Q3 2024 Tower Semiconductor Ltd Earnings Call
By which represented approximately 26% of our corporate revenues in the third quarter of 2024.
We continue to transition customers to do 300 millimeter capacity and a great day.
As our demand outpaces, RF soi capacity and our <unk> 300 millimeter factory.
We expect to deliver our first production revenue in Q4.
To the order of a couple of tens of millions of dollars from the <unk> factory with further ramp expected in 2025 to support the growth we are seeing in this market.
In addition, we continue to prototype with customers on our most advanced platforms TPS.
TPS 65 RSC now.
Now available directly from a grotty as well with customer acknowledge industry best our RMC off in power handling for next generation RF mobile products.
Our newly announced Triple play RF Soi platform for Wi Fi front end modules that integrates the power amplifier will noise amplifier and switch on a single die, which we press released with Broadcom.
As a mass production.
<unk> strong interest from additional market leaders.
Our power business.
Yeah.
Which represented 17% of our corporate revenues in the third quarter of 2024 continues to see strong growth opportunities in our 300 millimeter 65 nanometer BCD platform, which as we have discussed in prior quarters enables us to enter a lower voltage and higher volume markets in handsets and other consumer devices.
In addition to our high voltage industrial and automotive segments.
We are pleased to report that we have around certain handset products to high volumes and this technology in our Japan factories.
And our qualifying our Albuquerque facility to enable further growth.
We anticipate beginning production in Albuquerque in 2025.
And given the large capacity available anticipate this to provide strong growth for our power business for years to come.
Moving to sensors and displays which represented 14% of our corporate revenues in the third quarter.
At year's begin we expected second half growth in particular from customers serving machine vision. This has not happened, but rather in the imaging business remains stable through the year as of Q2 run rate.
Our customers are optimistic about 2025 growth based upon new wins, particularly based upon wins with our 300 millimeter 65 nanometer Cif platform. Among these wins is a stacked BSI global shutter Ultra high resolution sensor 103 hundred 25 megapixel.
Showcase by one of our leading customers in last month's vision show in Stuttgart.
And the display front, we are engaged with two very large customers in the AR and VR market with OLED in silicon displays.
Spector to tape out our products next year on our new five volt with extensions to eightfold transistors lean 300 millimeter platform with state of the art low leakage currents in high density capacitors.
Our fab utilization rates for the third quarter, where fab one as previously announced.
We'll be operationally consolidated in the fab two and was at about 85% entering entering into last time buys.
Fab two eight inch as well as fab nine eight inch for about 60% each.
With concurrent capacity Repurposing and clean room build out to meet the continually growing forecasted demand for silicon germanium and silicon photonics products.
Fab three eight inch was at 65%.
Currently at full silicon germanium and silicon photonics capacity.
With real time activities, reducing certain bottlenecks targeting a 20% increase in the fab utilization.
Fab five eight inch is at about 60%.
712 in was about 85% fully loaded to our operational model.
Speaker Change: With that I'll turn the call to our CFO, Mr. Oren Shirazi Oren. Please.
Thank you Ross and Hello, everyone.
Oren Shirazi: Earlier today, we released our quarterly financial results and balance sheet.
Oren Shirazi: Well the third quarter of 2024, we reported revenue of 371 million below gross proceeds of $93 million.
Oren Shirazi: Operating brokerage 56 million below and then brokerage or $55 million, reflecting 15% net margin.
Revenue for the third quarter of 2024 wells 371 million compared to 351 million during the second quarter of 2024.
Oren Shirazi: I am pleased to report that we achieved our stated 2020 foot target both quarter over quarter revenue growth.
Oren Shirazi: Cedar Inc.
Oren Shirazi: Total revenue for the past quarter.
Oren Shirazi: Today's first quarter mid range revenue guidance of $387 million.
Gross profits for the first quarter of 2024 was $93 million compared to $87 million.
Speaker Change: Both of them.
Speaker Change: Operating brokerage was $56 million compared to $55 million to play out quarter, which included $6 million restructuring income in relation to Japan operations reorganization.
Speaker Change: Net proceeds were $55 million, reflecting 15% net margin.
Speaker Change: 49 base.
Speaker Change: Basic and diluted earnings per share.
Speaker Change: Third to a net profit of $53 million, reflecting 48 basic and diluted earnings per share in the second quarter of 2020 before.
Speaker Change: Which included $2 6 million of net income from our Japan operations of the organization.
Speaker Change: Moving to balance sheet, and future Capex and cash plan.
Speaker Change: Although at the end of September 2024, our balance sheet assets totaled $3 1 billion as compared to $2 nine.
Speaker Change: <unk> 9 billion at the end of 2023, primarily comprised of $1 3 billion of fixed assets net of depreciation.
Speaker Change: Predominantly comprised of fab equipment, and $1 $7 billion of current assets.
Speaker Change: Current assets ratio, reflecting the multiple body, which current assets are larger than short term liabilities is very strong at about six six.
Speaker Change: And shareholders' equity reached a record of $2 6 billion.
Speaker Change: End of September 2024.
Speaker Change: Our strong financial position enables us to blend the following investments in strategic opportunities that are aligned to our go forward vision.
Speaker Change: Approximately $500 million of total aggregate cash has been allocated to make investments in equipment.
Speaker Change: Tyler will own and <unk>.
Speaker Change: In the 12 inch fab integrator, Italy, following the previously announced SD micro partnership today.
Speaker Change: To date, we have already invested $400 million and do some of this amount.
Speaker Change: And have placed purchase orders for all of the equipment and other capex items required the rim.
Meaning $100 million are expected to be paid in the coming four quarters.
Speaker Change: In addition, as previously announced we have committed to invest up to $300 million.
Speaker Change: While equipment and other capex items that will own and Intel's New Mexico fab.
Speaker Change: Enabling us to ramp up our fab capacity and capabilities for our customers. This $300 million of Capex, we've focused it to be paid in installments until the end of 2020.
Speaker Change: Furthermore, as we announced today, we are executing a $350 million investment plan.
Speaker Change: Expand FIFO and <unk> capacity and capabilities for the qualification and ramp up of these technologies in our 200 millimeter and 300 millimeter fab.
Speaker Change: Our growing customer demand payments towards the.
Speaker Change: $350 million plan are expected installments until the end of 2020.
Speaker Change: I wish to note that all of the above investments, including today's announced safety FIFO and <unk> Capex.
Speaker Change: Capex investments are within and steps toward achieve.
Speaker Change: Achieving our business strategy and financial model, our previously presented by the company in November one year ago.
Speaker Change: In the model, we outlined our revenue target of $2 66 billion.
Unknown.
Speaker Change: That could be achieved by fully loading our existing facilities and our newly built and to build capacity.
The authority in new Mexico facilities, which could result in $560 million on operating profit and $500 million annual net broker now I'd like to turn the call back to the operator.
Speaker Change: Yes.
Okay.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: And just to ask a question. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: Please standby, while we compile the Q&A queue. This will take a few moments.
Speaker Change: If you wish to cancel your request please press star one and one again.
Speaker Change: And once again, it's still one and one if you wish to ask a question. Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: We are now going to proceed with our first question.
Speaker Change: The question comes from the line of Matt Husseini from Susquehanna International Group. Please ask your question.
Speaker Change: Yes, thanks for taking my question.
Speaker Change: Two follow ups here I wanted to go to slide number six and better understand the revenue.
Gross profit opportunities, especially with.
Speaker Change: 400 gig, but should we assume that.
Speaker Change: The ASB premium revenue mix is much higher than the wafer mix and I have a follow up.
Speaker Change: I'm, sorry, I didn't quite understand the question, but what makes us higher than the <unk>.
Speaker Change: On slide number six you have the wafer mix between.
Speaker Change: 400 gig.
Speaker Change: Mr 400 gig and more than 400 gig.
I'm under assumption that.
Speaker Change: Or applications above 400.
Speaker Change: Wafer ASP is.
Speaker Change: Is higher and therefore that statements slide but presented with the revenue mix will have a significantly higher mix of a higher than 400 gig is that a is that a fair assumption.
It's a fair assumption, but I'm not sure that you are seeing the slide properly. This is only for active copper cable.
The slide is not overall silicon germanium mix.
Speaker Change: Certainly the <unk> platform's itself that we are using for.
Speaker Change: 800, G RMR advanced platform.
Speaker Change: The higher.
Speaker Change: F. TNF Max then we would be doing it at a 400 or a 100 G.
Speaker Change: For cables it also.
Speaker Change: Ties to an extent, but most of the cables that were selling are already going for above 400 G. R. As I stated in the script, mainly for 800 gig.
Speaker Change: Oh, yes got it that we're selling are at.
Speaker Change: A very good ASP, but its because of the higher end platform.
Speaker Change: And what we're doing is for endoscopy.
Speaker Change: Okay.
Speaker Change: Thanks for clarifying and then just looking at the overall silicon photonics market in the past you have highlighted 80 million revenue opportunity in 'twenty, four and doubling to $160 million in Tony.
Speaker Change: It seems like you are tracking above those targets can you give us an update here.
Speaker Change: Yeah, I don't mean this tongue in cheek, but I think I did.
Speaker Change: Yes, the revenue is expected to hit about $100 million. This year. So certainly is.
Speaker Change: Sorry, as I stated at the beginning.
Speaker Change: Short term midterm, we're seeing ever increasing.
Speaker Change: Customer demand and for the midterm ever increasing customer forecast.
