Q1 2025 Wolfspeed Inc Earnings Call
[inaudible]
Matt: Good afternoon. Thank you for attending the Wolf B in Q1 fiscal year 'twenty five earnings call. My name is Matt and I will be your moderator for today's call I'll always be media during the presentation portion of the call up an opportunity for your questions and answers at the end if you like to ask a question. Please press star one on your telephone keypad I'll now pass the call.
Good afternoon. Thank you for attending the Wolf's Bee Inc. 1 fiscal year 25 earnings call. My name is Matt and I will be your moderator for today's call.
Speaker Change: Over to our host Tyler growing Buck Vice President of external affairs for will speed Tyler. Please go ahead.
Tyler: Thank you operator, and good afternoon, everyone welcome to Wolf speeds first quarter fiscal 2025 conference call.
Speaker Change: Today, we'll speed CEO, Gregg Lowe and Wolf speed CFO Neill Reynolds will report on the results of the first quarter of fiscal year 2025.
Please note that we will be presenting non-GAAP financial results during today's call.
Speaker Change: 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 non-GAAP information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAAP.
A reconciliation to the most directly comparable GAAP measures in our press release.
Matt: Posted in the Investor Relations section of our website, along with a historical summary of other key metrics.
Tyler: Day's discussion includes forward looking statements about our business outlook and we may make other forward looking statements during the call.
Tyler: 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: Lastly, please note that all numbers presented today will be on a continuing operations basis.
Tyler: 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.
Tyler: 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: Good afternoon, everyone and thank you for joining us today.
Greg: Most speed is at a critical inflection point in our strategic direction and priorities as an organization.
Greg: My comments will be focused on this inflection point and the key priorities for the business and those include <unk>.
Greg: Solidifying our capital structure to complete and positioned our Mohawk Valley device, and North Carolina materials facilities to generate annual targeted revenue of approximately $3 billion, while optimizing our strategic options.
Matt: Simplify our business to be the 200 millimeter silicon carbide leader by lowering our cost structure and capital requirements to accelerate the path to profitability immediately.
Matt: And capitalize on the structural and long term growth demand.
Matt: Silicon carbide transition and the global shift to Evs as well as the industrial and energy markets.
Matt: We are focused on our 200 millimeter strategy to differentiate and extend our leadership position against the competitive landscape.
Matt: As a scaled operator with the most advanced and highest quality products in the marketplace.
Matt: We will continue to improve our financial performance and grow revenue by aligning our robust backlog of $11 billion of design wins with industry cycles and targeted cash savings activities that significantly lower our breakeven point and accelerate our path to generate positive cash flows from operations.
Matt: While these have been the biggest driver of silicon carbide adoption, thus far the potential use cases for our technology are expensive and we believe they will only continue to grow as more and more industries need to solve for the same power loss system size and systems cost challenges as the automakers.
Matt: The importance of Silicon carbide to the next generation power semiconductor applications is a key reason why we are awarded $750 million and proposed direct funding under the chips and Science Act a key component to solidifying our capital structure.
Matt: We also secured $750 million and additional committed funding from an investor group that included Apollo.
Matt: <unk> group.
Matt: Management and research company <unk> capital group.
Matt: Coupled with an estimated $1 billion of section 40, <unk> cash tax refunds that we expect under the chips and Science Act.
Matt: We now have access to up to $2 $5 billion of incremental funding to support our U S capacity plan.
Matt: This funding is an important milestone in <unk> long term growth strategy and it speaks to the quality of our products and the role we play in the broader semiconductor industry.
Matt: With the funding secured I'll now address how we are simplifying our business and focusing on our 200 millimeter device platform lowering our cost structure and capital requirements to accelerate the path to profitability.
Matt: Mostly it is the first silicon carbide company in the industry to transition its entire device business to 200 millimeter.
Matt: This strategic move is driven by superior yields improve die cost and overall enhanced economics that we're seeing in our 200 millimeter platform.
Matt: This will allow us to utilize our capacity more efficiently due to more automated manufacturing at our 200 millimeter Mohawk Valley Fab versus are very manual 150 millimeter Durham fab.
Matt: This will enable us to eliminate redundancies significantly improving gross margins.
