years of experience of working with this material that the significant ramp required to create high quality materials.
Greg: Distantly at scale.
Greg: US a competitive advantage today and for the foreseeable future, especially as we begin producing 200 millimeter at the J P.
Neill Reynolds: We target non-GAAP operating expenses of approximately $109 million, inclusive of $13 million of startup costs primarily related to JP. We target Q3 net non-operating expense of approximately $27 million. As I have mentioned previously, we expect non-operating expenses to increase as the year progresses, as we earn less interest income on our short-term investments in connection with our U.S. capacity expansion. The target Q3 non-GAAP net loss is expected to be between $87 million and $71 million.
Greg: The demand for Silicon carbide remains significant.
Greg: Scored by the two recent announced expansion into long term supply agreements with existing customers.
Greg: We expect to remain an important partner to other silicon carbide device manufacturers through.
Greg: Through the end of this decade.
Greg: And we believe our leadership in materials provides a strong foundation for us to continue to grow our device signals.
Neill Reynolds: Q3 targets are based on several factors that could affect them significantly, including supply chain dynamics, overall demand, product mix, factory productivity, and the competitive environment. Before I hand the call back to Gregg for closing remarks, I would like to remind you of a few data points pertaining to our facility ramps that may help with your modeling. First, while we are on track for 20% utilization of Mohawk Valley by the end of the June quarter, the full revenue benefit of $100 million per quarter from that 20% utilization level would be realized in the December quarter. As we have said, there is roughly a two-quarter lag between paper starts and revenue contribution.
Greg: We're working closely.
Greg: Across a diverse set of customers, which gives us good visibility.
Greg: And two how the markets are evolving and where we can capitalize on the opportunity.
Being the leader in Silicon carbide.
Greg: Truly <unk>.
Greg: Transformative technology.
Greg: There is no easy task and we are executing on this opportunity with efficiency.
Greg: Purposeful.
Greg: And thoughtfulness.
Greg: We look forward to bringing this vision into reality and generating long term value for all stakeholders.
Speaker Change: I'll now turn it back to the operator <unk>.
Absolutely we will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your Touchtone keypad.
Neill Reynolds: In addition, as Mohawk Valley FAS utilization increases, you'll start to see incrementally less underutilization. However, as the J.P. moves towards being ready for production, we will see incrementally more startup calls, which hit different lines on our P&L. Once the JP Phase 1 construction is complete, those startup costs will come down, and we will start to incur underutilization costs at the JP, similar to what has occurred at Mohawk Valley. Now, I'll turn it back over to Gregg.
Speaker Change: Any reason you would like to remove that question. Please press star followed by two.
Again to ask a question press star one.
Speaker Change: As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question, we will pause briefly to allow questions to generate in the queue.
Speaker Change: The first question is from the line of Brian Lee with Goldman Sachs. You May proceed.
Gregg A. Lowe: Thanks, Neil. While we remain confident there is a significant and long-term demand for our products, we also understand that the silicon carbide marketplace will continue to evolve for the next several years. During transformative industry shifts, there will always be many twists and turns. We believe we are uniquely positioned to leverage the deep domain expertise we have compiled over the last several decades into a clear advantage. Today, we are the world's largest producer of silicon carbide material.
Speaker Change: Yeah.
Brian Lee: Hey, guys. Good afternoon, thanks for taking the questions.
Brian Lee: I know you get asked this every quarter, but it sounds like.
Brian Lee: The tone of confidence.
Brian Lee: Sort of data points, you're throwing out there Greg.
Brian Lee: As positive sounding as we heard about the internal operational.
Brian Lee: So given building 10.
Speaker Change: It seems like Youre ahead of plan and what is the potential for Mohawk to maybe pull ahead in the ramp to 20% I know you are super confident in being able to hit it but how do you potentially see upside to any of these medium term targets I think you've talked about $100 million of revenue from that facility by the December quarter. So are there still internal.
Gregg A. Lowe: We have long-term supply agreements with the major power device producers from around the globe. Those customers signed an initial agreement with us several years ago, then expanded those agreements a few years ago, and expanded once again more recently, two of which happened in the last 90 days. And this demonstrated ability to service and grow the silicon carbide materials market for the last couple years didn't go unnoticed. As we secured what I believe to be the largest capacity reservation deposit in the history of semiconductors, the $2 billion agreement with Renesas to supply 150mm and 200mm substrates beginning in 2025. We know from the more than 30 years of experience working with this material that the significant ramp required to create high-quality materials consistently at scale gives us a competitive advantage today and for the foreseeable future, especially as we begin producing 200 millimeters at JP. The demand for silicon carbide remains significant, underscored by the two recent announced expansions of long-term supply agreements with existing customers.
Speaker Change: Operationally keeping you from accelerating our.
Speaker Change: Customer eval issue just wondering as you think about the upstream sort of not being as much eliminating factor how you could potentially maybe translate that to moving Mohawk valley, a little bit faster. Thanks, guys. Yeah. Thanks.
Speaker Change: Thanks, a lot Brian So first off the team has done the team up in Mohawk Valley combined with.
Speaker Change: Several teams from from Durham that have gone up the Mohawk Valley has done an incredible job of relieving diamondbacks and fine tuning the processes et cetera. So.
Very pleased with the progress, we're making still have a lot to do but obviously tripling the revenue and then doubling it again next quarter is fantastic, we feel great about where we're at with building ton, obviously now having an ability to to support.
Later ramp of 25%.
Speaker Change: As fantastic as well, but as I said in our prepared remarks, we're going to keep the pace of the fab itself.
Speaker Change: At the pace of 20% utilization in the June quarter $100 million of revenue in the December quarter, we feel real good about that.
Speaker Change: But again from a.
Speaker Change: Longer term perspective, the ability to get more out of <unk>.
Speaker Change: Out of the facilities on the Durham campus in terms of supplying Mohawk Valley.
Gregg A. Lowe: We expect to remain an important partner to other silicon carbide device manufacturers through the end of this decade, and we believe our leadership and materials provide a strong foundation for us to continue to grow our business. We're working closely with a diverse set of customers, which gives us good visibility into how the markets are evolving and where we can capitalize on the opportunity to be the leader in silicon carbide, a truly transformative technology. There's no easy task, and we are executing on this opportunity with efficiency, purposefulness, and thoughtfulness. We look forward to bringing this vision into reality and generating long-term value for all stakeholders. Now, I'll turn it back to the operator, Corky and I. Absolutely. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your touchtone keypad.
Speaker Change: It gives us really good confidence in being able to take that number up higher out in time.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of semi <unk> with Jpmorgan you May proceed.
Semi: Hi, Thanks for taking my question I guess.