Speaker Change: So we will be leaving the year.
Speaker Change: Providing.
We go according to forecast and our ship plan with a about a $150 million silicon photonics run rate already leaving 2024 without giving anything about the 2025 guidance or targets.
Speaker Change: One could expect that if I had I think I said more than doubling but.
Speaker Change: That the from 80 to above 160, if already Q4 is it a $150 million run rate.
Speaker Change: Then.
Speaker Change: I think it's very safe to say that were tracking above.
The forecast, we've given a quarter ago.
Speaker Change: Great. Thank you very much.
Speaker Change: Good question. Thank you.
Speaker Change: We are now going to proceed with our next question.
Speaker Change: The question has come from the line of Cody.
Speaker Change: <unk> from the benchmark company. Please ask your question.
Yes, thanks for taking my questions and congrats guys on the progress.
It's really impressive guidance.
Speaker Change: Glad to see it.
Speaker Change: Maybe oren can we just get one clarification, you said the $350 million would start.
Speaker Change: <unk>.
Speaker Change: Lynn.
Speaker Change: Installment payments and and when did you say 26 or 28.
Speaker Change: Oh end of 2006, it would it be further youll massive political linearly between now and the end of 2026.
Speaker Change: Alright, great. Thanks, Thank yous tailed off a little bit when you were making that comment.
Speaker Change: Can you maybe talk about the level of revenue does that $350 million is expected to support if you just add incrementally to your slide your 266 billion what is the $350 million represent.
Speaker Change: No. That's included in the model like I said in my closing remarks. This is.
Speaker Change: Within the model and towards achieving the model we needed to do the investment by the way also the Capex is included in the model. So there is no additional depreciation because of that.
Speaker Change: These are the steps that we needed to do in order to achieve this long term to 66.
Speaker Change: In the numbers.
Speaker Change: Okay, great. Thank you already have the big point is that the model obviously.
Speaker Change: Was reliant upon certain technologies that customers would be needing and wanting that we're aligned.
Speaker Change: To roadmap activities that we have with them and the fact that the investment steps are going and the important part is to say that it's all was.
Foreseen in the model, but it was aligned to <unk>.
Speaker Change: Long term road map.
Speaker Change: Partnership and that and going forward on it shows that what we had expected to happen is truly indeed occurring.
Okay, great. So just a more detailed into the $2.
Maybe if you can talk about.
Speaker Change: The.
Speaker Change:
Speaker Change: The types of agreements that you have with your customers for your Soi capacity, obviously, that's getting ready to ramp in and <unk> got significant amount of capacity out there to fill.
Speaker Change: Kind of customer agreements or.
Not contracts, what kind of assurances do you have that that theyre going to be there for you to support that capacity.
Okay.
Speaker Change: Within the area of the RF Soi.
Speaker Change: At present, I don't think Theres, a single take or pay agreement there are very very strong relationships.
Speaker Change: <unk>.
Speaker Change:
Speaker Change: Track Records that we see customers having performed to.
Speaker Change: Is there a take or pay involved no.
Speaker Change: But I think in many areas take or pays or not a good thing to have in bad times trying to hold somebody to buy things that they don't need is not good.
Speaker Change: But our assurance is really off of seeing how you cover.
Speaker Change: Many people within the space the specific.
Speaker Change: On front end module market at this moment does not overly strong.
Speaker Change: The fact that we're seeing very good growth.
Speaker Change: I believe in Q3 over Q3.
Speaker Change: We had very good double digit 300 millimeter RF soi for advanced platforms, probably if we look at the fourth quarter forecast for the fourth quarter, a year ago for the 300 millimeter platforms that'll be well above 50% year over year growth.
Speaker Change: So the point being that.
Speaker Change: Customers that we're working with themselves are gaining market share.
In a market that's.
Speaker Change: It doesn't have the type of growth that we're seeing.
Speaker Change: So as long as we're tied with people on multi generation road map.
Speaker Change: And serve them well.
Speaker Change: We're quite convinced that they stay with us in the short to midterm very difficult to qualify someone else and form fitting function for our front end module.
Speaker Change: In the long term the assurance is simply if we perform well and they performed well in the short to midterm then we stay together in the long term, but the biggest thing is on.
Speaker Change: I am having PDK is that really match the output performance. So customers are more or less guaranteed first time success.
Speaker Change: And to work very closely to go through any issues real time during the initial design prototype.
Speaker Change: So that they come to market quick.
Speaker Change: And that we both benefit from that hopefully that answers your question Cody, but if you're asking if we have.
Long term take or pay agreements that we do not.
Speaker Change: Okay. Thanks, that's very helpful. Thank Russell and then lastly.
Speaker Change: We've been hearing some grumblings in the market regarding the potential uptake for active copper cables.
Speaker Change: With some changes that are speculated in their NGL 36 by two platform at Nvidia are you seeing any volatility in your wafer activity, obviously, youre youre seeing a lot of strength, given what you've been saying today, but.
Speaker Change: Just any color might help.
Speaker Change: Very perceptive of you and we have some wafers in line that indeed have been put on hold at a certain level to allow for a mass change.
Speaker Change: Yeah.
Speaker Change: What does that entail Russell as far as your volume output.
Speaker Change: I think it's not going to make much difference at all.
Speaker Change: It's just a question of.
Speaker Change: Keeping wafers that are certain inventory point waiting for a new mask.
Speaker Change: So changes at the mass level.
Speaker Change: It would change how the copper cables are going to be deployed is that the way to think about it.
Speaker Change: It will change the output parameters.
Speaker Change: Yeah.
Speaker Change: Any other color there Russell.
Speaker Change: No I think thats.
Speaker Change: Pretty good color actually.
Speaker Change: Thank you.
Speaker Change: Alright, thank you.
Speaker Change: We are now going to proceed with our next question.
Speaker Change: So questions come from the line of Richard Shannon from Craig Hallum Capital. Please ask your question.
Thanks, Russell and Oren for taking my questions here, great results, great to see the RF infrastructure and doing so well here.
Speaker Change: I guess my first question is.
Speaker Change: On the Silicon germanium side Youre talking about $1 60.
Speaker Change: Wondering if that's going to be a material contributor noticeable contributed revenues by the end of next year is that timing.
Speaker Change: Yeah.
Speaker Change: Is that the timing that you expect to be material or is it still growing from a small basis at that point do you think.
Speaker Change: I honestly think it will be material if you look at.
Speaker Change: Analyst reports for 2024 from two years ago.
Speaker Change: They all really had 100 G being.
80% of the market, we're probably 800 G.
Speaker Change: 85%, 90% of the market.
Speaker Change: For this year.
Speaker Change: So I think the fact that we have good working samples of course, the data center maker of the Hyperscale or has to be willing to implement but but I do think the roadmap on speed is very very fast now.
Speaker Change: I believe it'll be a material amount of revenue in the second half of next year.
Speaker Change: And maybe starting in the second quarter.
Okay perfect Thats very helpful. Russell Thanks for that maybe a question for Oren on gross margins here.
Speaker Change: Just looking at the fall through of quarter on quarter I know, it's probably not great to look at it just on that short term basis here, but last quarter you saw a very nice fall through margin. This quarter was a bit less here 30, I'm calculating about 31% or so last quarter. You said the benefit was coming from silicon photonics, yet seems like silicon photonics is doing very well so I can't resolve those two.
Speaker Change: They seem to contradict each other can you help us understand why the why the big difference here.
Speaker Change: Yes.
Speaker Change: I think related to that in his remarks, he mentioned that the <unk> was not like we expected and the CIA is as you know is also.
Speaker Change: The high margin like the cycle.
Speaker Change: The increase in cycle, which is very nice.
Speaker Change: Impact on margin in Q3 was somehow offset by.
Speaker Change: Dana pencils.
Yeah.
Speaker Change: Okay. Thanks for that.
Speaker Change: Okay sorry.
Speaker Change: I didn't mean to interrupt you orin.
Speaker Change: And finally finished.
Speaker Change: Okay.
Speaker Change: Russell, maybe looking forward here trying to help people think about there.
Speaker Change: Expectations kind of linearity through next year.
Speaker Change: I know you probably don't get anything quantitative, but just kind of a framework to think about here.
Speaker Change: Generally your first quarter is seasonally down I'm wondering if you expect normal seasonality here and then how do we think about growth going into next year I mean, the RF infrastructure looks.
Speaker Change: Utterly fantastic power is doing pretty well and it sounds like you are.
Speaker Change: Sensor and image businesses is poised to inflect here in I.
Speaker Change: I guess, we can all projected what RF soi can do.
Speaker Change: Or excuse me in RF mobile, but it seems like a pretty good growth year here how.
Speaker Change: How would you help us think about these dynamics should we put our models together.
Speaker Change:
Speaker Change: So certainly believe that the.
Speaker Change: Infrastructure markets served by the <unk> and the FIFO will grow and grow very strong.
Speaker Change: Lauren mentioned that the Psi foe.
Speaker Change: Realized has very high margins.
It actually comes in substantially higher than the imaging, which is also extremely high margin.
Speaker Change: So I think as far as.
Speaker Change: The.
Speaker Change: Contributions of the SIFI growth it'll be quite substantial and <unk> will continue to grow throughout the year as well from everything that we see.
Speaker Change: Customers are forecasting.
Speaker Change: On the imaging.
Speaker Change: We had.
Speaker Change: <unk>.