Matt: The transition to a fully 200 millimeter device platform also provides opportunities to streamline our organization and lower our operating expenses.
Matt: <unk> the slower growth of EDI adoption, and a continued weakness in industrial and energy.
Matt: Steps, we are taking will right size the business and generate additional cash savings. These steps include first we have begun to execute our plan to close 150 millimeter device fab on the Durham campus.
Matt: This closure will be a phased process over the next nine to 12 months and we are currently working with customers to finalize the transition timeframes.
Matt: Second we are optimizing our capacity footprint by closing our epitaxy facility in farmers branch, Texas and indefinitely suspending our construction plans for the next device fab in <unk>, Germany.
Matt: We expect to ramp down final production in farmers branch by the end of this calendar year.
Matt: Regarding <unk>, we have spoken with government officials and setup and they understand that we would need to see a clear acceleration of our customer demand.
Matt: Additional capacity requirements before we would reconsider construction at the site.
Matt: While we are indefinitely suspending our activities in Charlotte and at this time.
Matt: Determined to build a fab in the future.
Matt: Store site remains our preferred site in Europe.
Matt: Third we have implemented a workforce reduction in our administrative and other business functions.
Matt: This reduction along.
Matt: Along with the factory closures will impact approximately 20% of our total employee base.
Matt: This reduction will better align our business with current market conditions and customer demand.
Matt: These facility and head count restructuring initiatives are targeted to generate annual cash savings of approximately $200 million Cigna.
Matt: Significantly improving our projected cash flow from operations over time.
Matt: These actions will foster a stronger more agile company ready to seize the opportunities ahead.
Matt: Many of these reductions have already occurred and we expect to complete the majority of the actions by the end of the year.
Matt: And lastly, we are further reducing our fiscal 2025 capex guidance range by an additional $100 million.
Matt: To a new range of $1 1 billion to $1 $3 billion, excluding federal incentives.
Matt: This reduction will align the pace of our Capex spend.
Matt: With the broader shift in easy in any market demand that we are currently observing.
Matt: Now, let's look at our well positioned the company is to capitalize on the structural and long term growing demand for silicon carbide, and we'll begin with evs.
Matt: As we stated in the past we are in the very early stage, but the most significant and disruptive transition in the auto industry.
Matt: While this creates a potential for significant growth and opportunity in the long term.
Matt: It will also result in a dynamic environment and the near term.
Matt: As with any disruptive technology, we're seeing EDI customers revised their launch timelines as the market works through this transition period.
Matt: This push out and then anticipated EV demand does not reflect diminished confidence in the long term demand for the adoption of Evs.
Matt: As China, the world's largest market aggressively move forward with the electrification of the automobile.
Matt: The rest of the world will need to follow and compete particularly in the context of the stringent emission standards that will be taking effect in coming years.
Matt: Although demand is expected to ramp more slowly than we originally anticipated we are continuing to win our share in the evening marketplace in fiscal Q1, we recorded $1 $3 billion of design wins, our third highest on record and one $5 billion of design ins approximately 70%.
Matt: None of which were for EV platforms.
Matt: <unk> revenue grew two five times year over year, and we expect our EBIT revenue to continue to grow throughout calendar 2025 is the total number of car models using will speed silicon carbide devices and the powertrain increased by four <unk> from 2023 to 2024 and is expected to grow by another.
Matt: Approximately 75%.
Matt: In 2025.
Matt: For the industrial and energy sectors, we are seeing continued softness.
Matt: Primarily due to broader macroeconomic pressures, including higher interest rates and the rising cost of capital, which have delayed investment cycles and contributed to a slower recovery for this sector.
Matt: These conditions also resulted in shorter lead times had limited visibility throughout the broader supply chain.
Matt: While the industrial and energy end markets have remained challenged with orders remaining weak we are seeing an increase in end customer demand inventory levels and the market are starting to decline.
Matt: As such we expect the market will begin to recover in the first half of calendar 2025, and as we see broader market conditions further stabilize and move forward to recovery will be prepared to support the increased demand.
Matt: Now, let's take a minute to cover the great progress we've made in building out our 200 millimeter footprint.