Semi: Greg You you did mentioned the design in pipeline, which continues to remain quite robust on the EV front.
Semi: I was just wondering I mean, what are you seeing change in terms of conversion of design ins design wins, obviously with the.
Semi: The design and picking up in peace and potentially the launch of these sort of vehicles also coming more closer are you seeing a bit of any changes in the conversion rates of these design and Stu.
Semi: Design wins eventually.
Semi: Just any color you can share would be helpful and I have a quick follow up to that thank you.
Speaker Change: Sure. Good question. So this past quarter, we had a record conversion of $2 $9 billion to design win that represented as I mentioned, there's 28 different unique electric vehicle models that are in there and a whole bunch of other product.
Operator: If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We'll pause here briefly to allow questions to generate in the queue. The first question is from the line of Brian Lee with Goldman Sachs. You may proceed. Hey guys, good afternoon.
Speaker Change: Product as well, including <unk>.
Speaker Change: Of industrial and energy applications.
Speaker Change: So we're really happy having been very quite frankly.
Speaker Change: The design win conversion, we just had as quite a stunning number of $2 $9 billion. So.
Speaker Change: Feel real good about that conversion and then the $2 $1 billion of design and gives us confidence that the customers are still very excited about our technology and our capability.
Brian Lee: Thanks for taking the questions. I know you get asked this every quarter, but it sounds like, you know, the tone, the confidence, you know, some of the data points you're throwing out there, Greg, are as positive sounding as we heard about, you know, the internal operations. So, you know, given building 10, it seems like you're ahead of schedule. What is the potential for Mohawk to maybe pull ahead in the ramp to 20%? I know you're super confident in being able to hit it, but how do you potentially see upside to any of these medium-term targets? You know, I think you've talked about 100 million dollars of revenue from that facility by the December quarter. So are there still, you know, internal bottlenecks operationally keeping you from accelerating?
Speaker Change: Thank you.
Speaker Change: The next question is from the line of dead door, Simon with William Blair You May proceed.
Simon: Hi, Thanks for taking my question I have one question and a follow up.
I guess for my question Greg.
Simon: If I look at today's announcement on the material agreement it's identical to.
Simon: Your December announcement that turned out to be.
Simon: So I'm wondering if you might be able to comment as I know that that customer wasn't named in the in the previous but you have since been able to comment on that and assuming that terms are are still the same and then I have a follow up question too.
Gregg A. Lowe: Or are there, you know, is it a customer evaluation issue? Just wondering, you know, as you think about the upstream sort of not being as much of a limiting factor, how you could potentially maybe translate that to moving, you know, Mohawk Valley a little bit faster. Thanks guys. Yeah, thanks a lot, Brian. So, you know, first off, the team up in Mohawk Valley combined with, you know, several teams from Durham that have gone up to Mohawk Valley. It's done an incredible job of relieving bottlenecks and fine-tuning the processes, et cetera. So, I'm very pleased with the progress we're making. We still have a lot to do, but, you know, obviously tripling the revenue and then doubling it again next quarter is fantastic.
Simon: Hey, Jed this is Tyler yes, yes, we can confirm that today's announcement the customer is around.
Simon: And your follow up.
Simon: Yes.
Speaker Change: Yes, sorry.
Tyler D. Gronbach: To add a couple of things we have had a great long term relationship with them.
Speaker Change: And.
Speaker Change: We're very excited about this partnership with them.
Speaker Change: Going forward, helping us convert the market to silicon carbide in the prepared remarks I did have one typo in there we had three long term agreements that had original agreements.
Gregg A. Lowe: We feel great about where we're at with building ten, and obviously now having an ability to support a greater ramp of twenty-five percent is fantastic as well. But as I said in prepared remarks, we're gonna keep the pace of the fab itself, you know, at the pace of, you know, twenty percent utilization into the June quarter, and we'll make a hundred million dollars of revenue in the December quarter. I feel real good about that.
Speaker Change: Extensions and then further extensions and this was one of those one of those.
Speaker Change: Great well congratulations my follow up question.
Speaker Change: Yes.
Speaker Change: Similar to what Brian ask you, but with a slight nuance. So if I look at what building 10 is is outputting in terms of wafer starts and what youre pulling down on that.
Gregg A. Lowe: But again, from a longer-term perspective, the ability to get more out of the facilities on the Durham campus in terms of supplying Mohawk Valley, you know, it gives us really good confidence and being able to take that number higher out in time. Thank you. The next question is from the line of Samik Chatterjee with J.P. Morgan. You may proceed.
Speaker Change: Mohawk Valley My calculation would be.
Speaker Change: You will have.
Speaker Change: Inventory of wafers over $200 million.
Speaker Change: By June assuming that the $25 million of midpoint in maybe a $50 to 60 or $55 million in June my estimates on on that so.
Speaker Change: My question is as you look through the rest of the year clearly that gives you some glide in terms of siler city ramp from a buffer perspective, but what are the.
Samik Chatterjee: Thanks for taking my question. I think, Gregg, you did mention the design-in pipeline, which continues to remain quite robust on the EV front. I was just wondering, I mean, what are you seeing in terms of the conversion of design-ins to design-wins? Obviously, with the design-ins picking up in pace and potentially the launch of these sort of vehicles also coming closer, are you seeing any changes in the conversion rates of these design-ins to design-wins eventually? And just any color that you can share will be helpful.
Speaker Change: Is it Missy kind of getting the second second of kind tools what are the gating factors as you think about.
Speaker Change: Moving around that utilization to debottleneck and capture either more or less.
Speaker Change: And back half of this year and next.
Missy: Yes, thanks for the question Chad.
Speaker Change: I'll kind of.
Missy: Talk first about my perspective on this and then hand it over to Neil So Youre exactly right that we are shipping out of.
Gregg A. Lowe: I have a quick follow-up to that. Thank you. Sure, good question. So this past quarter, we had a record conversion of $2.9 billion to design wind. That represented, as I mentioned, 28 different unique electric vehicle models that are in there and a whole bunch of other products as well, including a number of industrial and energy applications.
Neil: Out of the Durham facilities up to Mohawk Valley, and obviously, we have inventory building up there in anticipation of the ramp. So no question about that as we are.
Neil: Trying to get ahead of things. So that's actually good news and the way that we have the overhead track system and the storage up there it makes it perfect for that situation.
Gregg A. Lowe: So, we're really happy and very, quite frankly, the DesignWin conversion we just had is quite a stunning number of $2.9 billion, so I feel really good about that conversion. And then the $2.1 billion of DesignN gives us confidence that customers are still very excited about our technology and our capabilities. Thank you.