Speaker Change: Earlier that Q1 was a low for US Q2 is a substantial increase over Q1.
And we stayed at the Q2 level, but we had expected a very good growth forecasted by our customers, particularly for machine vision in the third and fourth quarter, which did not happen.
Speaker Change:
Speaker Change: I'm not going to give a target or a guidance in the third quarter for 2025, we will certainly be giving good color on that when we released the fourth quarter, but that being said for our plans right now we're not putting into any of our plans.
<unk>.
Speaker Change:
Believed forecasted customer demand increases for the imaging, but our plans would have imaging staying at the same level as they were as they are now as we hit in Q2.
Speaker Change: And within our own plans with imaging comes up at 25, or 50% increase that'd be fantastic, but it's not what we're counting on.
Speaker Change: On the RF Soi.
Speaker Change: The market itself. This data does not overly strong our customers are gaining market share.
Would expect that there will be growth in RF soi there'll certainly be growth and 300 millimeter for 300 millimeter.
Speaker Change: 200 millimeter that we're doing I'm not sure that that will be growing.
Speaker Change: I don't know how much the overall market will grow next year I expect that we'll have growth but.
Speaker Change: Some of it really depends on the mobile market itself, what's happening in handsets.
Speaker Change: And I don't think that you know two of the big players in that market that gave releases recently, we're not overly optimistic about 2025.
Speaker Change: So the RF mobile market I think will outperform the market because serving customers that are gaining market share. In addition to other customers.
Speaker Change: And even with some.
Speaker Change: Of existing customers, we're gaining additional skus and for new capabilities. So I am not sure how much of that will go I don't know how much color I can give there and that's one reason that.
Speaker Change: Before we give a target for.
Speaker Change: And next year.
Speaker Change: We really like to be closer to the year as possible and when we released Q4 will be within the year. So I think we'll be able to get a good flavor.
Speaker Change: But from what.
Speaker Change: Lead suppliers to front end module are saying right now.
Speaker Change: It doesn't look like the mobile market is extremely strong and twenty-five or at least for the first half of it in.
In the power market, that's a place that we really do always have opportunity to grow and it's really because whether the market itself is growing or not we're starting from not at a very high market share position.
Speaker Change: And the 300 millimeter platforms are strong platforms growing.
Getting qualified where we have now a free capacity in Albuquerque.
Speaker Change: So we'd expect to see.
Growth in that end.
Speaker Change: In 2025 to what extent I'm not sure I mean, I don't want to say that at this point.
Speaker Change: But certainly it's a good business for us where we entered into additional markets that we weren't serving in the past.
Speaker Change: <unk>.
Speaker Change: No I think the easiest way to grow share of market is by increasing your served market, which we've certainly done with them.
Speaker Change: Yeah, BCD 65 nanometer BCD and potentially going beyond that.
Speaker Change:
But I'm not sure if that answered your question well, but it's as much as I think I can say at this point.
Speaker Change: That is helpful. Russell I understand it's early but your best perspective is always helpful. So thanks for that.
Speaker Change: My final question I'll jump out of line here I was just looking at the balance sheet and noting this is a very strong cash position and obviously you've been growing cash and expect to.
Speaker Change: By all measures here going forward here, so I'm wondering what youre thinking about for cash usage going forward here.
Speaker Change: And I guess, maybe I'll also turn this to more of a strategic.
Speaker Change: Thought process with your company do you see any potential for M&A in any way either operations or technology or anything to augment.
Speaker Change: Areas that you have silicon photonics power et cetera.
Speaker Change: To realize that thanks for that.
Speaker Change: I'll start with the second part of your question in Orange could talk to the first because I think he is.
And it is portion talking about a lot of cash needs in the company to fulfill this circa $2 $7 billion plan.
Speaker Change: But.
Speaker Change: As far as M&A is.
Speaker Change: We're always.
Speaker Change: Truly actively engaged in setting multiple M&A is.
Speaker Change: Now there are a lot of speculations about us going into a foreign country and building.
Speaker Change: Building, a big factory et cetera et cetera.
Speaker Change: We're engaged all the time and looking at opportunities some opportunities appear at first swipe to be extremely positive.
Speaker Change: But you know always.
Speaker Change: I think.
Speaker Change: There is.
Speaker Change: All of us at honest risk reward look that has to be done.
Speaker Change: Yeah.
Speaker Change: As soon as we see things that.
Speaker Change: It makes sense and are truly accretive.
Speaker Change: To the company, meaning very few.
Capacity acquisitions that you would do certainly no greenfield builds that a person would do.
Speaker Change: Our ever.
Speaker Change: Cash accretive.
Speaker Change: For the first years.
And it takes multiple years to get to.
Speaker Change: Net profit positive within any greenfield.
So the conditions of doing one of our greenfield activity, which could make sense in different geographies has to have certain conditions with either the government or.
Speaker Change: With certain customers or with a partner.
Speaker Change: That would not have our shareholders suffer from the cash loss of the first seven eight years and.
That takes a lot of consideration and activities.
Speaker Change: That's why for such.
Speaker Change: Capacity large capacity increases its always smarter to take over a going concern than it is to do a greenfield on a pure financial basis.
Speaker Change: As far as looking at technology acquisitions again, we're we're very engaged in those and.
Now to to say, what we're engaged in right now maybe set false expectations and.
Speaker Change: You know to release anything before one is required to release, which means before it becomes material.
Speaker Change: And then can come off and look like one was ineffective at closing on a deal which is not the case, it's very good to always be open to look at deals.
And I would say, there's rarely a time when there arent at least four to eight activities that we're pursuing and engaged in.
But before closing them, they really have to be something that is accretive to.
Speaker Change: To shareholders.
Speaker Change: And is accretive to our roadmap and hence to our customers or.
Speaker Change: It would contain customers that our other products can help grow on top of what you're buying.
Speaker Change: But that's a long answer and I apologize that its along it's just it's not an easy.
Speaker Change: Digital yes, or no it's a lot of qualifications in it but.
Speaker Change: But we are actively looking we have been actively looking we were very.
Speaker Change: Very close to.
Speaker Change: Maybe doing something within the past month that ultimately we cannot come to agreements that would be viable for shareholders and hence for the company and I think that no matter. How excited one is about something you must always be grounded in the numbers and if something doesn't pencil it doesn't pencil.
Speaker Change: I appreciate all that detail and Russell as always congratulations on the great results I will jump out of line.
Thank you.
Speaker Change: Thank you we are now going to proceed with our next question.
Speaker Change: The question comes from the line of Nikolay <unk> from Needham. Please ask a question.
Hey, guys. Thanks for taking my questions.
Speaker Change: Also a question on accs.
Speaker Change: So youre seeing the short term and midterm strength in your silicon germanium business enough to invest significantly for new capacity and some of that not all as it related to <unk> and I think the answer you gave to Cody earlier was related to this rack to rack or a horizontal.
Speaker Change: Opportunity, but I'm, assuming the strong demand and in the Capex decisions can go beyond.
Speaker Change: It would mean that the demand would go beyond one application at one customer. So we've heard applications using nicked a tour or a vertical use case and also a newer and our IRAK use case at higher speeds. So can you give any color on what.
And the other applications could be thanks.
To begin with the bulk of our silicon germanium is not for ACC right. It's for the Ti as in and drivers. So that's the bulk ACC is incremental revenue now.
Speaker Change:
The lead customers that we have for the optical transceivers itself are also those that are doing the active copper cables.
Speaker Change: Within.
That incremental revenue that they have demand for the ACC.
Speaker Change: <unk>.
Speaker Change: I cannot exactly say.
Speaker Change: What application they're going after.
Speaker Change: With.
Speaker Change: Within rack within the pizza box itself.
Speaker Change: Rack to rack.
Speaker Change: Many cases rack to rack active copper cable is not sufficient.
But I don't think I'm in a position to give real good color as to what our lead customers.
Speaker Change: That are using <unk>.
Speaker Change: <unk> at very high volumes for the Transceivers and are also now buying <unk> for that ACC.
Speaker Change: What is their entire gametes.
Speaker Change: Applications out there serving with the ACC I Couldnt really state that with.
Speaker Change: Tremendous granularity.
Speaker Change: Okay still helpful. Thank you. Thank you for that color Russell and then next one just a basic question on utilization.
<unk> III is at 65% I believe you mentioned.
Speaker Change: And that is I guess full <unk> and CFO capacity whats that 20% target increase so just a little explanation on that Tony.
Speaker Change: 20 points.
Just an explanation on how that is going to happen.
Speaker Change: Yes, you are taking out certain capacity and reselling it with this big GM size, our demand and and that's contemplated in the $350 million and that's how you will increase this utilization.
Speaker Change: Very good question there is.
[noise] bottlenecks that we have there are other mixes that were done in that factory previously.
Speaker Change: There's bottlenecks specific.
Speaker Change: From having moved from silicon germanium to doing a certain amount of silicon photonics.
Speaker Change: And.
Speaker Change: By adding and qualifying.
Speaker Change: Certain processing Chambers, you are leaving the bottlenecks enabled them to move up to use the full photo capacity.
Speaker Change: The fab we always.
Speaker Change: Present utilization against Max photo capacity of the factory.
Speaker Change: Processing tools.
Speaker Change: Can gate for a certain flow the photo capacity, what you have and any fab is processing tools.
That are unique to certain flows.
Speaker Change: That are capped at whatever the volume is plus some certain percent otherwise you have tools that are utilized and using fab space and effectively.