Matt: For the first time the revenue from our 200 millimeter fab at Mohawk Valley exceeded the revenue from our legacy Durham Fab in Q1.
Matt: While this revenue was lower than originally anticipated due to a market demand and customer push outs. We continue to see great performance out of the fab with yield and cycle times are ahead of plan and anticipate future improvements as we ramped the fab.
Matt: In addition at the J P. We have crystal growers up and running and have been achieving our expected targets with the quality of the material, we're seeing being produced at that facility.
Matt: Construction at the site continues and we expect to receive a certificate of occupancy in the first half of calendar 2025.
Matt: Crystal growth substrate processing out of building 10 interim continues to generate solid output and yields.
Matt: This level of productivity will allow for a more measured ramp and therefore, a more measured level of spend at the J P.
Speaker Change: Now to quickly summarize before passing over to Neil.
Matt: We are solidifying our capital structure.
Matt: Fleet and position, our 200 millimeter footprint to generate annual targeted revenue was up approximately $3 billion and optimizing our strategic options.
Matt: At the same time, we are simplifying our business to be a 200 millimeters leader with a lower cost structure and capital requirements to accelerate our path to profitability.
Speaker Change: And the company is well positioned to capitalize on the structural and long term growing demand for silicon carbide power devices and materials and with that I'll turn it over to Neil to discuss our financials and our guidance.
Neil: Thank you, Greg and good afternoon, everyone.
Neil: Following up on Greg's comment I'll hit on three important areas of focus during the call today.
Matt: First I will focus on our liquidity and capital structure.
Matt: With the announcement of the chips PMT and upon completion of that agreement, we will have access to an incremental $2 $5 billion future funding.
Matt: <unk> to be approximately $1 $7 billion of cash that we ended the quarter with.
Matt: In combination. This total is greater than $4 billion of capital that we target keeping our cash levels greater than $1 billion for the next several years.
Matt: Secondly, I will outline in more detail our powered device transition to 200 millimeter, resulting in restructuring actions that will simplify our operating model lower our non-GAAP EBITDA breakeven to below a $1 billion annual revenue run rate and clearing our path to profitability.
Matt: Lastly, I will focus on our quarterly results and outlook incorporating the benefits of our 200 millimeter transition operational simplification and restructuring actions.
Matt: Starting with liquidity and funding the $2 5 billion chips PMT funding package previously mentioned has three components.
Matt: $750 million of direct funding from the chipset.
Matt: $750 million of debt financing.
Matt: $1 billion of $48 refundable tax credits under the chip Socs.
Matt: Regarding the $750 million and direct funding from the chipset.
Matt: Spec to receive this funding and multiple disbursements over the next several years, mainly tied to operational milestone at the J P and Mohawk Valley.
Matt: The first disbursement, which we expect to receive in mid calendar year, 2025 will be roughly 20% to 25% of the total grant size.
Matt: And will require us to make the following conditions.
Matt: Executing a definitive direct funding award agreement with the chips office hitting certain operational milestones.
Matt: And many other financial milestones related to our liquidity, including raising additional capital and refinancing our outstanding 2026 convertible notes prior to their maturity dates.
Matt: Regarding the $750 million in debt financing and customer financing we.
Matt: We have already executed the agreement for the Apollo led that financing over three tranches. The first of which was $250 million that we received in October.
Matt: We will be required to draw additional debt tranches related to this agreement of $250 million each in conjunction with drawing down on the first two disbursements of the chips grant.
Matt: We have also finalized an agreement to defer a total of $120 million in cash interest payments due prior to June 32025 from an unsecured customer refundable deposit agreements.
Matt: As it relates to meeting the chips award financial milestones as previously mentioned, we will be required to raise up to $300 million of additional capital from non debt sources, including equity.
Matt: To achieve the first disbursement of the chips grant we are targeting to raise a portion of this amount in equity capital in the near future.
Matt: As for our convertible notes the chips TMT provide some optionality for how we can address the maturities.
Matt: We will closely monitor and assess market conditions prior to taking any action related to our convertible notes and.
Matt: And we will consider all options available to us at that time to determine what is the best interest of long term shareholder value.
Matt: Right now in order to achieve the first chips disbursement, our focus will be on refinancing or restructuring outstanding 2026 convertible notes.