Neil: Number one probably the more important aspect as it relates to buffering for the J P is the ability to ship up to 25% right now are right now.
Neil: Very high competence to 25% utilization out of out of the Durham campus. So that obviously gives us.
It gives us really good confidence at this point in the fab itself about 75% of the tools.
Jed Dorsheimer: The next question is from the line of Jed Dorsheimer with William Blair. You may proceed. Hi, thanks for taking my question. I have one question and a follow-up.
Neil: Half second of a kind tools.
Neil: We anticipate that the vast majority of the tools will have second up a kind tools.
Neil: By the June quarter of this year, so that will help debottleneck things because tool.
Jed Dorsheimer: I guess for my question, Greg, you know, if I look at today's announcement on the material agreement, it's identical to your December announcement that turned out to be wrong. So I'm wondering if you might be able to comment as I know that that customer wasn't named in the previous announcement, but you've since been able to comment on that and assume that terms are still the same. And then I have a follow-up. Hey Jed, this is Tyler.
Neil: Tool goes down basically stopped production, if there's not a second of a kind tool.
Neil: That's kind of what's happening there.
Neil: Maybe I'll hand, it over to Neil if you want to add any additional color. Yes. So I think Jed what that means then is no real change to the outlook right now the key driver here as we just talked about is just ramping the revenue to $100 million.
By December quarter, coming out of Mohawk Valley, and clearly the inventory that we see coming out of the Durham and building 10.
Neil: Gives us.
Neil: Good.
Neil: Good strength and good confidence that we'll have.
Tyler D. Gronbach: Yes, we can confirm that for today's announcement, the customer is Rome. And your follow-up? And I just might add a couple of things. We have had a great long-term relationship with them, and, you know, we're very excited about this partnership with them, going forward, helping us convert the market to silicon carbide. In the prepared remarks, I did have one typo in there. We had three long-term agreements that had original agreements, extensions, and then further extensions, and this was one of those. Great. Well, congratulations.
Neil: And available and number of substrate to go drive that revenue through so it'll really be about.
Neil: How quickly can we.
Neil: Get that throughput through the fab and out to customers over that period now one other thing I'll mention is we also mentioned on the call here is what we should be able to see <unk> go from 20% to 25% equivalent utilization by December towards the end of the year. So what that means is we'll be able to go above the $100 million a quarter as you get out into kind of that March.
Neil: June 2025 timeframe, so and then when the J P starts making meaningful substrate deliveries.
Neil: Mohawk Valley, probably in the back half of calendar 'twenty five we should have a nice glide path of substrate to support us out through that period. So.
Gregg A. Lowe: My follow-up question is similar to what Brian asked you, but with a slight nuance. So if I look at what Building 10 is outputting in terms of wafer starts and what you're pulling down on that in Mohawk Valley, my calculation would be that you will have an inventory of wafers over $200 million by June, assuming that $25 million, a midpoint, and maybe $50 to $60 or $55 million in June. My estimates on that. So my question is, as you look through the rest of the year, clearly that gives you some glide in terms of the Siler City ramp from a buffer perspective. But what are the, is it MISI kind of getting the second of kind tools?
Neil: Yes.
Neil: We feel like obviously the demand continues to remain strong based on the customers.
Neil: With that we have in front of us.
And it really just be about ramping delivering substrates of the fab and continuing to drive productivity and output there.
Thank you. The next question is from the line of Gary Mobley with Wells Fargo. You May proceed.
Gary Mobley: Hey, guys. Thanks for taking my question.
Gary Mobley: I had just one multi part question.
Gary Mobley: I know most of the Kpis that you guys provide us on the device side, but.
In light of the three.
Gary Mobley: Look at the two year to date announcements on the weight materials.
Gary Mobley: <unk> and then as well with the Renaissance deal signed last year.
Jed Dorsheimer: What are the gating factors as you think about moving around that utilization to de-bottleneck and capture either more or less in backup this year and next? Yeah, thanks for the question, Jed. And I'll, you know, I'll kind of talk first about my perspective on this and then hand it over to Neill.
Gary Mobley: Give us a sense of the backlog or maybe the cumulative.
Gary Mobley: Value of.
Gary Mobley: <unk> for the materials side of the business and the reason I'm asking is I'm, just trying to get a sense of whether $95 million a quarter on the materials side of the business continues in perpetuity.
Gregg A. Lowe: So you're exactly right that we are shipping out of the Durham facilities up to Mohawk Valley, and obviously, we have inventory building up there in anticipation of the ramp. So no question about that as we're trying to get ahead of things.
Gary Mobley: And related to all this maybe if you can give us a sense of what the gross margins are like.
Gary Mobley: For these recent <unk> versus previous ones in light of maybe a more competitive environment out there. Thank you.
Speaker Change: Okay. Thanks, a lot so.
Speaker Change: Couple of things.
Gregg A. Lowe: And the way that we have the overhead track system and the storage up there, it makes it perfect for that situation. Number one, probably the more important aspect as it relates to buffering for the JP, is the ability to ship up to 25% right now. Right now, we have very high confidence in 25% utilization out of the Durham campus. So that obviously gives us really good confidence. At this point, in the fab itself, about 75% of the tools have second-of-a-kind tools, and we anticipate that the vast majority of the tools will have second-of-a-kind tools by the June quarter of this year. So that will help de-bottleneck things because if a tool goes down, it basically stops production if there's not a second-of-a-kind tool. So, that's kind of what's happening there. Maybe I'll hand it over to Neill if you want to add any additional color.
Speaker Change: And thanks for the question.
Speaker Change: The things we do have three.
Speaker Change: Customers under long term agreements that did original agreement extended and then extended again and.
Speaker Change: I don't know exactly what percentage of the of the number has been.
Speaker Change: Has been what the total number of those.
<unk>, sorry, I don't have that on me, but we've most recently extended those agreements with all three of them. So you can kind of think of it.
Speaker Change: We have quite a bit of.
Speaker Change: Runway in front of us so we don't get into details on that but you can kind of think about a half a decade.
Speaker Change: ZIP code.
Speaker Change: When we do these kind of extension if you will.
Speaker Change: With.
Speaker Change: With regards to $95 million, that's certainly going to be the near term target.
Speaker Change: That you should keep in mind.
Speaker Change: <unk> written that whether that will change when we start ramping.
Neill Reynolds: Yes. So, I think, Jed, what that means then is no real change to the, you know, the outlook right now. You know, the key driver here, as we just talked about, is this ramping up the revenue to $100 million by December quarter coming out of Mohawk Valley, and clearly, the inventory that we see coming out of Durham and Building 10, gives us, you know, good strength and good confidence that we'll have, you know, an available number of substrates to go, you know, drive that revenue through. So, it'll really be about, you know, how quickly Now, one other thing I'll mention, we also mentioned it on the call here, is that we should be able to see Durham go from 20 to 25 percent equivalent utilization by December or towards the end of the year.