Speaker Change: In this case as we've moved to having.
Speaker Change: Such a demand for the <unk> the CFO.
Doing very little in that factory other than <unk> CFO to maximize that output, but we've come into bottlenecks on certain steps, which you could maybe say certain etch steps et cetera.
Speaker Change: Or maybe certain deposition steps.
Speaker Change: So we've added chambers are adding chambers are repurposing, some chambers in order to be specific to the <unk> and CFO and hence.
Speaker Change: Leaving the bottlenecks to get closer to the full funnel capacity, which over time will get to the full photo capacity, which in our model is 85% operation. So 85% of the full photo allows a fab to still be moving at good cycle times.
Speaker Change: And that's what our what our target is.
Speaker Change: We also.
Speaker Change: Are using.
Some capabilities in other factories.
Speaker Change: And that's part of the $350 million.
Speaker Change: To enable further usage of any given factory, we have the ability to be transferring to start doing a deposition early on in the line and one factory.
And if that deposition is a deposition that's constrained elsewhere.
Speaker Change: To free up the constraint in the other factory by doing nearly deposition in one.
Speaker Change: So that's part of the $3 $50 million as well as relieving bottlenecks through optimizing the fleet.
Speaker Change: It sounds like a lot of good decision. Thanks. Thank.
Speaker Change: Thank you.
Speaker Change: We are now going to proceed with our next question.
Speaker Change: The question has come from the line of Lisa Thompson from Zacks small cap research. Please ask your question.
Speaker Change: Hi, and I want to welcome you back to revenue growth.
Speaker Change: Thank you. Thank you.
Speaker Change: [laughter].
Speaker Change: I don't have one financial question Lauren.
Speaker Change: This year, we were supposedly thinking that your tax rate was going to be 15, 14% for the year.
Speaker Change: Once you pay a really big chunk in Q4, that's not going to happen.
Speaker Change: What do we think about Q4 taxes and also what Youre thinking about next year's tax rate given all your varied activity in different countries.
Speaker Change: Hi, yes.
Speaker Change: Yes.
Speaker Change: No. There is no expectation to be a good chunk of payment for tax I mean, our tox.
Speaker Change: Model.
Speaker Change: First our tax regime is the parent company in Israel that seven 5% docs.
Speaker Change: Because we already know well.
Speaker Change: Let's call it in Israel, a preferred zone because of the location of the <unk>. So this is a preferred tax rate of only seven 5%.
Speaker Change: In the U S. It's 21% in Japan at 30% and Italy, 24%, but the.
Speaker Change: Wouldn't expect because of those headwinds that Russell spoke about in previous calls.
Speaker Change: Instead, we will start to have a way and we will start to operate across it. So we expect.
Speaker Change: Not to have profits go up and becoming Brookdale, social and in the coming year also.
Speaker Change: So we will not pay those 24% and.
Speaker Change: So we are left with the seven 5% in the bond company 21 in U S and 30 in Japan as you can see in our financial it will really appreciate and I believe well displayed that.
Speaker Change: Dr. <unk> is usually 10% between 8% to 14 depends on the quarter defense when we treat Jim he's the.
Speaker Change: Is the income so we manage it and fix it or have it at around 10% usually.
Speaker Change: For this year.
There was a onetime in Q1.
Speaker Change: We had a tax benefit from.
Speaker Change: Settlement.
Speaker Change: That we reached with.
Speaker Change: With respect to one or did that we had which was very successful results. So we had a onetime benefit in Q1 24.
Speaker Change: Which was a one time.
Speaker Change: Q2, and Q3 tax rates are already.
Speaker Change: As Youll see reasonable for example, this quarter was about 12% the previous quarter was about 10%. So that's exactly what I said.
Speaker Change: So bottom line if you just exclude the Q1, which are the one time benefit.
Speaker Change: We are at the 10% to 12% and I think it is good to modeled out 10 12, 14%.
Speaker Change: For the coming year.
Speaker Change: No there isn't.
Speaker Change: Alright, great that helps a lot. Thank you.
Speaker Change: That's all my question.
Speaker Change: Okay.
Speaker Change: This concludes our Q&A session I will now turn the conference back to Mr. <unk> for his closing remarks.
Speaker Change: Thank you and thank everyone for participating.
Speaker Change: I think all of the analysts for really a very good group of questions.
Speaker Change: To conclude today's call.
Speaker Change: 2024 has been and promises to end as.
Speaker Change: As our strong performance year for the company, both in our financials and an extreme strategic customer activities securing the future.
Speaker Change: We are confident to continue to execute on the exciting growth opportunities before us are.
Speaker Change: Our unique capabilities in silicon photonics in silicon germanium paired with deep first year customer collaborations enable us to maintain leadership as a trusted foundry partner.
Speaker Change: As the demand for higher data speeds intensifies, our innovations and investments are setting a strong foundation for future expansion, especially in advanced RF and power management segment or <unk>.
Speaker Change: Strong balance sheet puts us in a position to act quickly on a variety of accretive investments via capacity or capability capex or partnerships.
We're excited about our future and remain committed to driving exceptional value for our stakeholders.
Speaker Change: Moving into the holiday season.
Speaker Change: We wish everyone peace happiness in security.
Speaker Change: We thank our employees worldwide for their continual capability based impassioned efforts and our customers worldwide for their faith in us and placing their success and our partnership with us.
Speaker Change: Thank you all very much on January 14th and 15th 2025, we will participate at the 27th annual Needham growth Conference in New York.
Speaker Change: It'll be our pleasure to meet you at this conference.
Speaker Change: Again, thank you for your support and for joining us today.
Speaker Change: That does conclude our conference for today. Thank you for participating you may now disconnect. Thank you.
Speaker Change: Yeah.
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Speaker Change: Welcome to <unk> financial results conference call for the third quarter of 2024.
Speaker Change: Before we begin I would like to remind you that some statements made during this call may be forward looking and are subject to uncertainties and risk factors that could cause actual results to be different from those currently expected.
Speaker Change: These uncertainties and risk factors are fully disclosed in our form 20-F, and 6K filed with the Securities and Exchange Commission as well as filings with the Israeli Securities Authority.
Speaker Change: Available on our website.
Speaker Change: Assumes no obligation to update any such forward looking statements.
Speaker Change: Please note that the third quarter of 2020 financial results have been prepared in accordance with U S. GAAP financial tables and data in today's earning release and in this earnings call. Also include certain adjusted financial information that may be considered non-GAAP financial measures under regulation G and related reporting requirements as established with the securities and exchange called.
The financial tables include a full explanation of these measures and a reconciliation of these non-GAAP measures to the GAAP financial measures.
Speaker Change: We have a supporting slide deck that complements today's conference call. This presentation is accessible on our company's website and is also integrated into today's webcast <unk> now.
Speaker Change: Now I'd like to turn the call to our CEO Mr. Raskin at under <unk>. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Thank you Luis.
Speaker Change: And welcome everybody. Thank you for joining our third quarter 2024 earnings conference call.
Speaker Change: A quarter in which we delivered a strong financial performance.
Speaker Change: During this quarter, our high speed data center offerings reached a record revenue.
We've seen an increase in our customer short term and mid term demand.
Speaker Change: For this.
Offering.
Speaker Change: That should result in an incremental dollar growth unprecedented as compared to any other product offering in our history.
Mainly driven by our unique offerings fulfilling AI requirement.
Speaker Change: Revenue for the third quarter reached $371 million.
Speaker Change: A 6% quarter over quarter, and three 5% year over year growth with a net profit of approximately $55 million, representing net margin of about 15%.
Speaker Change: At year's begin we stated a target of sequential quarterly growth, which we've achieved through the third quarter. We're.
We're pleased to guide the fourth quarter to continue this trend with a midrange guidance of $387 million and a range of plus or minus 5%.
Speaker Change: Its mid point represents about 10% Q4 versus Q4 year over year growth.
And 18% within a year growth.
Speaker Change: We continue to experience very strong growth in our RF infrastructure business.
Speaker Change: Representing approximately 18% of our corporate revenues in the third quarter.
Speaker Change: And close to doubling in Q3 24 over Q3 'twenty three revenue.
Speaker Change: Primarily driven by the increase in optical transceiver demand used in high speed data communication for AI and other data center applications.
Speaker Change: We serve this market with both silicon germanium for electrical amplifiers, such as travelling PM amplifiers and drivers and with FIFO for integrated optical components, such as modulators and photo diodes.
Speaker Change: Silicon Photonics continues to see rapid adoption at the higher data rates.
Speaker Change: Today, we are shipping 800 key products in high volume.
Speaker Change: Salting and a 2020 for expected revenue of approximately $100 million for Silicon Photonics.
Speaker Change: Photonics.
Speaker Change: This being a new growth market, where tower will have over three <unk> revenue growth 2024 over 2023 with.
Speaker Change: With a forecasted annualized Q4, 24 run rate of over $150 million.
Speaker Change: As of this quarter, we've begun the production ramp of one six terabits products for several lead customers.
Speaker Change: 800 sheet products are built with eight parallel lanes of 100 gigabit per second.
Speaker Change: 160 products or the ultimate eight parallel lanes each operating at 200 gigabit per second on our latest technology that doubles, the operating speed of each component.
Speaker Change: While our component count remained similar for 800 gigabit eight lane first 160.
Speaker Change: Terabyte eight lane that needed performance requires continuous innovation and process technology and integration.
