Hello, and welcome to the Melexis Q1 2023 results call. My name is Laura, and I will be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Marc Biron, the CEO, to begin today's conference. Thank you.
Thank you. Hello, everyone. It's a pleasure to welcome you again to the earnings calls related to our Q1 results. Today, as usual, we are two speakers, Karen van Griensven, our CFO, and myself. Let's cover some top line and financial background first, after which Karen and myself will be happy to answer any question you may have. Our revenue in Q1 increased by 24% compared to one year ago, and it increased by 2% if we compare to the previous quarter. Supply bottlenecks continue to exist for our portfolio addressing innovative application linked to electrification, while in other areas we experience a healthier supply-demand balance. Those trends are also visible in the outperforming product lines. Our current sensor and embedded driver product line have almost increased the revenue by a factor two.
The current sensor success is related to high demand in inverter, onboard charging, and DC-DC converter application of electric vehicles. The increase for driver product is driven first by the thermal management application in electric vehicle, but also by the success of our product use in interior lighting applications. The steady growth of our magnetic product has also been confirmed during this quarter. For example, we observe increasing sensor content for new application driven by steer-by-wire or by brake-by-wire program, which are more and more popular given the increase of autonomous level of the car. For 2023, we anticipate the continuation of supply chain constraint for the innovative application that are used in electric, but also in high-end cars.
As mentioned before, the electrification of the vehicle, which comes with a lot of comfort and safety application, will ensure a robust demand for our product in the long term. The demand in the future is also driven by the increase of the ADAS level toward level 2 and level 3. Be able to respond this demand, we will carry out advanced payment for capacity reservation to our main wafer supplier. The majority of those payments will be performed in Q2 this year. I'm now giving the floor to Karen for more financial results. Sorry.
Thank you, Marc. Hello, everybody. A bit more light on the financial part. Yeah, I will repeat what Marc already mentioned. Sales came out in Q1 at EUR 228.6 million, an increase of 24% compared to the same quarter of the previous year, and 2% compared to the previous quarter. The euro-US dollar exchange rate evolution had a positive effect on sales of 2% compared to the same quarter of last year, and a negative impact on sales of 2% compared to the previous quarter. The gross result was EUR 102.8 million or 45% of sales. An increase of 24% compared to the same quarter of last year, and an increase of 3% compared to the previous quarter. Our R&D expenses were 10.8% of sales.
G&A was at 5.3% of sales, and selling was at 2.2% of sales. The operating result was EUR 61.1 million or 26.7% of sales. Increase of 22% compared to the same quarter of last year, and an increase of 6% compared to the previous quarter. The net result was EUR 50.9 million or EUR 1.26 per share. Increase of 5% compared to EUR 48.6 million or EUR 1.2 per share in the first quarter of 2022, and a decrease of 2% compared to the previous quarter. The outlook, Melexis expects sales in the second quarter of 2023 to be in the range of EUR 233 million-EUR 238 million.
For the full year 2023, Melexis expects a sales growth between 11% and 16%, with a growth profit margin of around 45% and an operating margin of around 26% at the midpoint of the sales guidance, all taking into account a euro US dollar exchange rate of 1.09. I would like to now conclude the introduction and open the Q&A session. Operator, please go ahead.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll take our first question from Francois at UBS. Your line is open. Please go ahead.
Hi. Thank you very much for taking my questions. The first one is, maybe, yeah, Marc, you talk about the supply bottleneck that continues to exist in innovative application and the other areas more healthy supply demand. Can you quantify how much of your production is driven by innovative products and how much is, you know, more health, I mean healthier today?
Yes. The, yeah, all the innovative product, as I mentioned, is indeed electrification and all the comfort and safety. We consider that what is pure ICE, then what is pure combustion engine, is 25%, let's say, of the product portfolio. All the rest is either not supply chain related or it is agnostic to the type of drive train.
If it's right to understand is, 25% of your portfolio is still tight and the other part is still okay? I mean, it's much better supply demand, is that right?
No.
The other way around.