Speaker Change: Deliveries of 200 millimeter.
Speaker Change: Straits to Renesas out of the JP that's when.
Speaker Change: The capacity expansion.
Speaker Change: Hips and pretty full screen.
Speaker Change: In terms of.
Speaker Change: In terms of demand for the product and.
Speaker Change: I would say gross margin a proxy for pricing.
Speaker Change: And for high quality wafers remains very very high.
We constantly have customers, saying they would like to get more for us this quarter and next quarter et cetera. So that's kind of a.
Normal type thing and I would say the pricing environment for.
Speaker Change: Sure.
Speaker Change: Quality substrates is very favorable for us.
Neill Reynolds: So, what that means is we'll be able to go above the $100 million a quarter as you get out into kind of that March, June 2025 timeframe. And then, when JP starts making meaningful substrate deliveries to Mohawk Valley, probably in the back half of calendar 25, we should have a nice glide path of substrates to support us through that period. So, we feel like, obviously, the demand continues to remain strong based on the customers that we have in front of us, and it'll really just be about ramping up, delivering substrates to the FAB and continuing to drive productivity and output there. Thank you.
Speaker Change: Yeah, Let me just add to that I think that from a margin perspective, I think what we've always said is really materials side. If you look at our long term goal of a 50% margin.
Speaker Change: For the overall business materials products are already in there and that kind of in kind of that ZIP code. So to speak so as you look out in time.
Agreements that were signing certainly support that are even more as you look out into as you look out into the future.
Speaker Change: Thank you.
The next question is a follow up from Tim Metallurgy with Jpmorgan you May proceed.
Tim Metallurgy: Hey, guys. Thanks for taking the follow up I guess my follow up was more on the industrial weakness that you're seeing and just trying to think about how to sort of extrapolate that to thinking about the June quarter as well you are indicating it takes you take a step down on power devices revenue relative to that industrial weakness that you're seeing but how are you thinking about.
Gary Mobley: The next question is from the line of Gary Mobley with Wells Fargo. You may proceed. Hey guys, thanks for taking my question. I had just one multi-port question, and I know most of the KPIs that you guys provide is on the device side, but in light of the three, well, the two year-to-date announcements on the weight and materials, you know, LTSAs, and then as well with the Renaissance deal signed last year, maybe you can give us a sense of the backlog or maybe the cumulative value of live LTSAs for the materials side of the business, and the reason I'm asking is I'm just trying to get a sense of whether, you know, $95 million a quarter on the materials side of the business, you know, continues in perpetuity, and related to all this, maybe if you can give us a sense of what the gross margins are like, you know, for these recent LTSAs versus previous ones in light of maybe a more competitive environment out there. Thank you. Okay, thanks a lot. So, a couple of things, and thanks for the question. You know, a couple of things.
Tim Metallurgy: How long that continues in terms of the weakness is there an incremental step down in relation to that weakness you're seeing based on your current visibility just trying to get a sense of.
Tim Metallurgy: Mohawk ramps, how do we think about sort of the offsets to that thank you.
Tim Metallurgy: Yeah. So first off industrial is definitely weak as we had mentioned last quarter as well and.
Speaker Change: It is mainly driven by Asia, and China, but its weak across Europe, and U S as well and it's hard to tell when things are going to get better but from a planning perspective, we're not anticipating if getting better. This year. This calendar year. So we're just assuming it's going to it's going to be where it's at.
Speaker Change: Now the industrial business is a really good business for us and it will come back and what we're doing in the meantime.
Speaker Change: We're ramping Mohawk Valley, which is.
Speaker Change: Most 100% targeted right now automotive customers. So we will be ramping Mohawk valley and driving that up we're converting as much as practical out of Durham to supply for the automotive customers as well, but we are limited on the Durham footprint from that perspective.
Gregg A. Lowe: We do have three customers under long-term agreements that had the original agreements extended and then extended again. And I don't know exactly what percentage of the number has been, has been, what the total number of those expansions are. I don't have that on me.
Gregg A. Lowe: But we've most recently extended those agreements with all three of them. So, you can kind of think of it like that. We have quite a bit of runway in front of us. We don't get into the details on that, but you can kind of think about a half-decade is kind of the zip code when we would do these kind of extensions, if you will. With regard to $95 million, that's certainly going to be the near-term target that you should keep in mind. Where that will change is when we start ramping the deliveries of 200 millimeter substrates to Renesas out of it. That's when, you know, the capacity expansion, um, hips, and pretty full. In terms of... In terms of demand for the product, and, You know, I would say gross margin is a proxy for pricing.
Speaker Change: But the good news is eventually and we've all seen the movie the industrial business will pick back up and when it does pick back up we will largely be an automotive outfit out of Mohawk Valley, and giving US room, then the Durham facility to continue ramping when the industrial business picks back up and again.
We've gotten a lot of design ins and a lot of design wins there. It will come back up that's great business for us, we'd love to customers in that space and we'll have ability out of.
Speaker Change: Out of the term facilities to handle that.
Speaker Change: So Mike Let me, let me just try and help out here from a modeling perspective, a little bit. If you go look at just the <unk> revenue, we saw about a 30% increase in the EV related device kind of revenue, we will see that again in <unk>, but that'll be offset by weaker.
Speaker Change: Weaker industrial energy revenue you can think about about 15% decline <unk> going into <unk> kind of at the midpoint. So from a modeling perspective, when we think about the Durham revenue, which is primarily industrial and energy revenue. The capacity. We've talked about is about $90 million to $100 million a quarter now that's going to be lower than that kind of moving forward you can think about.
Gregg A. Lowe: The demand for high-quality wafers remains very, very high. We constantly have customers saying they would like to get more for us this quarter, next quarter, etc. So that's kind of a normal thing.
80% to $85 million of Durham based.
Speaker Change: Our device revenue coming out over the next several quarters. So if you put all of those pieces together, we've talked about for modeling purposes materials being in that kind of 90% to $95 million range per quarter.
Neill Reynolds: And I would say the pricing environment for... Quality Substrate is very favorable. Yeah, let me just add to that. I think that from a margin perspective, I think what we've always said is from the materials side, you look at a long-term goal, 50% margin for the overall business, materials products are already in there in that kind of in that zip code, so to speak. So as you look out in time, you have these new agreements that we're signing, that certainly support that or even more, as you look out into the future. Thank you.