Speaker Change: Support that.
The demanding modulation bandwidth.
Speaker Change: We believe today tower is the number one foundry by volume in Silicon Photonics and to our knowledge also the first in production with $1 60, Silicon Photonics based products.
Speaker Change: Looking forward, we continue a strong R&D partnership with lead customers towards introducing technology for three two terabyte.
Speaker Change: Rely again on technical innovation, enabling a doubling of speeds to 400 gigabit per second per lane.
Speaker Change: Our silicon germanium business is growing not only due to the factors mentioned above that are growing the optical transceiver market.
Speaker Change: As both silicon germanium and silicon photonic components are built into an advanced optical transceiver.
Speaker Change: But also due to strong demand for active copper cables.
Speaker Change: For short reach Interconnects.
Speaker Change: Active copper cables typically use a silicon germanium driver or re timer to improve signal integrity at high speeds currently 800 G.
Speaker Change: To enable copper cables to be used in many short reach applications for both performance and cost benefits as compared to optical cables.
Speaker Change: Based on the strong demand, we're seeing from both our silicon germanium and Sighful customers. We are qualifying both families of platform serving office track freezers in our San Antonio and mixed ophthalmic 200 millimeter factories, where we are optimizing existing fab space and adding substantial additional clean room for further growth.
Speaker Change: We have also released 300 millimeter PDK using a 65 nanometer Cmos.
Speaker Change: Which for Silicon germanium enables customers to integrate higher density lower power and lower noise Cmos.
Speaker Change: Supporting higher precision analog circuit application.
Speaker Change: Phased array RFID CES.
Speaker Change: And increasingly complex modulation schemes for communication.
Speaker Change: And for Silicon Photonics for lower loss component.
Speaker Change: The RF mobile market predominantly RF, soi, which represented approximately 26% of our corporate revenues in the third quarter of 2024.
Speaker Change: We continue to transition customers to do 300 millimeter capacity in a grotty.
Speaker Change: As our demand outpaces RF soi capacity in our wells in 300 millimeter factory.
Speaker Change: We expect to deliver our first production revenue in Q4.
Speaker Change: To the order of a couple of tens of millions of dollars from the a grotty factory with further ramp expected in 2025 to support the growth we are seeing in this market.
Speaker Change: In addition, we continue to prototype with customers on our most advanced platforms.
Speaker Change: 65 RSC.
Speaker Change: Now available directly from a grotty as well with customer acknowledge industry best our RMC off in power handling for next generation RF mobile products.
Speaker Change: Our newly announced Triple play RF Soi platform for Wi Fi front end modules that integrate the power amplifier <unk> amplifier and switch on a single die.
Speaker Change: A press release with Broadcom is a mass production.
Speaker Change: We're seeing strong interest from additional market leaders.
Speaker Change: Our power business.
Speaker Change: Which represented 17% of our corporate revenues in the third quarter of 2024 continues to see strong growth opportunities in our 300 millimeter 65 nanometer BCD platform, which as we have discussed in prior quarters enables us to enter a lower voltage and higher volume markets in handsets and other.
Speaker Change: <unk> devices.
Speaker Change: In addition to our high voltage industrial and automotive segments.
Speaker Change: We are pleased to report that we have ramped certain handset products to high volumes and this technology in our Japan factory.
Speaker Change: And our qualifying our Albuquerque facility to enable further growth.
Speaker Change: Anticipate beginning production in Albuquerque in 2025.
Speaker Change: And given the large capacity available anticipate this to provide strong growth for our power business for years to come.
Moving to sensors and displays which represented 14% of our corporate revenues in the third quarter.
Speaker Change: At year's begin we expected second half growth in particular from customers serving machine vision. This has not happened, but rather the imaging business remains stable through the year as of Q2 run rate.
Our customers are optimistic about 2025 growth based upon new wins, particularly based upon wins with our 300 millimeter 65 nanometer Cif platforms.
Speaker Change: Among these wins is a stack of ESI global shutter Ultra high resolution sensor 103 hundred 25 megapixel.
Speaker Change: Showcase by one of our leading customers and last month, they didn't show in Stuttgart.
Speaker Change: And the display front, we are engaged with two very large customers and the AR and VR market with OLED in silicon displays.
Speaker Change: Spector to tape out our products next year on our new five volt with extensions to eightfold transistors lean 300 millimeter platform with state of the art low leakage currents in high density capacitors.
Speaker Change: Our fab utilization rates for the third quarter, where fab one as previously announced.
We'll be operationally consolidated in fab, two and was at about 85% entering entering into last time buys.
Speaker Change: Fab two eight inch as well as fab nine eight inch for about 60% each with.
Speaker Change: With concurrent capacity Repurposing and cleaner and built out to meet the continually growing forecasted demand for silicon germanium and silicon photonics products.
Speaker Change: Fab three eight inch was at 65%.
Speaker Change: Currently at full silicon germanium and silicon photonics capacity.
Speaker Change: With real time activities, reducing certain bottlenecks targeting a 20% increase in the fab utilization.
Speaker Change: <unk> $5 eight inch is at about 60%.
700, <unk> was about 85% fully loaded to our operational model.
Speaker Change: With that I'll turn the call to our CFO, Mr. Oren Shirazi foreign please.
Oren Shirazi: Thank you Russell Hello, everyone.
Oren Shirazi: Earlier today, we released our quarterly financial results and balance sheet.
Oren Shirazi: For the third quarter of 2024, we reported revenue of $371 million gross profit of $93 million.
Oren Shirazi: Operating profit of $56 million.
Oren Shirazi: Brokerage or $55 million, reflecting 15% net margin.
Revenue for the third quarter of 2024 wells.
Oren Shirazi: $371 million.
Oren Shirazi: Compared to $351 million in the second quarter of 2020 full I.
Oren Shirazi: I am pleased to report that we achieved our stated 2024 target of quarter over quarter revenue growth.
Oren Shirazi: Cedar Inc.
Oren Shirazi: Total revenue for the past quarter, and todays fourth quarter mid range revenue guidance of $387 million.
Oren Shirazi: Gross profits for the third quarter of 2024 was $93 million compared to $87 million in the quarter.
Phil.
Speaker Change: Operating profit was $56 million compared to $55 million to play out quarter, which included $6 million of restructuring income in relation to Japan operations reorganization.
Oren Shirazi: Net proceeds were $55 million.
Reflecting 15% net margin.
49 <unk>.
Oren Shirazi: Basic and diluted earnings per share compared to a net profit of $53 million, reflecting 48 basic and diluted earnings per share in the second quarter of 2024.
Oren Shirazi: Which included $2 6 million of net income from our Japan operations of the organization.
Oren Shirazi: Moving to balance sheet, and future Capex and cash plan.
Oren Shirazi: At the end of September 2024 hour balance sheet assets totaled $3 1 billion as compared to $2 nine.
Oren Shirazi: <unk> 9 billion at the end of 2023, primarily comprised of $1 3 billion of fixed assets net of depreciation.
Oren Shirazi: Predominantly comprised of fab equipment, and $1 $7 billion of current assets.
Oren Shirazi: Current assets ratio, reflecting the multiple body, which current assets are larger than short term liabilities is very strong at about six six.
Oren Shirazi: And shareholders' equity reached a record of $2 6 billion.
Oren Shirazi: End of September 2024.
Oren Shirazi: Our strong financial position enables us to blend the following investments in strategic opportunities that are aligned to our corporate vision.
Oren Shirazi: Approximately $500 million of total aggregate cash has been allocated to make investments in equipment.
Oren Shirazi: <unk> and <unk>.
Oren Shirazi: In the 12 inch fab integrator, Italy, following the previously announced SD micro partnership today.
Oren Shirazi: To date, we have already invested $400 million and do some of this amount.
Oren Shirazi: And have placed purchase orders for all of the equipment and other capex items required the rim.
Oren Shirazi: <unk> $100 million are expected to be paid in the coming full quarter.
Oren Shirazi: In addition, as previously announced we have committed to invest up to $300 million.
Oren Shirazi: Equipment and other capex items that we will own in Intel's, New Mexico fab.
Oren Shirazi: Enabling us to ramp up our fab capacity and capabilities for our customers. This $300 million of Capex, we've focused it to be paid in installments until the end of 2020.
Furthermore, as we announced today, we are executing the $350 million investment plan.
Oren Shirazi: Expand <unk> capacity and capabilities for the qualification and ramp up of these technologies in oil 200 millimeter and 300 millimeter fab will serve our growing customer demand payments towards this $350 million plan are expected installments until the end of 2020.
Oren Shirazi: I wish to note that all of the above investments, including today's announced safety faithful inside <unk>.
Oren Shirazi: Next investment within and steps toward.
Oren Shirazi: Achieving our business strategy and financial model, our previously presented by the company in November one year ago.
In the model, we outlined our revenue target of $2 66 billion.
Speaker Change: On them.
Speaker Change: That could be achieved by fully loading our existing facilities and our newly built and to build capacity.
Speaker Change: In new Mexico facilities, which could result in $560 million on operating profit and $500 million annual net broker now I'd like to turn the call back to the operator.
Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
A reminder to ask a question. Please press star one and one on your telephone and wait for your name to be announced.
Speaker Change: Please standby, while we compile the Q&A queue. This will take a few moments.
If you wish to cancel your request please press star one.
Speaker Change: Dan.
Speaker Change: And once again, it's still one and one if you wish to ask a question. Thank you.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: We are now going to proceed with our first question.