Matt: Regarding the estimated $1 billion of section 48 D cash tax refunds, a few weeks ago. The U S. Treasury Department released final 48, deregulation and our capacity expansion investments fully eligible for this program. Accordingly, we have now increased our accruals of approximately.
Matt: 725 million, a 48 tax credits as of the end of the first quarter.
Matt: We expect to see additional accruals in calendar 2025, and as we complete the JP facility and tool spend more of these accruals will be added to the balance sheet. We expect to realize the first tranche of cash tax refunds in calendar 2025, and subsequent refunds in 2026 and beyond.
Matt: In summary, this $2 5 billion funding package in conjunction with the required capital raises debt refinancing.
Matt: Significantly enhance our financial position and support our U S capacity expansion plans.
Matt: This is simply the first step however, in our journey to improve our balance sheet and accelerate our path to profitability.
Matt: While we expect to have access to new capital. We will continue to remain relentlessly focused on liquidity and driving operational improvements.
Matt: The higher yields and efficiency of our 200 millimeter production both substrate Bab stages.
Matt: Junction with the weaker short term market outlook, we will lower our capital expenditures in fiscal year 2025 to $1 one to $1 3 billion.
Matt: A reduction of $100 million versus our prior guidance.
Matt: Allow us to largely complete our facility build out at the J P and Mohawk valley or being more prudent with tool expenditures in order to match supply output with market demand How's.
Matt: However, with the facilities largely complete we will be poised to respond with tool installation to expand capacity and serve our customers when demand reaccelerate.
Matt: Now that we have made the decision to move our powered device business fully to 200 millimeter.
Matt: All allow us to restructure our company to significantly simplify our operating model lower our non-GAAP EBITDA breakeven point and exit assets, we will no longer require for production.
Speaker Change: As Greg discussed, maybe a variety of operational and head count restructuring initiatives that are already underway to reduce our overall cost basis and streamline operations.
Speaker Change: These actions upon completion are targeted to generate annual cash savings of approximately $200 million.
Speaker Change: This restructuring will be cash neutral in fiscal year, 2025, and start generating a large portion of the $200 million.
Speaker Change: Annual cash savings during fiscal year 2026.
Speaker Change: As part of this program, we expect to recognize total restructuring charges of approximately $400 million to $450 million over the next several quarters, including $87 million in charges recorded in Q1.
Matt: We have provided a non-GAAP adjustment and a description of these charges in our earnings release today.
Matt: These restructuring charges include severance costs asset impairment asset disposition path and other related expenses of which $170 million to $185 million will be cash charges as I mentioned before these restructuring charges are targeted to be cash neutral during fiscal year <unk>.
Matt: 25.
Speaker Change: To expand a bit on the restructuring initiatives Greg mentioned.
Matt: First.
Matt: As a result of our successful transition to 200 millimeter.
Matt: We are in the process of closing our Durham 150 millimeter device fab.
Matt: This decision underscores our confidence in 200 millimeter technology and superior yield better dialogue and overall improved economics.
Matt: It will be a phased closure, which we expect to complete by the second half of calendar 2025.
Matt: Expect revenue contribution from the Durham Fab to continue for the next four quarters.
Matt: Expectations of a gradual phasing out and transfer of revenue to Mohawk Valley overtime.
Matt: Second we are in the process of closing our farmers branch 150 millimeter epitaxy facility by the end of this calendar year.
Matt: With some additional closure work continuing into mid calendar 2025.
Matt: We expect most of the workforce reductions associated with this facility closure will occur by the end of this calendar year.
Matt: As such we expect to realize initial cash savings in the second half of fiscal 2025 with full cash savings being achieved by early fiscal year 2026.
Matt: Finally, we are implementing a reduction to our overall non factory workforce and this along with the factory closures.
Matt: <unk> approximately 20% of our total employee base.
Matt: The majority of these workforce reductions will be completed by the end of this calendar year.
Matt: Spect to see lower operating expenses and immediate savings in the current quarter and beyond.
Matt: In addition, as part of our restructuring and simplification plan, we will be divesting non core assets that we target to generate more than $150 million of cash proceeds in calendar 2025 that would be incremental to the savings goals mentioned earlier.