<unk> as I, just said in that kind of $80 million to $85 million range as long as the industrial.
And energy revenue continues to remain down at those levels again, as Greg said it could come back at some point likely will.
Speaker Change: But all of the growth essentially in the immediate term is really going to be for Mohawk Valley. So what you can think of as kind of flattish on materials flattish on the Durham output from a device perspective and growth from the $25 million or so midpoint, we just saw.
Speaker Change: And the guidance we gave for <unk>.
Above that point as you move out into the future and towards $100 million in the December quarter. So that's kind of the way to think about it over the next few quarters.
Samik Chatterjee: The next question is a follow-up from Samik Chatterjee with J.P. Morgan. You may proceed. Hey guys, thanks for taking the follow-up. I guess my follow-up was more on the industrial weakness that you're seeing and just trying to think about how to sort of extrapolate that to think about the June quarter as well. You are indicating that you take a step down on power device revenue relative to that industrial weakness that you're seeing, but how are you thinking about how long that continues in terms of the weakness? Is there an incremental step down in relation to that weakness you're seeing based on your current visibility? Just trying to get a sense of what as Mohawk Rams, how do we think about sort of the offsets to that?
Speaker Change: Thank you.
Speaker Change: Next question is from the line of harsh Kumar with Piper Sandler you May proceed.
Harsh V. Kumar: Yeah, Hey, guys. Thanks for letting me ask the question I actually had two one for Aneel and one for Greg Greg The first one for you.
Harsh V. Kumar: Just from a lot of customers where people say, okay. You know mark is just getting going and it's going to be really good. But then you also sort of tied to a German fab and that would be in other projects that you would take on so I wanted to understand your level of commitment to getting into the German facility.
Gregg A. Lowe: Yeah, so you know, first off, industrial production is definitely weak, as we mentioned last quarter as well, and it is mainly driven by Asia and China, but it's weak across Europe and the US as well.
Harsh V. Kumar: Do you still ramping Mohawk and then Neil I'll. Just go ahead and ask you My question as well I wanted to understand the difference in cost the underutilization costs from Mohawk Valley relative to the size of the.
Harsh V. Kumar: JP Siler city costs.
Gregg A. Lowe: And it's hard to tell when things are gonna get better, but from a planning perspective, we're not anticipating it getting better this year, this calendar year. So we're just assuming it's gonna be where it is. Now, the industrial business is a really good business for us, and it will come back. And what we're doing in the meantime is ramping up Mohawk Valley, which is almost 100% targeted right now at automotive customers. So we will be ramping up Mohawk Valley and driving that up. We're converting as much as practical out of Durham to supply for the automotive customers as well, but we are limited in the Durham footprint from that perspective. But the good news is, eventually, and we've all seen the movie, the industrial business will pick back up.
Harsh V. Kumar: For startup and so is it not saying for me to think that the deal would come out a little bit ahead as you get closer to the September December timeframe, because the underutilization costs are significantly more than perhaps the startup costs that.
Speaker Change: Siler City JV.
Speaker Change: Yes sure. Thanks for the further question. We have received initial notification of funding for the FTC process in Europe for the for the Fab in Germany. There is still a considerable amount of work to be done before we began construction and that includes our European chipsets application approval, there's a regulatory filing.
Speaker Change: Around the world permitting a whole bunch of different things that need to happen. So I wouldn't anticipate that we would begin construction of that fab until calendar 2025.
Speaker Change: So.
Gregg A. Lowe: And when it does pick back up, we will largely be an automotive outfit out of Mohawk Valley, giving us room then in the Durham facility to continue ramping when the industrial business picks back up. And again, we've gotten a lot of design ins and a lot of design wins there. It will come back up.
Speaker Change: And between now and then our full focus is on Mohawk valley ramping that fab.
Speaker Change: I was up at the Fab several times last quarter I'll be up there again next week.
Speaker Change: And.
Speaker Change: We've got we certainly have my full attention.
Neill Reynolds: That's great business for us. We love the customers in that space, and we'll have the ability out of the Durham facilities to handle that. Yeah, and Samik, let me just try and help out here from a modeling perspective a little bit.
Speaker Change: Whole organization's attention on doing everything we can to ensure we have a great ramp of that fab I would note a couple of other things just real quickly before I turn it over to Neil we had talked about a dozen or so parts that are qualified.
Neill Reynolds: If you look at just the 2Q revenue, we saw about a 30% increase in the EV related device kind of revenue. We'll see that again in 3Q, but that'll be offset by weaker industrial energy revenue. You can think about a 15% decline 2Q going into 3Q kind of at the midpoint. So from a modeling perspective, when we think about the Durham revenue, which is primarily industrial and energy revenue, the capacity we've talked about is about 90 to 100 million a quarter. Now that's gonna be lower than the kind of moving forward.
Speaker Change: I'll hop valley, including our biggest parts on what's complicated parts and so forth.
Speaker Change: The other thing to realize is all of these MOSFET.
Speaker Change: Just talked about qualifying they qualified first pass.
Speaker Change: And that is not normal.
Speaker Change: You normally find something some problem or qualify with an asterisk, saying youre going to put some kind of.
Speaker Change: Something in place to kind of make sure that the.
Speaker Change: Quality.
Speaker Change: We can only ship quality products to customers. We qualified first pass on all of those parts and I think that gives us a huge boost our confidence in the underlying capability of this factory.
Neill Reynolds: You can think about 80 to 85 million dollars of Durham-based power device revenue coming out over the next several quarters. So if you put all of those pieces together, we talked about for modeling purposes, materials being in that kind of 90 to 95 million range per quarter, and the Durham fab, as I just said, in that kind of 80 to 85 million range, as long as industrial and energy revenue continues to remain down at those levels. Again, as Greg said, it could come back at some point and likely will.
Speaker Change: Yes, so harsh maybe it's important just to break down the gross margin a little bit and some of the markers that we've had out there and kind of maybe just give you a little bit of kind of my view in terms of what that means from an underutilization perspective. So we had a good quarter from a gross margin perspective.
Speaker Change: Above the midpoint of our guidance range.
Speaker Change: We've also seen strong underlying gross margin improvement excluding the underutilization over the last couple of quarters and in fact, if you go back to the June quarter until the guidance. We just gave here in Q3, we've seen approximately 400 basis points of improvement of margin.
Neill Reynolds: But all of the growth, essentially in the immediate term, is really gonna be for Mohawk Valley. So what you can think of is kind of flattish on materials, flattish on the Durham output from a device perspective, and then growth from the 25 million or so midpoint we just saw in the guidance we gave for 3Q growing above that point as you move out into the future and towards 100 million in the December quarter. So that's kind of the way I think about it over the next few quarters. Thank you. The next question is from the line of Harsh Kumar with Piper Sandler.