Speaker Change: The question comes from the line of maybe Husseini from Susquehanna International Group. Please ask your question.
Speaker Change: Yes, thanks for taking my question.
Speaker Change: Two follow ups here I'll, let it go to slide number six and better understand the revenue.
Speaker Change: Gross profit opportunities, especially with.
400 gig, but should we assume that.
Speaker Change: The ASB premium revenue mix is much higher than the wafer mix I don't have it.
Speaker Change: I'll go up.
Speaker Change: I'm, sorry, I didn't quite understand the question, but what makes us higher than the <unk>.
On slide number six.
Speaker Change: The wafer mix between.
Speaker Change: 400 gig.
So 400 gig and more than 400 gig.
Speaker Change: I'm under assumption that.
Speaker Change: For applications above 400.
Speaker Change: Wafer ASB is higher and therefore, the statements slide but presented with the revenue mix will have a significantly higher mix of a higher than 400 gig.
Speaker Change: Is that a is that a fair assumption.
Speaker Change: It's a fair assumption, but I'm not sure that you are seeing the slide properly. This is only for active copper cable.
Speaker Change: Slide does not overall silicon germanium mix.
Speaker Change: Certainly the <unk> platform's itself.
Speaker Change: We are using for.
Speaker Change: 800 G R a more advanced platform.
Speaker Change: Or higher.
Speaker Change: TNF Max then we would be doing it at a 400 or a 100 G.
Speaker Change: For cables it also.
Speaker Change: To an extent, but most of the cables that were selling are already going for above 400, G or as I stated in the script, mainly for 800 gig.
So yes that we're selling are at a very good ASP, but its because of the higher end platform, but most of what we're doing is we're at that speed.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks for clarifying that and then just looking at the overall silicon photonics market in the past, but highlighted 80 million revenue opportunity in 'twenty, four and doubling to $160 million in Tony five it seems like you're tracking above those targets can you give us an update here.
Speaker Change: Yeah, I don't mean this tongue in cheek, but I think I did.
Speaker Change: Yes, the revenue is expected to hit about $100 million. This year. So certainly is.
Speaker Change: Sorry, as I stated at the beginning.
Speaker Change: Short term midterm, we're seeing ever increasing.
Speaker Change: Customer demand and for the midterm ever increasing customer forecast.
Speaker Change: So we will be leaving the year.
Speaker Change: Providing.
Speaker Change: We golar according to forecast and our ship plan with a about a $150 million silicon photonics run rate already leaving 2024 without giving anything about the 2025 guidance or targets.
Speaker Change: One could expect that if I, it's I think I said more than doubling but.
Speaker Change: That the from 80 to above 160, if already Q4 is it a $150 million run rate.
Speaker Change: Then.
Speaker Change: I think it's very safe to say that were tracking above.
Speaker Change: The forecast, we've given a quarter ago.
Speaker Change: Great. Thank you very good question. Thank you.
Speaker Change: We are not going to proceed with our next question.
Speaker Change: The question has come from the line of Cody.
<unk> from the benchmark company. Please ask your question.
Speaker Change: Yes, thanks for taking my questions and congrats guys on the progress.
Speaker Change: Thank you extremely impressive guidance.
Speaker Change: Glad to see it.
Speaker Change: Maybe oren can we just get one clarification, you said the $350 million would start.
Speaker Change: Sure.
Speaker Change: In installment payments and and when did you say 26 or 28.
Speaker Change: Oh end of 2006, it would it be spread youll mass on the political linearly between now and the end of 2026.
Speaker Change: Alright, great. Thanks, Thank yous tailed off a little bit when you were making that comment.
Speaker Change #100: Can you maybe talk about the level of revenue does that $350 million is expected to support if you just add incrementally to your slide your 266 billion what is the $350 million represents.
Speaker Change #101: No. That's included in the model like I said in my closing remarks. This is.
Speaker Change #101: Within the model and towards achieving the more data we needed to do the investment by the way also the Capex is included in the model. So there is no additional depreciation because of that.
Speaker Change #101: These are the steps that we needed to do in order to achieve this long term to 66.
Speaker Change #101: In the number.
Okay, great. Thank you already have the big point is.
Is that the model obviously.
Speaker Change #101: Was reliant upon certain technologies that customers would be needing and wanting that we're aligned.
To roadmap activities that we have with them and the fact that the investment steps are going and the important part is to say that it's all was.
Speaker Change #101: Foreseen in the model, but it was aligned to.
Speaker Change #101: Long term road map.
Speaker Change #101: Partnership.
Speaker Change #101: And that and going forward on it shows that what we had expected to happen is truly indeed occurring.
Speaker Change #102: Okay, great. So just a more detailed into the $2.
Speaker Change #103: Maybe if you can talk about.
Speaker Change #103: The.
Speaker Change #103: Yes.
Speaker Change #103: The types of agreements that you have with your customers for your Soi capacity, obviously, that's getting ready to ramp in and <unk> got significant amount of capacity out there to fill.
Speaker Change #104: What kind of customer agreements or.
Speaker Change #104: It's not contracts what kind of assurances do you have that theyre going to be there for you to support that capacity.
Speaker Change #104: Within the area of the RFS Hawaii.
Speaker Change #104:
Speaker Change #104: At present, I don't think Theres, a single take or pay agreement there are very very strong relationships.
Speaker Change #104: And.
Speaker Change #104:
Speaker Change #104: Track Records that we see customers having performed too.
Is there a take or pay involved no.
But I think in many areas take or pays or not a good thing to have in bad times trying hold somebody to buy things that they don't need is not good.
Speaker Change #104: But our assurance is really off of seeing how you cover.
Speaker Change #104: Many people within the space.
<unk> specific.
Speaker Change #104: Front end module market at this moment does not overly strong.
Speaker Change #104: But the fact that we're seeing very good growth.
Speaker Change #104: Hi.
Speaker Change #104: Believe in Q3 over Q3.
We had very good double digit 300 millimeter RF soi for advanced platforms, probably if we look at the fourth quarter forecast for the fourth quarter, a year ago for the 300 millimeter platforms that'll be well above 50% year over year growth.
Speaker Change #104: So the point being that.
Speaker Change #104: Customers that we're working with themselves are gaining market share in a market that.
Speaker Change #104: It doesn't have the type of growth that we're seeing.
Speaker Change #104: So as long as we're tied with people on multi generation road map.
Speaker Change #104: And serve them well.
Speaker Change #104: We're quite convinced that they stay with us in the short to midterm very difficult to qualify someone else and form fitting function for our front end module.
And the long term the assurance is simply if we perform well and they performed well in the short to midterm that we stay together in the long term, but the biggest thing is on.
Speaker Change #104: I am having PDK is that really match the output performance. So customers are more or less guaranteed first time success.
Speaker Change #104: And to work very closely to go through any issues real time during the initial design prototype.
So that they come to market quick.
Speaker Change #105: And that we both benefit from that hopefully that answers the question Cody, but if youre asking if we have long term take or pay agreements that we do not.
Speaker Change #106: Okay, that's great.
Speaker Change #107: Very helpful. Thank Russell and then lastly.
Speaker Change #107: We've been hearing some grumblings in the market regarding the potential uptake for active copper cables.
Speaker Change #107: With some changes that are speculated in their NGL 36 by two platform at Nvidia are you seeing any volatility in your wafer activity obviously youre.
Speaker Change #107: Youre seeing a lot of strength, given what you've been saying today, but.
Speaker Change #108: Just any color might help.
Speaker Change #109: Very perceptive of you and we have some wafers in line that indeed have been put on hold at a certain level to allow for a mass change.
Yeah.
Speaker Change #110: What does that entail Russell as far as your volume output.
Speaker Change #111: I think it's not going to make much difference at all.
Speaker Change #111: It's just a question of.
Speaker Change #111:
Speaker Change #111: Keeping wafers that are certain inventory point waiting for a new mask.
Speaker Change #111: So changes at the mass level.
Speaker Change #111: It would change how the copper cables are going to be deployed is that the way to think about it.
Speaker Change #111: It will change the output parameters.
Speaker Change #111: Any other color there Russell.
Speaker Change #112: No I think thats.
Speaker Change #112: Pretty good color actually.
Thank you.
Speaker Change #112: Alright, thank you.
Speaker Change #113: We are now going to proceed with our next question.
Speaker Change #112: Yeah.
So question is come from the line of Richard Shannon from Craig Hallum Capital. Please ask your question.
Speaker Change #114: Thanks, Russell and Oren for taking my questions here, great results, great to see the RF infrastructure and doing so well here.
Speaker Change #115: I guess my first question is.
Speaker Change #115: Silicon germanium side Youre talking about $1 60, I guess I'm wondering if that's going to be a material contributor noticeable contributed revenues by the end of next year is that timing.
Speaker Change #115: Yes.
Is that the timing that you expect to be material or is it still still growing from a small basis at that point do you think.
Speaker Change #115:
Speaker Change #116: Honestly think it will be material if you look at.
Speaker Change #116: Analyst reports for 2024 from two years ago.
Speaker Change #116: They all really had 100 G being <unk>.
Speaker Change #116: 80% of the market, we're probably 800 G.
Speaker Change #116: 80, 590% of the market.
Speaker Change #116: This year.
Speaker Change #116: So I think the fact that we have good working samples of course, the end data center maker of the Hyperscale or has to be willing to implement but but I do think the roadmap.