Exactly.
Okay. Okay. Got it. Thanks.
Adjacent is obviously also, not in inaudible.
Yeah, it is indeed. Karen is a good to complement. I, my question was indeed focused on the automotive aspect.
Yeah. Okay.
The adjacent is for sure re-relaxing. I think it's the case for all our peers, let's say. Indeed it give us some opportunity to redirect the material, from adjacent to automotive.
Okay, great. Thank you for the color. You know, what changed in the portfolio that is healthier in terms of supply demand? I mean, it was still fairly tight, you know, the last few quarters and all of a sudden it's getting healthier. It's difficult to imagine supply going up, you know, significantly in one quarter as such, you know, because it takes time with things. Did something happen to the demand, I mean, to go back to more balanced and healthier situation? Just trying to understand, you know, if you, if you saw anything on the demand side that could make the situation healthier from the supply demand perspective.
For the adjacent part of the business, for sure the demand has decreased. For the automotive part, I think the demand was a bit skyrocketing, in the past and now the demand is more balanced, I would say.
Mm-hmm. Did you see any cancellation or push-outs of this kind or?
We have for the adjacent.
No, for automotive, principally for the year.
No.
No?
No.
Now when we look at a bit ahead, I mean, your guidance implies 9% growth year-over-year, you know, versus 18% in H1. So, a fairly healthy slowdown and with, you know, tough comps. How do you expect the inventories, I mean, to be in your product specifically? Do you expect any correction at some point? Because, you know, we know that the inventory seems to increase significantly not only for finished goods but, potentially semis as well. Of course, data is difficult to catch, so that's why I'm asking you. Should we expect, you know, some correction of inventories after strong build in the last few quarters within the automotive?
How should we think about, yes, the inventories?
Yeah.
going forward.
We monitor the inventory at the distributor, but also at some key direct customers. Yeah, we have seen that the inventory has increased, let's say, six months ago or so, six months ago. Since then the level are quite constant. I can repeat since some months the inventory level are constant, does not increase anymore. It looks like there is a kind of equilibrium or stable situation on this aspect.
Is it at the level, is it higher than history or is it in line with history?
It is in line with history. It's higher than one year ago. Beginning of 2022, for sure, those inventory level were very low. Now it's, I would say it's healthier to be.
Okay.
Your popular, word.
Your guidance, as success, I imagine doesn't imply a correction whatsoever, right? I mean, it's in the second half of the year, you expect this inventory to remain constant. Is that right?
The guidance is based indeed on the order that we receive and our market knowledge, yes.
the supply.
Yeah. Yeah.
That's very important element still.
Yes.
Okay, great. Thank you very much.
Yeah, we could also add that indeed We still have some backlog in the inventory let's say. The backlog is also an important aspect to take into account.
How much is your backlog versus your revenues today? What the value of your backlog, if you prefer? Can you provide?
Quite so huge, but the quality is also still not so easy to assess. Overall, it's still huge. Like we said, we have limited push-outs and so on. Overall, still undersupply versus demand is still the main bottleneck for us to grow more than what we have given as guidance today.
Great. Thank you very much for your answers.
Thank you. We'll now move on to our next question from Sandeep at JP Morgan. Your line is open. Please go ahead.
Yeah. Hi. Thanks for letting me on. I'm not sure I understood exactly what you're saying on supply. Are you saying that the supply is constrained on the 25% or on the rest of the autos market?
Mostly on the autos market. Not in all products in automotive, but in a big portion of the automotive, we have major supply constraints. That is not gonna be solved this year.
If this is to do with those EV-related autos which you mentioned in 2025, or this is non-EV related autos?
The supply is constrained on the EV application and what you call the high voltage process node for the EV.
Mm-hmm.
This is the process node which is supply constrained. I mentioned that 25% of the revenue is linked to combustion engine, which is not constrained.
Understood. Okay. That 25% is combustion engine. My next question is, I mean, based on what we're hearing from the semiconductor foundries in various parts of the world, utilization has rapidly dropped, and, I mean, they see a lot of capacity available. Why is it different here in this market? Is it a particular foundry that you're going to who can't supply you? Is it that there is something specific about this process?