Speaker Change: Three quarters on an underlying basis.
Speaker Change: Addition to that I think we've seen the cost in the 200 millimeter substrate the yields on those as well as the initial cost and Mohawk Valley on a unit basis.
Speaker Change: It'd be very much in line with what we had anticipated. So we've always said the more revenue we pushed through Mohawk Valley.
Speaker Change: We will see a faster, we'll see that kind of that some of that gross margin execution now as <unk> said previously there on the underutilization that will be a little bit of a drag for us we talked about $36 million last quarter Mohawk Valley would be flattish in and get up to a peak of about $38 million as you get into Q4. So what that will mean is we kind of put a marker out there of about a <unk>.
Harsh V. Kumar: You may proceed. Yeah, hey guys, thanks for letting me ask the question. I actually had two, one for Neill and one for Gregg.
Gregg A. Lowe: Gregg, the first one for you, we get this from a lot of customers where people say, okay, you know, Mohawk is just getting going, and it's going to be really good, but then you are also sort of tied to a German fab, and that would be another project that you would take on. So I wanted to understand your level of commitment to getting into the German facility while you're still ramping up Mohawk. And then, Neill, I'll just go ahead and ask you my question as well. I wanted to understand the difference in cost, the underutilization cost, from Mohawk Valley relative to the J.P. Silas City cost for start-up. And so is it not fair for me to think that you would come out a little bit ahead as you get closer to the September-December timeframe because the underutilization costs are significantly more than perhaps the start-up costs at Shiloh City, JP? Yeah, Harsh, thanks for the question.
Speaker Change: One 2% gross margin are approaching that and kind of the Q4 timeframe. You can think about that in the kind of mid to high teens, probably exiting the year and then back.
Speaker Change: Maybe pushing out the 20% or so out a quarter or so as we look out in time. So what that means is yes, we will start to see the under utilization kind of peak out there in the Q4 period start to come down a bit but just a reminder.
Speaker Change: <unk> cost you mentioned in Syler city.
Speaker Change: Those are currently on the Opex line about $10 million last quarter that will probably grow to about $15 million as we exit the year.
Speaker Change: Siler City goes into production probably in the second half of.
Speaker Change: Fiscal 'twenty five that kind of first half of calendar 'twenty five we'll see those transition from Underutilization. After the gross margin line. So a few moving pieces there to think about as I mentioned in her prepared remarks, but the key here is underlying that we are seeing very strong performance and anticipate seeing that strong performance continue as we drive more volume through the scale facilities that were.
Gregg A. Lowe: We have received initial notification of funding for the IPSE process in Europe for the fab in Germany. There's still a considerable amount of work to be done before we begin construction, and that includes our European chip application approval. There are regulatory filings around the world permitting a whole bunch of different things that need to happen.
Speaker Change: Building.
Speaker Change: Thank you. The next question is from the line of Jack Egan with charter equity Research you May proceed.
Gregg A. Lowe: So I wouldn't anticipate that we would begin construction of that fab until calendar 2025. So in between now and then, our full focus is on Mohawk Valley, ramping that fab. You know, I was up at the fab several times last quarter.
Jack Egan: Hey, guys. Thanks for taking my question I just had one.
I was curious why it didn't either of the recent LTA signed with Infineon Rome Infineon in Rome.
Jack Egan: <unk> 200 millimeter because we've seen some other companies.
Gregg A. Lowe: I'll be up there again next week. And, you know, we certainly have my full attention, but the whole organization's attention, on doing everything we can to ensure we have a great ramp for that fab. I would note a couple other things just really quickly before I turn it over to Neill. We talked about a dozen or so parts that have qualified, you know, out of Mohawk Valley, including our biggest parts, our most complicated parts, you know, and so forth. The other thing to realize is all of these MOSFETs that I just talked about qualifying, they qualify first pass, and that is not normal. You know, you normally find something, some problem, or you qualify with an asterisk saying you're going to put some kind of..., you know, something in place to kind of make sure that the quality, that we only ship quality products to customers. We qualified first pass on all those parts.
Jack Egan: Some wafer deals that have included 200 millimeter, even if it's just a general long term aspiration to eventually move to 200.
Jack Egan: So I mean, one of the J P. At least eventually would give you some capacity that you could turn around and sell to.
Jack Egan: Device materials customers by 2026.
Speaker Change: Thanks, a lot Jack for the question and I would start off by saying all of our long term supply agreement customers are asking about 200 millimeter, It's obviously front and center in their mind and something that they're very interested in engaging with us on we've engaged so far.
Jack Egan: You've announced the engagement so far of one which is <unk>.
Jack Egan: Deal, we did with Renesas.
Jack Egan: Last year and just to recall that begins shipping 200 millimeter in 2027 and between now and then.
Gregg A. Lowe: And I think that gives us a huge boost of confidence in the underlying capability of this factory. Yeah, so Harsh, maybe it's important for me just to break down the gross margin a little bit and some of the benchmarks that we've had out there and kind of maybe just give you a little bit of, you know, my view in terms of what that means from an underutilization perspective. So we had a good quarter from a gross margin perspective, above the midpoint of our guidance range. We've also seen strong underlying gross margin improvement, excluding underutilization, over the last couple of quarters.
Jack Egan: We've got all of our focus on getting the JP up and running to exceed the Mohawk Valley Fab.
Getting to 20% utilization in the June quarter got really good line of sight, but we're also going to have to ramp to J P to get to the other 80% utilization now the one thing that I would tell you is we have a high degree of confidence in our ability to do that and I'll tell you why.
Jack Egan: In March of <unk>.
Jack Egan: This past year.
Jack Egan: We turned on the building ton operation, we've got certificates of occupancy and began producing.
Jack Egan: <unk> pools and wafers out of that facility.
Jack Egan: In less than a year later, we're feeling very confident of taking what was.
Neill Reynolds: In fact, if you go back to the June quarter until the guidance we just gave here in Q3, we've seen, you know, approximately 400 basis points of improvement in margin in just three quarters on an underlying basis. In addition to that, I think we've seen the cost of the 200 millimeter substrate, the yields on those, as well as the initial cost in Mohawk Valley on a unit basis, be very much in line with what we had anticipated. So, as we've always said, the more revenue we push through Mohawk Valley, the better we'll see, or the faster we'll see some of that gross margin execution. Now, as you said previously there, on underutilization, that will be a little bit of a drag for us.
Jack Egan: A basketball court of squash court bunch of offices and converting it into a 200 millimeter silicon carbide crystal growth operation and being able to feed 2025% of the world's largest 200 millimeter wafer fab.