Speaker Change #116: On speed is very very fast now bye.
Speaker Change #116: I believe it'll be a material amount of revenue in the second half of next year.
Speaker Change #116: And maybe starting in the second quarter.
Speaker Change #117: Okay perfect Thats very helpful. Russell, Thanks for that maybe a question for Oren.
Speaker Change #117: Gross margins here.
Speaker Change #119: Just looking at the fall through of quarter on quarter I know, it's probably not great to look at it just on that short term basis here, but last quarter you saw a very nice fall through margin. This quarter was a bit less here 30, I'm calculating about 31% or so last quarter. You said the benefit was coming from silicon photonics, yet seems like silicon photonics is doing very well so I can't resolve those two.
Speaker Change #119: They seem to contradict each other can you help us understand why the why the big difference here.
Speaker Change #119: Yes.
Speaker Change #120: I think related to that in his remarks, he mentioned that the <unk> sensor was not like we expected and the CIA is as you know is also high margin like the cycle. So the increasing cycle, which is very nice.
Speaker Change #120: Impact on margin in Q3 was somehow offset by.
Speaker Change #121: Dana pencils.
Speaker Change #122: Okay. Thanks for that.
Speaker Change #122: Okay sorry.
Speaker Change #122: I didn't mean to interrupt you orin.
Speaker Change #122: Final finished.
Speaker Change #122: Okay.
Speaker Change #123: Russell, maybe looking forward here trying to help people think about their.
Speaker Change #123: Growth expectations kind of linearity through next year.
Speaker Change #124: I know you probably don't get anything quantitative, but just kind of a framework to think about here.
Speaker Change #125: Generally your first quarter is seasonally down I'm wondering if you expect normal seasonality here and then how do we think about growth going into next year I mean, the RF infrastructure looks.
Speaker Change #125: Fantastic power is doing pretty well and it sounds like you are.
Speaker Change #126: Sensor and image businesses is poised to inflect here in.
Speaker Change #127: I guess, we can all projected what RF soi can do.
Speaker Change #127: Or excuse me in RF mobile, but it seems like a pretty good growth year here.
Speaker Change #128: Could you help us think about these dynamics should we put our models together.
Speaker Change #128:
Speaker Change #128: So certainly believe that the.
Speaker Change #128: Infrastructure markets served by the <unk> and the cycle will grow and grow very strong.
Speaker Change #128: <unk> mentioned that the <unk>.
Speaker Change #128: I realize it's very high margins.
Speaker Change #128: It actually comes in substantially higher than the imaging, which is also extremely high margin.
Speaker Change #128: I think as far as.
Speaker Change #128: The.
Speaker Change #128: Contributions of the SIFI growth it'll be quite substantial and <unk> will continue to grow throughout the year as well from everything that we see in <unk>.
Speaker Change #128: Customers are forecasting.
Speaker Change #128: On the imaging.
Speaker Change #128: We had mentioned earlier that Q1 was a low for US Q2 is a substantial increase over Q1.
Speaker Change #128: And we stayed at the Q2 level, but we had expected a very good growth forecasted by our customers, particularly for machine vision in the third and fourth quarter, which did not happen.
Speaker Change #128:
Speaker Change #128: I'm not going to give a target or a guidance in the third quarter for 2025, we will certainly be giving good color on that when we released the fourth quarter, but that being said for our plans right now.
Speaker Change #128: Not putting into any of our plans.
Speaker Change #128: <unk>.
Speaker Change #128: <unk>.
Speaker Change #128: Believed forecasted customer demand increases for the imaging, but our plans would have imaging staying at the same levels as they were as they are now as we hit in Q2.
Speaker Change #128: And within our own plans with imaging comes up at 25% or 50% increase that'd be fantastic, but it's not what we're counting on.
Speaker Change #128: On the RF Soi.
The market itself is data does not overly strong our customers are gaining market share.
Speaker Change #128: Would expect that there will be growth in RF Soi, there will certainly be growth and 300 millimeter for 300 millimeter.
Speaker Change #128: 200 millimeter that we're doing I'm not sure that that will be growing.
Speaker Change #128: I don't know how much the overall market will grow next year I expect that we'll have growth but.
Speaker Change #128: Some of it really depends on the mobile market itself, what's happening in handsets.
And I don't think that you know two of the big players in that market that gave releases recently, we're not overly optimistic about 2025.
Speaker Change #128: So the RF mobile market I think will outperform the market because serving customers that are gaining market share. In addition to other customers.
Speaker Change #128: And even with some.
Speaker Change #128: Of existing customers, we're gaining additional skus and for new capabilities. So I I'm not sure how much of that will go I don't know how much color I can give there and that's one reason that.
Speaker Change #128: Before we give a target for.
Speaker Change #128: And next year.
We really like to be closer to the year as possible and when we released Q4 will be within the year. So I think we'll be able to get a good flavor.
Speaker Change #129: But from what.
Speaker Change #129: Lead suppliers to front end module are saying right now.
Speaker Change #129: It doesn't look like the mobile market is extremely strong and twenty-five or at least for the first half of it in.
Speaker Change #129: In the power market, that's a place that we really do always have opportunity to grow and it's really because whether the market itself is growing or not we're starting from not at a very high market share position.
Speaker Change #129: And the 300 millimeter platforms are strong platforms growing.
Speaker Change #129: Getting qualified where we have now a free capacity in Albuquerque.
Speaker Change #129: So we'd expect to see.
Growth in that end.
Speaker Change #129: In 2025 to what extent I'm not sure I mean, I don't want to say that at this point.
Speaker Change #129: But certainly it's a good business for us where we entered into additional markets that we weren't serving in the past.
Speaker Change #129: <unk>.
No I think the easiest way to grow share of market is by increasing your served market, which we've certainly done with them.
Speaker Change #130: Yeah, BCD 65 nanometer BCD and potentially going beyond that.
But I'm not sure if that answered your question well, but it's as much as I think I can say at this point.
Russell: That is helpful. Russell I understand it's early but your best perspective is always helpful. So thanks for that.
Russell: My final question I'll jump out of line here, just looking at the balance sheet and noting this is a very strong cash position and obviously you've been growing cash and expect to.
Russell: By all measures here going forward here, so I'm wondering what youre thinking about for cash usage going forward here.
Russell: And I guess, maybe I'll also turn this to more of a strategic.
Russell: Thought process with your company do you see any potential for M&A in any way either operations or technology or anything to augment.
Russell: Areas that you have silicon photonics power et cetera.
Speaker Change #132: To realize that thanks for that.
I'll start with the second part of your question then Orange could talk to the first because I think he is.
Speaker Change #132: And it is portion talking about a lot of cash needs in the company to fulfill this circa $2 $7 billion plan.
Speaker Change #132: But.
Speaker Change #132: As far as M&A is.
Speaker Change #132: We're always.
Speaker Change #132: Truly actively engaged in getting multiple M&A is.
Speaker Change #132: Now there are a lot of speculations about us going into a foreign country and building.
Speaker Change #132: Building, a big factory et cetera et cetera.
Speaker Change #132: We're engaged all the time and looking at opportunities some opportunities appear at first swipe to be extremely positive.
But you know always.
I think.
There is.
Speaker Change #132: And honest risk reward look that has to be done.
Okay.
Speaker Change #132: As soon as we see things that.
Speaker Change #132: It makes sense and are truly accretive.
Speaker Change #132: To the company meeting very few.
Speaker Change #132: Capacity acquisitions that you would do certainly no greenfield builds that a person would do.
Speaker Change #133: Our ever.
Speaker Change #133: Cash accretive.
Speaker Change #133: For the first years and it takes multiple years to get to.
Speaker Change #133: Net profit positive within any greenfield.
Speaker Change #133: So the conditions of doing one of our greenfield activity, which could make sense in different geographies has to have certain conditions with either the government or.
Speaker Change #133: With certain customers or with a partner.
That would not have our shareholders suffer from the cash loss of the first seven eight years.
Speaker Change #133: And you know that.
Speaker Change #133: That takes a lot of consideration in activities, that's why for such.
Speaker Change #133: Capacity large capacity increases its always smarter to take over a going concern than it is to do a greenfield on a pure financial basis.
Speaker Change #133: As far as looking at technology acquisitions again, we're we're very engaged in those.
Speaker Change #133: To say, what we're engaged in right now maybe set false expectations and.
You know to release anything before one is required to release, which means before it becomes material.
Speaker Change #133: And then can come off and look like one was an effective at closing on a deal which is not the case, it's very good to always be open and look at deals.
Speaker Change #133: And I would say, there's rarely a time when there arent at least four to eight activities that we're pursuing and engaged in.
Speaker Change #133: But before closing them, they really have to be something that is accretive to.
Speaker Change #133: To shareholders.
Speaker Change #133: <unk>.
Speaker Change #133: Is accretive to our roadmap and hence to our customers or.
Speaker Change #133: Wood contained customers that our other products can help grow on top of what you're buying.
Speaker Change #133: But that's a long answer and I apologize that its along it's just it's not an easy.
Speaker Change #133: Digital yes, or no it's a lot of qualifications in it.
Speaker Change #133: But we are actively looking we have been actively looking.
Speaker Change #133: Very close to.
Speaker Change #133: Maybe doing something within the past month that ultimately we cannot come to agreements that would be viable for shareholders and hence for the company and I think that no matter. How excited one is about something you must always be grounded in the numbers and if something doesn't pencil it doesn't pencil.