Well, it's mostly, our main supplier is mostly supplying automotive. That's exactly the market that remains strong.
What about the process itself? Is there anything specific about the process? Is it a digital process, analog process, power process? What kind of process is it?
It's an analog process with what you call SOI technology process, meaning that it's a quite specific analog process, high voltage. Indeed, this process is in ramp up in the wafer fab. The capacity increase of the wafer fab is, let's say, lower than the demand increase or slower than the demand increase. This capacity increase is impacted because the supplier do not receive some equipment, or the equipment are delayed, it's why we are this capacity constraint.
Okay. My final question is if, for instance, you did not have this capacity constraint, what would be your guidance in terms of the full year?
Difficult to say. That's for sure higher. Yeah, substantially.
I mean, to what extent are you constrained in a sense? Is it 5% of revenues or 10% of your current revenues? How much is the constraint?
Difficult to say. It's, yeah, substantial, I would say. It's a substantial part of our business that is well constrained, where demand is still 50% higher than what we can supply today.
Okay. Thank you.
Indeed, on the part of the business.
Thank you. We'll now move on to our next question from Mathias at Kepler Cheuvreux. Your line is open. Please go ahead.
Hello. Good morning. Ruben Devos at Kepler Cheuvreux. Couple of questions from my end, maybe some follow-ups first. On the backlog, could you maybe elaborate on how this historically has amounted to in a percentage of revenue or value? How we should interpret this comment that it is huge. Is that then six months, eight months of orders, or is it way less? That was my first question.
Yeah, I think first of all, we don't give, let's say precise number of the backlog aspect, and I think we will not do it today. It's also true that as Karen mentioned, first of all, yeah, we should check, let's say, the validity of the backlog. On top of that, as we mentioned in the previous call, the customer, given the constraint or given the chip shortage of the past, now that the customer give order with a much more longer timeframe or longer time period.
Mm-hmm.
it's... Even if you would give the value of the backlog, I'm not even sure that this is full valuable, let's say.
Yeah.
for all those reasons.
Mm-hmm. Historically, your lead times have been like 16 weeks, if I recall correctly. Would that then be a reasonable assumption of a normal backlog, or is this not necessarily the case?
Yeah, 16 weeks, it really depend on the type of product. I must say today, for the popular product, given the chip shortage, it's much more than 16 weeks. Anyway, the backlog is bigger than that, so.
Yeah. Okay, good. second question was maybe on the visibility you have on your supply growth or supply growth at your foundry. I see you decided to pre-finance part of the working capital. Is this related to volume or is there like liquid volumes or is this in any way money you will pre-finance and not necessarily have I would say supply in return? Would you also maybe elaborate if there is like an additional we say financial incentive to do this besides the supply certainty, I would say.
Yeah. We did the pre-finance is based on volume.
Yeah.
wafers for three years, depending on the technology, 2023, 2024, 2025 or 2024, 2025, 2026. It's three years and, yeah, we have reserved for a volume of wafers. Yearly-
Okay.
A yearly volume of wafers.
It's an operational advance. We don't have a financial benefit from this prepayment.
Yeah. It's only the supply certainty. Okay, good. Third question is actually more structural, more long-term. If you now look at your pure ICE, pure combustion exposure, in general, more stringent emission norms have been quite beneficial to the content growth also in this segment of your end markets. Going forward, how does that outlook look? There's some new emission norms that have recently been announced. Will this still be a growth factor or will it ease going forward?
For the ICE, for the combustion engine, indeed there is more and more norm to minimize the CO2 emission. All those norm comes with new electronic. I think we should not focus only on Europe, but indeed in the other region of the world, those norm are become more and more stringent. Meaning that yeah, for Melexis it is good because, yeah, we have the right product in order to reduce those CO2 emission. I think on this ICE aspect, this is a positive trend. It's always good news when the CO2 emission regulation are becoming more and more stringent.