Matt: This will allow us to simplify our manufacturing and administrative footprint to focus on delivering our leading silicon carbide technologies to our customers.
Matt: Post these efforts our primary manufacturing facilities will consist of materials operations in North Carolina, and both Durham, and the J P and siler city as well as power device fabrication at Mohawk Valley and Marci in New York.
Matt: In total these actions will generate significant annualized cash savings and cash generation capability once complete lowering our non-GAAP EBITDA breakeven point to let that $1 billion on an annualized revenue run rate accelerating our path to profitability.
Matt: The $2 $5 billion of incremental funding for the chips PMT and the actions we have taken to reduce our operating cost puts us in a stronger financial foundation.
Matt: Clarity on a financial trajectory underscores our commitment to delivering value to our shareholders and solidifies our confidence and the steps we are taking.
Matt: Now moving onto our quarterly results.
Matt: We generated $195 million of revenue for the quarter slightly below the midpoint of our guidance and down 3% sequentially.
Matt: We recognize power revenue of $97 million down quarter over quarter, driven largely by lower demand in the industrial and energy sectors.
Matt: Revenue contribution from Mohawk Valley was $49 million up more than 20% quarter over quarter, but at the lower end of our range due to lower customer demand within the quarter.
Matt: We also note that this is the first quarter that Mohawk Valley contributed more power device revenue, then the Durham fab and with higher yield and consistent operating execution remains poised to deliver higher levels of revenue in future periods.
Matt: We had materials revenue of $98 million up slightly from our prior quarter and above our expectations driven by continued strong operating performance.
Matt: Materials operations team.
Matt: non-GAAP gross margin for the first quarter was three 4% down quarter over quarter, but above the midpoint of our August guidance. This included $26 million or approximately 1300 basis points of Underutilization cost primarily related to Mohawk Valley.
Matt: Margins were also impacted by lower revenue driven by industrial and energy mix and lower product margins from our Durham fab, but offset by improved yields and operating performance at Mohawk Valley.
Matt: Operating expenses were $120 million in the quarter, well below our guidance and down $10 million quarter over quarter. As we continued to manage costs in conjunction with our overall simplification initiatives and restructuring efforts.
Matt: Adjusted EPS was ahead of the midpoint of the August guidance as we saw the benefits of the higher gross margin percent at lower Opex offset the impact of lower revenue mentioned earlier.
Matt: Turning to the balance sheet, we ended the quarter with a strong cash position with total cash and cash equivalents of approximately $1 7 billion.
Matt: This amount does not include the additional $250 million of term loan financing received in October.
Matt: Free cash flow during the quarter was negative 528 million comprised of negative $132 million of operating cash flow at 396 million of capital expenditures.
Matt: Accordingly, with the chips TMT and funding package as well as the restructuring actions that we're taking we target maintaining a minimum cash balance of greater than $1 billion moving forward.
Matt: Finally, turning to our Q2 2025 guidance.
Matt: We target Q2, 2025 revenue to be between $160 billion to $200 million.
Matt: Reflecting the current macro environment, and our demand visibility related to evs.
Matt: We continue to have ongoing customer demand discussion that we expect to provide more clarity for calendar 2025, as we complete the quarter.
Matt: Device revenue at Mohawk Valley is targeted to be between 50 million to $70 million for Q2.
Matt: Given the near term variation and the demand outlook and our continued discussions with customers for the second quarter of fiscal 2025, we are providing a wider guidance range.
Matt: We expect to complete a planned shutdown to conduct maintenance at both our Durham and Mohawk Valley campuses in Q2.
Matt: For the Mohawk Valley Fab, we will be completing system tie ins to increase our utility capacity, which will enable us to reach full fab output.
Matt: For the Durham campus, we will be performing standard preventative maintenance on key portions of our electrical infrastructure in order to increase reliability.
Matt: The impact of the shutdown has been contemplated in our guidance range.
Matt: We target Q2, 2025, non-GAAP gross margin to be between minus negative 6% to positive 6%.
Matt: At the midpoint of this range includes approximately $35 million or 1900 basis points of Underutilization cost.