Speaker Change #134: Appreciate all that detail and Russell as always congratulations on the great results I will jump out of line.
Speaker Change #135: Thank you.
Speaker Change #136: Thank you we are now going to proceed with our next question.
Speaker Change #136: Two questions come from the line of Nikolay <unk> from Needham. Please ask your question.
Speaker Change #137: Hey, guys. Thanks for taking my questions.
Speaker Change #137: So a question on accs.
Speaker Change #137: So youre seeing the short term and midterm strength in your silicon germanium business enough to invest significantly for new capacity and some of that not all is related to the accs and I think the answer you gave to Cody earlier was related to this rack to rack or a horizontal <unk>.
Speaker Change #137: Opportunity, but I'm, assuming the strong demand and in the Capex decisions can go beyond.
Speaker Change #138: Would mean that the demand would go beyond one application at one customer. So we've heard applications using Mick to tour or a vertical use case and also a newer and Iraq use case at higher speeds. So can you give any color on what and the other applications could be thanks.
Speaker Change #138: To begin with the bulk of our silicon germanium is not for ACC right. It's for the Ti as in the drivers.
Speaker Change #138: So that's the bulk ACC is incremental revenue now.
Speaker Change #138:
Speaker Change #138: The lead customers that we have for the optical transceivers itself are also those that are doing the active copper cables.
Speaker Change #138: Within.
Speaker Change #138: That incremental revenue that they have demand for the ACC.
Speaker Change #139: I cannot exactly say.
What application they're going after.
Speaker Change #139: Within rack within the pizza box itself.
Speaker Change #139: Rack to rack.
Speaker Change #139: Many cases rack to rack active copper cable is not sufficient.
Speaker Change #139: But I don't think I'm in a position to give real good color as to watch our lead customers.
That are using <unk>.
<unk> at very high volumes for the Transceivers and are also now buying <unk> for that ACC.
What is their entire gamut us.
Speaker Change #139: Applications out there serving with the ACC I Couldnt really state that with.
Speaker Change #140: Tremendous granularity.
Speaker Change #141: Okay still helpful. Thank you. Thank you for that color Russell and then next one just a basic question on utilization SaaS.
Speaker Change #141: <unk> three is that 65% I believe you mentioned.
Speaker Change #141: And that is I guess full <unk> and CFO capacity whats that 20% target increase so just a little explanation on that.
Speaker Change #142: 20 points.
Speaker Change #142: Just an explanation on how that is going to happen Youre, I guess youre, taking out certain capacity and reselling. It with this big GM size, our demand and and that's contemplated in the $350 million and that's how you will increase this utilization.
Speaker Change #143: Very good question there is.
Speaker Change #143: Bottlenecks that we have there are other mixes that were done in that factory previously.
Speaker Change #143: There's bottlenecks specific.
From having moved from silicon germanium to doing a certain amount of silicon photonics.
Speaker Change #143: And.
By adding and qualifying.
Certain processing Chambers, you are leaving the bottlenecks enabled them to move up to use the full photo capacity.
Speaker Change #143: The fab we always.
Speaker Change #143: Present utilization against Max photo capacity of the factory.
Speaker Change #143: Processing tools.
Speaker Change #143: Can gate for a certain flow the photo capacity, what you have and any fab is processing tools.
Speaker Change #143: That are unique to certain flows.
Speaker Change #143: <unk> are capped at whatever the volume is plus some certain percent otherwise you have tools that are utilized and using fab space and effectively.
In this case as we've moved to having.
Speaker Change #143: Such a demand for the <unk> the CFO.
Doing very little in that factory other than <unk> CFO to maximize that output, but we've come into bottlenecks.
Speaker Change #143: Certain steps, which you could maybe say certain etch steps et cetera.
Speaker Change #143: Or maybe certain deposition steps.
Speaker Change #143: So we've added chambers are adding chambers are repurposing, some chambers in order to be specific to the <unk> and CFO and hence.
Speaker Change #143: Leaving the bottlenecks to get closer to the full funnel capacity, which over time will get to the full photo capacity, which in our model is an 85% operation. So 85% of the full photo allows a fab to still be moving at good cycle times.
Speaker Change #143: And that's what our what our target is.
Speaker Change #143: We also.
Speaker Change #143: Are using.
Speaker Change #143: Some capabilities in other factories.
Speaker Change #143: And that's part of the $350 million.
Speaker Change #143: To enable further usage of any given factory, we have the ability to be transferring to start doing a deposition early on in the line and one factory.
Speaker Change #143: And if that deposition is a deposition that's constrained elsewhere.
Speaker Change #143: To free up the constraint in the other factory by doing nearly deposition in one.
Speaker Change #143: So that's part of the $3 $50 million as well as relieving bottlenecks through optimizing the fleet.
Speaker Change #144: It sounds like a lot of good decision. Thanks. Thank.
Speaker Change #144: Thank you.
Speaker Change #146: We are now going to proceed with our next question.
So question is come from the line of Lisa Thompson from Zacks small cap research. Please ask your question.
Speaker Change #147: Hi, and I want to welcome you back to revenue growth.
Speaker Change #148: Thank you. Thank you.
Speaker Change #148: [laughter].
Speaker Change #148: I have one financial question Lauren.
Speaker Change #149: This year, we were supposedly thinking that your tax rate was going to be 15, 14% for the year, but unless you pay a really big chunk in Q4, that's not going to happen.
Speaker Change #149: What do we think about Q4 taxes and also what you are thinking about next year's tax rate given all your varied activity in different countries.
Speaker Change #149: Hi.
Speaker Change #149: Yes.
Speaker Change #149: No there is no expectation to a big chunk of payment for tax I mean, our tox.
Speaker Change #149: Model.
Speaker Change #149: First our tax regime is the balanced company in Israel, that's seven 5%.
Speaker Change #149: Because we are in what's.
Speaker Change #149: What's called Venezuela preferred zone because of the location of the <unk>. So this is a preferred tax rate of only seven 5%.
Speaker Change #149: In the U S, it's 21% in Japan, and 30% and Italy, 24%, but the.
Speaker Change #149: I wouldn't expect because of those headwinds that roughly about and spoke about in previous calls.
Speaker Change #149: The wins that we will start to have a way and we will start to operate across it. So we expect the <unk>.
Speaker Change #149: Got to have profits you know go out in the coming quarters for sure in the coming year.
Speaker Change #149: So.
Speaker Change #149: So we will not pay those 24%.
Speaker Change #149: <unk>.
Speaker Change #149: So we are left with the seven 5% in the bond company 21 in U S and 30 in Japan as you can see in our financials, we're very efficient I believe while displayed that.
Speaker Change #149: The average <unk> is usually 10%.
Speaker Change #149: Queen eight to 14 and depends on the quarter defense when we'd see Jim is the.
Speaker Change #149: Is the income so we manage it.
Speaker Change #149: If a clear to have it at around 10% usually.
Speaker Change #149:
Speaker Change #149: For this year.
There was a one time in Q1.
We had a tax benefit from.
Speaker Change #149: Settlement.
Speaker Change #149: That we reached with the <unk>.
Speaker Change #149: With respect to one or did that we had which was very successful results. So we had a onetime benefit in Q1 24.
Speaker Change #149: Which was a one time.
Speaker Change #149: In Q2, and Q3 tax rates are already.
As Youll see reasonable for example, this quarter was about 12% the previous quarter was about 10%. So that's exactly what I said.
Speaker Change #149: So bottom line if you just exclude the Q1, which are the one time benefit.
We are at the 10% to 12% and I think it's good to modeled up in 12 or 14%.
Speaker Change #149: For the coming year.
Speaker Change #150: No there isn't.
Speaker Change #150: Alright, great that helps a lot. Thank you.
Speaker Change #150: That's all my questions.
Speaker Change #150: Okay.
Speaker Change #151: This concludes our Q&A session I will now turn the conference back to Mr. <unk> for his closing remarks.
Speaker Change #152: Thank you and thank everyone for participating.
Speaker Change #153: I think all of the analysts for really a very good group of questions.
Speaker Change #153: To conclude today's call.
Speaker Change #153: 2024 has been and promises to end as.
Speaker Change #153: As our strong performance year for the company, both in our financials and an extreme strategic customer activities securing the future.
Speaker Change #153: We are confident to continue to execute on the exciting growth opportunities before us are.
Speaker Change #153: Our unique capabilities in silicon photonics in silicon germanium paired with deep first year customer collaborations enable us to maintain leadership as a trusted foundry partner.
Speaker Change #153: As the demand for higher data speeds intensifies, our innovations and investments are setting a strong foundation for future expansion, especially in advanced RF and power management segment or <unk>.
Strong balance sheet puts us in a position to act quickly on a variety of accretive investments via capacity or capability capex or partnerships.
Speaker Change #153: We're excited about our future and remain committed to driving exceptional value for our stakeholders.
Speaker Change #153: Moving into the holiday season.
Speaker Change #153: We wish everyone peace happiness in security.
Speaker Change #153: We thank our employees worldwide for their continual capability based impassioned efforts and our customers worldwide for their faith in us and placing their success and our partnership with us.
Speaker Change #153: Thank you all very much on January 14th and 15th 2025, we will participate at the 27th annual Needham growth Conference in New York.
Speaker Change #153: It'll be our pleasure to meet you at this conference.
Speaker Change #153: Again, thank you for your support and for joining us today.