The first part of your question, I mean, moving from ICE to electric powertrain, it's also coming together with a more modern platform, and those more modern platform contain much more electronic because of the comfort and the safety feature that are coming with. Meaning that also moving from ICE to electric cars is also in the long term beneficial for Melexis because it's always with more electronic content.
Yeah. What if you look now pure ICE, would you say that you see content growth still accelerating in that, in that, end market or it's going to remain pretty stable overall?
I think it will remain pretty stable. I think you see that the OEM, they do not develop new, let's say new feature, for the ICE engine except when the regulation force them. It's clear that all the development people from the OEM are focusing on the electric drivetrain.
Oh, okay. Thank you.
Thank you. We'll now move on to our next question from Janardan at Jefferies. Please go ahead.
Yeah. Hi, good morning. Thanks for taking my question. I just wanna start off on this, the LTA agreement with X-FAB. You said that the EUR 189 million that you will pay them over this period of time, is 15% of your reserved capacity. Your total reserve capacity is about EUR 1.26 billion. Is that the way to think about it?
Yes.
That is for over how many years? Is that a 4-year period starting from now?
Three years.
Three years. Okay.
Yeah.
Do you have an estimate of how much is that of your expected revenue? I mean, over a 3-year period, assuming you do, you know, somewhere in the region of EUR 2.5 billion-3 billion. Are you assuming that this is about 30% of your expected revenues that you're reserving capacity? Is that roughly a way to think about it?
It's a big portion of the capacity reservation. It's for most of our business.
Yeah. You know that we are using different technologies.
Mm-hmm.
The, let's say, the old technology is not under LTA, and the modern technology are under LTA.
it's maybe 10%-15% that is not under LTA.
Yeah.
Okay, almost 85% is under LTA now?
Yeah. Yeah.
Got it. You, by paying 15%, you are able to book the entire. Like by paying 108, then you're able to book the entire one. Contractually, they're obliged to give you the full EUR 1.26 billion, basically. That's the way to understand it.
Yes.
Okay. The pricing is, or is that fixed already for that three-year period, or the pricing will be negotiated year by year?
No, the volume and the price are fixed.
With still, potential inflation can still influence, but there is a mechanism defined.
Understood.
The same mechanism is also on the customer side.
Yeah. We have a back-to-back because you remember...
Okay.
that we have LTA with customer, and we have a back-to-back mechanism between the two type of LTAs.
Is there a mechanism, you know, suppose the customer, let's say, is under severe price pressure, as is happening in the EV market today, and wants to or in some shape or form, asks you for lower pricing, which you end up giving it to him in one or two years' time, that will then be able to reflect on the supply agreement as well?
Yeah, it will be a business discussion, I think. Yeah. We want to find the right balance between the revenue and the GPM or the EBIT, and it will be a business discussion and with the customer and with the supplier.
Got it. Just last question on the LTA side. Which is the product that is moving to 110 nanometer?
It's the one, the 0.11, the 110 nm in SOI. This is a process which fits very well the high voltage product and the driver, basically, meaning that we will move some driver products. Because it's also with this technology that we can leverage, let's say the cost aspect of those technology. It will be driver products.
Okay. Understood. Just moving on to the main business itself. You know, there's been a lot of, you know, turmoil in the Chinese automotive market in terms of competition, price pressure, you know, and we saw some weakness in sales coming through, et cetera. Are you seeing any change in your customer behavior in China on the back of that?
Not, I would say not directly, no.
Okay.
I don't know what kind of change you have in mind, but I would say no, in general.
Okay. I'm just thinking from a top-down view, if the carmaker is under severe price pressure, is there a risk that there will be some de-speccing of cars in China, to try and, you know, drive or try and find a way for the carmaker to support his profitability under these severe price pressures? Is that something that you think could happen in the next few quarters?
Yeah. In term of de-speccing, we did not have any such a discussion, I must say. If you have in mind also the cost discussion, I would say today, and especially in China, because it's a lot of electric, the discussion is still more about the supply than about the price.