Matt: $10 million quarter over quarter, primarily related to both Hog valley as we will reduce utilization this quarter the targeted inventory burn as well as complete the scheduled maintenance shutdowns I just mentioned.
Matt: We target Q2, 2025, non-GAAP operating expenses of $110 million down another $10 million quarter over quarter, and down $20 million or approximately 15% from fiscal <unk> 24 to reflect the impact of restructuring actions and cost savings efforts.
Matt: We are continuing to invest in our business while at the same time structurally simplifying the company to be lower cost and creating a clear path to profitability.
Matt: We now expect non-GAAP EBITDA profitability in the second half of fiscal 2025, and operating cash flow breakeven during fiscal year 2026.
Matt: As market conditions continue to improve we'll see there'll be ready, we will be more nimble and agile to respond to customer needs.
Speaker Change: Thank you and I'll now turn it back over to Greg for closing comments.
Greg: Thanks Neil.
Greg: We closed out the first quarter.
Speaker Change: I want to reiterate the significant progress we've made to achieve the targets that we communicated and we'll speed on a path for long term success.
Greg: As I said at the start of today's call.
Matt: Speed is at a critical inflection point in our strategic direction and priorities as an organization.
Greg: And we are focused on solidifying our capital structure.
Greg: Fleet and position, our 200 millimeter footprint to generate an annual target of revenue of approximately $3 billion.
Greg: Optimizing our strategic options.
Greg: We are simplifying our business to be the 200 millimeter leader with a lower cost structure and capital requirements to accelerate our path to profitability.
Greg: And we're positioning the company to capitalize on our structural and long term growing demand for silicon carbide power devices and material.
Greg: We look forward to providing additional updates on our progress in the coming months.
Greg: And as always we'd like to thank everyone for your continued support.
Greg: And now I'll turn it over to the operator for Q&A.
Speaker Change: If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason I can move to a question. Please press star followed by two.
Speaker Change: Again to ask a question press Star one as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question. We will talk to you briefly as questions registered.
Speaker Change: The first question is from the line of Brian Lee with Goldman Sachs. Your line is now open.
Brian Lee: Hey, guys. Good afternoon, thanks for taking the questions and I know you kind of walk through some of this but maybe just wanted to ask point blank I know.
Brian Lee: The dust Hasnt, even settled on the election results in sort of this potential red sweep but.
Brian Lee: Can you speak to what that means for the chipset broadly and then your status with the PMT.
Brian Lee: And just maybe walk us through the next steps here.
Speaker Change: You think about the implications of last night, and then I had a follow up.
Speaker Change: Thanks, Thanks, Brian So obviously, we've been in communication with issuance office pretty constant basis.
Brian Lee: Today, the localization of the repatriation.
Brian Lee: Conductor supply chain.
Brian Lee: Less reliant on foreign supply, it's a national and economic security issue for the U S is <unk> priority.
Brian Lee: Strong bipartisan support.
Brian Lee: Silicon carbide is especially important as it is becoming really the predominant power technology for high power applications that includes grid.
Brian Lee: <unk> AI data centers numerous other industrial applications and of course.
Brian Lee: Electric vehicles.
Brian Lee: Now the thing Thats different is silicon carbide U S homegrown technology in the U S. Currently has the leadership.
Brian Lee: Alright, very much engaged with the chips program offers.
Brian Lee: But to your point so this shifts grants as an investment in keeping the leadership versus trying to to get it back or repatriate.
Brian Lee: I think the election results doesn't change any of that as a very strong bipartisan support.
Brian Lee: Okay.
Speaker Change: Okay Awesome appreciate those thoughts and then just second question.
Brian Lee: <unk> to some of your customer.
Speaker Change: One of your customer comments on our recent call I think Renaissance was talking about maybe pulling back on wafer commitments with you I don't know if that is true or maybe you can provide some details maybe speak to the latest status there as well with her and us us and.
Speaker Change: Whether thats.
Speaker Change: Specific to 200 millimeter or $1 50, or both and then if there are any implications.
Brian Lee: For their deposit with you thanks guys.
Speaker Change: Yes, thanks for that Brian.
Speaker Change: This is a great partner, we have a very very strong relationship with them across multiple dose levels, including the CEO level.