Jack Egan: All of that experience is going to be applied to the JP.
Jack Egan: We purposely kept less than an hour drive from our campus and the reason we did that is we wanted the same people who ramped building 10 to ramp to JP and so now youre talking about our purpose built facility, we're not trying to work around what used to be in office and all the.
Neill Reynolds: We talked about 36 million last quarter at Mohawk Valley, and it'd be flattish and get up to a peak of about 38 million as you get into Q4. So, what that'll mean is, we kind of put a marker out there of about a 20% gross margin or approaching that in kind of the Q4 timeframe. You can think about that in the kind of mid to high teens, probably exiting the year and then back, maybe pushing that to 20% or so out a quarter or so as we look out in time.
Jack Egan: You can imagine all of the challenges we've had converting that space to.
Jack Egan: Two.
Jack Egan: Crystal growth operation will have none of that problem.
And J P. Because it's built as a.
Jack Egan: Silicon carbide crystal growth operations, so very very confident about that.
Thank you.
Jack Egan: The next question is from the line of Joshua <unk> with TD Cowen You May proceed.
Joshua: Hey, guys. Thanks for taking my question and nice segue from your response to the previous question I wanted to ask you about sort of the timeline and slope of the ramp.
I guess any incremental color you can give us I know you mentioned desktop in.
Neill Reynolds: So, what that means is, yes, we will start to see the underutilization kind of peak out there in the Q4 period start to come down a bit. But just a reminder, those startup costs you mentioned in Siler City are currently on the OpEx line, about 10 million last quarter. That'll probably grow to about 15 million as we exit the year. As Siler City goes into production, probably in the second half of fiscal 25, that is, the first half of calendar 25, we'll see those transition from underutilization up to the gross margin line. So, just a few moving pieces there to think about, as I mentioned in the prepared remarks. But the key here is underlying; we are seeing very strong performance and anticipate seeing that strong performance continue as we drive more volume through the scale facilities that we're building. Thank you.
Speaker Change: In the.
Joshua: And by the end of the year and then it sounds like back half of calendar 'twenty five is a reasonable timeline for first power devices built on J P wafers, but any incremental color should the slope looks similar in.
Joshua: Directionally as what went on in building 10. Thank you.
Speaker Change: Yes, I think that I think you have roughly the.
Speaker Change: Right kind of numbers there.
Speaker Change: And the only additional color I would add is what we said in our prepared remarks, which is.
Speaker Change: We're going to be installing crystal growers in there.
Speaker Change: Next month, so the facility is ready for installation of <unk>.
Speaker Change: Crystal growers, we're not going to energize them in.
Speaker Change: Produce wafers until the back half of this calendar year, but I think all of the timing that you just talked about it feels pretty reasonable and I would say at this point. The team has done a great job that was.
Speaker Change: That was for us not too long ago.
Speaker Change: Now, it's a giant crystal growth factory.
Speaker Change: At this point we're on schedule.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Zach <unk> with Bank of America. You May proceed.
Jack Egan: The next question is from the line of Jack Egan with Charter Equity Research. You may proceed. Hey guys, thanks for taking the question. I just had one.
Speaker Change: Christine.
Zach: Alright. Thank you actually got two questions. Firstly could you just repeat the gross margin outlook. You gave for December I think you gave the different moving parts, but if you could help kind of quantify what you see is gross margins heading into December and then Greg. My question is how do you handle situations, where you are bidding for the same EV.
Jack Egan: I was curious, why didn't either of the recent LTAs sign with Infineon in Rome? Because some other companies signed some wafer deals that haven't. Millimeter, even if it's just a general long-term aspiration to avenge. So, I mean, wouldn't the J.P. Lee..., www.youtube.com.uk device material customers by, I guess, 2026? Thanks a lot, Jack, for the question. And I would start off by saying, you know, all of our long-term supply agreement customers are asking about $200 million. It's obviously front and center in their minds, something that they're very interested in engaging with us on. We've engaged so far; we've announced the engagement so far of one, which is the deal we did with Renesas last year.
Zach: <unk> business that Youll materials customers are also bidding for.
Greg: Yes, so first on the gross margin front, just if you think about number one in the current quarter we're going.
We're going to be about flattish right around 16, 5% and that is really based off of two things. One is we will have a drag of about 100 basis points just off the leverage of the Underutilization just on a lower revenue, but underlying performance offsetting that by about 100 basis points. So continuing to see good execution as you think about the underlying ability.
Greg: <unk> ability to generate better costs and better margin profile as we move out to the June quarter. I think previously we had talked kind of about a 20% marker I think that moves out about a quarter. So June quarter, Youre, probably talking about.
Gregg A. Lowe: And just to recall, that begins shipping 200 millimeters in 2027. In between now and then, we've got all of our focus on getting the JP up and running to feed the Mohawk Valley. You know, getting the 20% utilization, you know, in the June quarter got a really good line of sight, but we're also going to have to ramp up the JP to get the other 80% utilization. Now, the one thing that I would tell you is we have a high degree of confidence in our ability to do that. And I'll tell you why.
Greg: Kind of mid to high teens based on what we're looking at now as we start to push more product through Mohawk Valley. So really Mohawk Valley will start to generate not just more volume, but as we push more product through there we really like the cost structure and of course, you get the benefit of the volume over that Underutilization.
Greg: The remainder of the year as you get out to December you should see kind of a linear improvement in terms of margin.
Greg: Beyond that like I said beyond June into September, maybe pushing that 20% mark out of out of quarter to the September quarter. However, when D. J P comes online from a production perspective and think about that in that kind of March June timeframe of 2025 was underutilization cost will then come out of Opex and we'll need to put those into gross margin.
Gregg A. Lowe: In March of this past year, we turned on the Building 10 operation. We got certificates of occupancy and began producing wafers, bulls, and wafers out of that facility. And, you know, less than a year later, we're feeling very confident about taking what was, you know, a basketball court, a squash court, a bunch of offices and converting it into a 200-millimeter silicon carbide crystal growth operation and being able to feed 20, 25 percent of the world's largest 200-millimeter wafer fab. Well, all of that experience is going to be applied to JP, which And the reason we did that is we wanted the same people who ramped up Building 10 to ramp up JP. And so, now you're talking about a purpose-built facility. We're not trying to work around what used to be an office and all the, you know, you can imagine all the challenges we've had converting that space to a crystal growth operation. We'll have none of that problem in the JP because it's built as a.
Greg: We should be exiting the year youre about $15 million, you can see growth up $225 million or so before it makes that move so that's just something to consider from a modeling perspective as you get out beyond December into the March and June quarters of 2025, as we start to bring the J P.