Understood. Last question is just on the supply. Can you give an idea of how much your supplier will be increasing supply, say into the second half of this year, and into next year? My question is really directed more sort of when do you expect the supply constraints to ease entirely? Is that something that given your current ordered levels you can expect before the end of this year, or is that something that probably will happen only into subsequent years?
I think this year will remain for sure difficult. I think, yeah, the remaining part of the 2023 will be similar than the beginning of 2023 on this aspect. Yeah. We are working together with the supplier to improve the situation for 2024. Yeah, indeed it's a question of demand, a question of supply. For sure the supply will increase in 2024. Yeah, the question is, will the demand increase at the same pace or not?
Okay. The supply will see a bigger jump into 2024 than into the second half of 2023. Would that be? I mean, leaving the demand out of the picture, just on the supply side.
I think the supply is increasing quarter after quarter.
Understood. All right. Thank you very much.
Thank you. Once again, ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now move on to our next question from Marc Hesselink at ING. Please go ahead.
Yes. Thank you. firstly, a follow-up on the last part, that improved situation 2024. Is there a number you can attach to that? How much extra supply you expect in 2024 versus 2023?
No, I think it's too early. We are indeed working on it, but it's too early to give an accurate answer.
Okay. Okay, clear. Coming back on the on the prepayments, how do you then to finance that? Maybe it's also an element to that you, now that you're paying prepayments to your supplier, that you can ask for prepayments from your clients.
Yeah, how will we finance? Well, the prepayments we will do now, we have credit lines for that. We have at least EUR 300 million today available in credit lines. It is... Plus, we also still generate cash. That's also why we did not request from our customers to also pre-finance part of their business.
Yeah. You said we'll be phasing over the batches over the coming year.
Yeah.
The majority will be in the second quarter. Can you give maybe a bit of indication how that split is going to be?
In Q2, well, we said EUR 189 in total. In Q2 it will be around EUR 140, so it's a big portion of the total amount. There will be some more still expected this year and a small part still in 2024.
Okay. Then, you're taking on this, because your invested capital will go up because of this, and you're not asking your clients for the prepayments. Can you then make up for that higher invested capital by getting a little bit more out of the margin? Is this simply something that you have to do to, yeah, to keep the process running with the long-term agreements?
It is indeed in the more long-term, from the long-term perspective that we. It was also, I mean, the full package was negotiated, so not only volumes, but also pricing was all included in the same deal.
Yes, I think it's very much like your deal with your suppliers and your deal with your client is sort of one package deal. That's the way to think about it.
Yeah.
Okay. Thanks.
Thank you. We'll move on to our next question from Johannes Ries at Apus Capital. Your line is open. Please go ahead.
Yes. Hello, good morning. Also, maybe two, one or two follow-on questions. First, on your own pricing situation, have you been able to increase prices further for your products, given the inflation environment we have? How much maybe this contract with X-FAB mentioned is also based on higher prices compared maybe to the last 12 months or the last year?
Yeah, during the last, the previous earnings calls, we indeed mentioned that, in 2023 we have increased the price to our customers.
Mm-hmm.
Since then, we did not, we did not increase anymore, let's say. We have also mentioned that, since the beginning of the inflation, our strategy is to, let's say, to transfer the price increase or the cost increase that we receive from our supplier to the customer.
Like you mentioned, right, in on both sides in your contracts now going forward.
Yes.
The full impact of these price increases from you has given to your customers, well, or they negotiate with their customers on the other side, even X-FAB maybe negotiated with you, well, it's now coming step by step over the year. It's clear. Second question on your own maybe business which is maybe driven by design wins, how much maybe new products are ramping during this year, which also could be maybe in this year, especially in next year, drivers of growth? How is the design win situation maybe in the last six months or so? How active are your customers?
Yeah. In term of product launch.
Yep.
In 2022, we have launched 16 new product.
Mm-hmm.