Speaker Change: They are new to the silicon carbide business. So it would be very normal that demand would ebb and flow as they establish a foothold in the business. We continue to work with them on their supply chain plans and Thats for both 150 and 200 millimeter.
Speaker Change: Great.
Speaker Change: Thank you for your question next question is from the line of <unk> with JP Morgan. Your line is now open.
Speaker Change: Hey, Thanks for the question. This is Joe Cardoso on for <unk> was wondering if you could provide a bit more color on how you guys are envisioning the magnitude and timing relative to the revenue ramp down a bit darrin device fab.
Speaker Change: The impact to your top line because the next year or so and as you talk to customers around transitioning the capacity that you are currently running at it.
Speaker Change: What's your sense on the appetite to transition this capacity versus perhaps customers potentially being more reluctant to do so basically just curious if there's any concerns around not being able to capture that all of that as you try to transition from turnaround to mark. Thanks for the question.
Speaker Change: Yes.
Speaker Change: And then maybe get a little bit more color.
Speaker Change: Obviously anytime we transition from one fab to another the customers have an input into that we're engaged with them I think the thing thats.
Speaker Change: Very different in this particular situation is that we're moving from a a very manual.
Speaker Change: After mikes out to a new highly automated.
Speaker Change: Yes.
Speaker Change: We believe it's going to produce well is producing better results.
Speaker Change: In North Carolina, but also with higher quality.
Speaker Change: It'll be less manual intervention.
Speaker Change: We're already engaged with customers on that we've got a pretty solid plan I think we're transitioning.
Speaker Change: The vast majority of the revenue up to a third factory there will be some parts of gene transfer.
Speaker Change: The vast amount of our revenue is planning to transfer to <unk>.
Speaker Change: Mohawk Valley I would note that all of our powertrain customers are shifting to today currently are already been qualified in the vast majority of that is shipping already.
Speaker Change: Got it.
Speaker Change: Transition was well underway.
Speaker Change: Yeah, and then just from a revenue perspective coming out or coming out of Europe right. Now we are starting to ramp down our automotive products and Durham, that's already well underway I think from an industrial energy perspective, as Greg mentioned, we followed by auto and non auto parts, a very significant amount already our values all of it.
Speaker Change: Transition those parts up there.
Speaker Change: So as we move into the second half of the year fiscal you are willing to think about it from a market perspective, the lower revenue, particularly in the Durham fab this quarter, although runoffs in inventory, we'll see how that rebound in the second half of the year, just driving more towards Mohawk Valley as we will see Mohawk Valley revenue continued to increase.
Speaker Change: Kind of come down over the following quarters.
Speaker Change: Our forecast for today, we can't tell us some customers maybe next time.
Speaker Change: For your purchases in the fab.
Speaker Change: We don't have that baked in yet, but we're waiting to see how those kind of play out but our expectation is we'll just see a lot more revenue out of Mohawk Valley coming forward.
Speaker Change: It starts to come down during the next.
Speaker Change: 12 months.
Speaker Change: Thank you for your question. Our next question is from the line of Colin Rusch with Oppenheimer. Your line is now open.
Colin Rusch: Thanks, So much guys can you talk a little bit about the competitive environment with you.
Colin Rusch: Your customers on the materials side around moving into 200 millimeters on those wafers and how much of the way for our materials business is going to migrate into the larger diameter here over the next 12 months.
Speaker Change: Yes, so we are.
Colin Rusch: We are obviously moving our own business to 200 millimeter and many of our.
Colin Rusch: Curious if customers are interested as well and moving into 200 millimeter overtime, we have engaged with many of them.
Colin Rusch: Discussions about supply agreements on 200 millimeter.
Colin Rusch: We in fact, we have several of them visiting the JP.
Colin Rusch: What we're doing there I would say they were pretty impressed with the scale of the operation there.
Colin Rusch: We're at the early stages of discussions on this but I would say the interest is pretty solid.
Colin Rusch: And the capability that we're demonstrating their confidence that we're demonstrating by shutting down our 150 millimeter device.
Colin Rusch: It gives them the confidence that our 200 millimeter materials operation is in really good shape. So those discussions are going on right now.