Greg: Online.
Greg: Then.
Greg: Vivek in terms of the other question I would say number one our materials customers are exactly that they are customers of ours, we treat them as such we have quality meetings with them we are.
Greg: Typical quarterly program reviews, and things like that so we treat them.
Greg: As customers as well as they are definitely helping us.
Greg: Convert the power electronics market from silicon to Silicon carbide.
Vivek: I can tell you that.
Vivek: When I joined the company six years ago or so.
Vivek: I believe there was one OEM.
Vivek: That was committed to using silicon carbide and an inverter and of course that was that was Tesla.
Vivek: Today I don't know every single OEM, but I actually can't name in OEM.
Vivek: Isn't using silicon carbide.
Maybe not across their entire platform, but theyre using silicon carbide and some of their models I can't name one that's not so.
Gregg A. Lowe: Silicon carbide crystal growth operation, so very, very confident about it. Thank you. The next question is from the line of Joshua Buchalter with T.D. Cowan.
Speaker Change: Yes, I'm not aware of but I can't tell you who that is so I think thats what that shows is a pretty dramatic increase in and the appetite for silicon carbide across all of our materials customers and ourselves maybe one thing that you'll notice on the 28.
Joshua Buchalter: You may proceed. Hey guys, thanks for taking my question and actually a nice segue from your response to the previous question. I wanted to ask about sort of the timeline and slope of JP's ramp. I guess any incremental color you can give us.
Speaker Change: Models that I had mentioned that are transitioning from design in design win.
We can confirm that we are the prime source on 27 of those 28 I think we're the prime source on the 28th but I can't confirm that one so.
Gregg A. Lowe: I know you mentioned SOP by the end of the year, and then it sounds like the back half of calendar 25 is a reasonable timeline for the first power devices built on JP wafers, but any incremental color should the slope look similar in Directionally as what went on at Building 10. Thank you. Yeah, I think you have roughly the right kind of numbers there, and the only additional color I would add is what we said in our prepared remarks, which is that we're going to be installing crystal growers there next month. So the facility is ready for the installation of the crystal growers, but we're not going to energize them for the lecture.
Speaker Change: So I think it's an exciting opportunity for us it's an amazing amount of things that are going on I think there's going to be a lot of.
Speaker Change: Puts and takes on the EV industry over the coming.
Speaker Change: Years. This is the biggest.
Speaker Change: As the biggest transformation in the history of the automobile industry, it's going to be the most disruptive in the history of the automobile.
Speaker Change: And we feel like we're at the risk the early stage of that transition.
Speaker Change: Thank you there are no further questions in queue with that I'd like to turn the call over to Gregg Lowe CEO for concluding remarks.
Gregg A. Lowe: And to think about it for just a few days. Thank you. The next question is from the line of Zizek Ariel with Bank of America. You may proceed. Thank you. I actually have two questions.
Gregg A. Lowe: Well thanks, everybody for.
Zizek Ariel: First, Neill, could you just repeat the gross margin outlook you gave for December? I think you gave the different moving parts, but could you help kind of quantify what you see as gross margins heading into December? And then, Gregg, my question is, how do you handle situations where you are bidding for the same EV business that your materials customers are also bidding for? Yeah, so first on the gross margin front, just if you think about, number one, in the current quarter, we're going to be about flattish, right around 16.5%, and that's really based on two things. One is we'll have a drag of about 100 basis points just off the leverage of the underutilization just on the lower revenue, but underlying performance offsetting that by about 100 basis points.
Gregg A. Lowe: Sure.
Gregg A. Lowe: Being a part of this call today, and we look forward to chatting with you in our next earnings call. Thank you very much.
Speaker Change: That concludes today's conference call.
Speaker Change: You for your participation you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: You for your participation you may now disconnect your lines.
Neill Reynolds: So continuing to see good execution, as you think about the underlying ability to generate better costs and better margin profiles. As we move out to the June quarter, I think previously we had talked kind of about a 20% marker. I think that moves out about a quarter.
Neill Reynolds: So June quarter, you're probably talking about kind of mid-to-high teams based on what we're looking at now, as we start to push more product through Mohawk Valley. So really, Mohawk Valley will start to generate not just more volume, but as we push more product through there, we really like the cost structure, and of course, you get the benefit of the volume over that underutilization. The remainder of the year, as you get out to December, you should see kind of a linear improvement with that in terms of margin. Beyond that, like I said, out beyond June into September, pushing that 20% marker out a quarter to the September quarter. However, when the JP comes online from a production perspective, and think about that in that kind of March-June timeframe of 2025, those underutilization costs will then come out of OPEX, and we'll need to put those into gross margin. We should be exiting the year with about $15 million. You can see it grow up to even $25 million or so before it makes that move.
Gregg A. Lowe: So that's just something to consider from a modeling perspective as you get out beyond December and into the... And then, you know, Vivek, in terms of the other question, I would say, number one, our materials customers are exactly that. They are customers of ours, and we treat them as such.
Gregg A. Lowe: We have quality meetings with them. We are having... typical quarterly program reviews and things like that. So we treat them as customers, as they are definitely helping us convert the power electronics market from silicon to silicon carbide. You know, I can tell you that when I joined the company six years ago or so, I believe there was one OEM that was committed to using silicon carbide, an inverter, and of course, that was just a test. Today, I don't know every single OEM, but I actually can't name an OEM that isn't using silicon carbide. Maybe not across their entire platform, but they're using silicon carbide in some of their models. I can't name one that's not true.
Gregg A. Lowe: So there probably is, I'm not aware of, but I can't tell you who that is. But I think what that shows is a pretty dramatic increase in the appetite for silicon carbide across all of our materials customers and ourselves. Maybe one thing that I'll note is on the 28 models that I had mentioned that are transitioning from design in to design when, we can confirm that we are the prime source on 27 of those 28. I think we're the prime source on the 28th, but I can't confirm that one.
Gregg A. Lowe: So I think it's an exciting opportunity for us. There are an amazing number of things that are going on. I think there's going to be a lot of put and takes in the EV industry over the coming couple of years, but this is the biggest. This is the biggest transformation in the history of the automobile industry, and it's going to be the most disruptive in the history of the automobile. And we feel like we're at the early stage of that.
Operator: Thank you. There are no further questions in queue. With that, I'd like to turn the call over to Gregg Lowe, CEO, for a concluding remark. Well, thank you everybody for being a part of this call today, and we look forward to chatting with you on our next earnings call. Thank you very much. That concludes today's conference call.
Operator: Thank you for your participation. You may now disconnect your line. Thank you for your participation. You may now disconnect your line.