Which was in line with the year before. We have indeed 16 new products to address new application. In term of design win in 2022, we have really reached a peak level in design win at the end of 2022. 2021 was already very high and we have assumed that the 2021 was very high because of the chip shortage situation and because then the customer wanted to secure additional opportunity. In 2022, it was even more, it was even higher than 2021. 2022 was extremely higher in term of design win record. Now in 2023, after the first quarter, I would say we are in line with 2022.
I mean the trend is similar than the trend in 2022.
Okay. That's design wins-
True that it's the. I mean, it's only after Q1, and we see that the design win trend is increasing quarter after quarter, meaning we are. After 1 quarter, we are still at the very beginning of the result of the end of the year.
As design wins get really revenue in 2 or 3 years since the automobile business also secures maybe the future growth in some regard.
Yes.
Okay.
You are right to say that there is 2-3 years delay between the design win and the real revenue increase.
Okay. Thanks a lot.
Thank you. We'll take our next question from Guy Sips at KBC Securities. Please go ahead.
Yes, thank you. On this design wins, are they more in electrification or in comfort and safety, or is it evenly spread?
It's evenly spread, I would say. We clearly see a big increase of design win related to electrification.
On your CapEx, can you reiterate the guidance that you were giving before of EUR 70 million for this year? Or is it...
Yeah, the guidance is indeed EUR 70 million. We are at EUR 19 million in Q1. Well, it's still too early to know where we will get for the full year. Well, whether we will indeed make the EUR 70 million or even slightly higher. It depends a bit on how fast the investments run. For the moment everything, for instance, in Malaysia, is running on time.
Okay. It's still.
if that remains, it might be a bit higher than the EUR 70 million.
The idea is to complete the, yeah, the investment in Kuching by the end of 2024, and that will be also a EUR 70 million investment over the next five years. Is that correct?
Yeah. The building as such is around EUR 35 million. It's around half of that investment. That's a longer term investment. The EUR 70 million you refer to is longer term for Kuching. The EUR 35 million, the building is happening now in 2023 and 2024, with most still probably falling in this year, in 2023.
And, and, and-
In the CapEx of 2022.
Yeah. The last question again, sorry, on the LTA, is it evenly spread over the three years or is it more back-end loaded?
From the volume reservation, you mean?
Yes. Yes, indeed.
No, it's increasing year after year.
Okay. Okay, thank you.
Thank you. We'll take our next question from Hjalmar Ahlberg at Colleague Global AB. Please go ahead.
Yeah. Hello. Thanks for taking my question. I just have going back to the capacity going forward the next coming years, and with this new long-term supply agreements, I was wondering, you know, if we assume prices to be flat, you know, how much volume could you be adding in the coming years? Just pure volume. I have a follow-up.
You mean the when you say volume, do you refer to the demand or to the supply?
Volume growth expectation, I believe. If prices were-
Yeah. Yes, exactly.
Yeah, that's fact. Like we mentioned, we don't want to guide beyond 23 today. Overall, we plan, I mean the market is growing double digits, Melexis wants to do as well.
All right. Thanks. My follow-up. You know, how much of capacity is, you know, sourced from X-FAB now, you know, after this, long-term supply agreements? I have a question on, you know, how are you working on that internally, you know, on diversifying the supplier base and not be too reliant on one supplier?
Yeah. For the time being, indeed, X-Fab supply the vast majority of the volume. Yeah, more than 90% of the volume is coming from X-Fab. It's correct that now some other wafer fab have some capacity because of the adjacent drop, let's say. It give also some opportunity for Melexis to assess if there is some opportunity in other fab. It was not the case two years ago because two years ago, all the fab were fully loaded, and we were not interested to get more business. Okay. Now, this has changed, and we are indeed in, well, we are assessing, let's say, if there is some opportunity for other fab, mainly for the technology that does not exist in X-Fab.
All right. Thank you very much.
Thank you. We'll take our last question from Adrien Guyon from Canard. Please go ahead.
Thank you. Again, a question about the capacity constraints. Can you explain the financial consequences? I assume that you are unable to fill some delivery obligations. Are there extra costs in any ways, or will you be able to reclaim some of these extra costs from X-Fab, from your supplier?
Yeah, we did not. First of all, we have LTA with our customer. On those LTA, there is indeed a penalty if we don't, if we don't deliver. Yeah, we are able to follow the our LTA guidance, let's say. Yeah, we don't receive any cost because we are not able to supply.
Okay. No surprise in this respect in the coming quarters?
I don't think so, no.
Thank you.
Thank you. We have no further questions in the queue currently. As a final reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. Okay. We've got another one. A follow-up question from Janardan at Jefferies. Your line is open. Please go ahead.
This is just a question on the adjacencies and the growth prospects there from a capacity point of view. Obviously, in the past, you've had ambitions of growing that business, but because of the capacity constraints on automotive, you probably have not been able to expand that sufficiently, and now you're finding some demand weakness as well on the adjacent side, so that revenue is somewhat lackluster. In these capacity agreements that you're signing, is it, are you catering for a bigger portion of the adjacent products? As a result, will you be able to take up the adjacent revenue towards the 20% mark, as you've alluded to in the past?
Is most of these capacity reservations on the automotive side?
Yeah. Our objective is indeed still to reach 20% of adjacent business. I mean, we are still developing product in order to have the right product to meet this objective. You are right that today the, let's say, the priority when we allocate wafer is given to the automotive. I'm afraid that given the high demand in the automotive for the next years, it will remain the same. This objective is a long-term objective, I'm afraid that for the next 3 years it will be difficult to move a lot the needle toward the 20%.
I'm assuming by your answer that most of the capacity reservation at X-Fab on the back of your agreement today is automotive. What prevents you from going to TSMC or GlobalFoundries on the adjacent markets? Surely, those products could also be done there, and you could get capacity probably easier, more easy than you can get at X-Fab in this environment.
Yeah. I answered just before the question saying that indeed we are assessing some opportunity in other X-Fab , yeah.
Understood. Thank you very much.
Thank you. We'll take our next question from Robert Sanders at Deutsche Bank. Please go ahead.
Yeah. Hi, good morning. I just have three questions. The first one was to do with the LTAs. When we talked to X-Fab, they're talking about a 10% wafer price increase on the LTA in 2024. Presumably, and that given back-to-back deals, you're gonna see another 10% price bump next year. That would be my first question just to clarify that. The second question would be, Sensata talked on their call yesterday about China moving to in domestic solutions, sorry, from Chinese players, from Chinese tier ones. How is your relationship with those domestic Chinese tier ones? Is there a risk to your business, or is it fine because you have a good relationship with those companies? The last question would just be on 300 millimeter.
If X-Fab was to ramp a 300 mm fab, would that mean that you would end up doing more prepayments on top of what you've already announced today? I'm just interested in that. Thanks.
Yeah. you have asked three questions, in fact. The first one is about the 2024 price. I mean, we don't have, we don't have guidance or any input for the 2024 price.
Not more than what we said, that we have LTAs-
Yeah.
-with pricing and just a mechanism.
The price for X-F ab is fixed for 2023, 2024, 2025. For our collaboration with the tier one in China, I think, since a while, Chinese OEM, but also Chinese tier one are a bit on front of the pack to electrification. It's why, since a long time, let's say, we have good relationship with the tier one in China. And I think we will be able to leverage this good relationship in the next years, because indeed we really see that for electrification, they are leading the pack.
On the 300 mm fab?
Yes. Yeah. There is no discussion for the time being on this aspect, with X-Fab.
Okay. Got it. Thanks so much.
Thank you. We'll take our question from Mathias, again from Kepler Cheuvreux . Your line is open. Please go ahead.
Yes. Hi. just short clarification question from my end. I might have missed it, but the EUR 70 million of CapEx guidance, I know that it was not restated in the press release. Is this an amount you still aim to spend this year, or will it be less?
It will be. We will for sure spend it. We are. Yes, maybe even a little bit more. If the execution of the building project continues as it is today, it might be even a bit more.
Yeah. Okay. That's not a reflection of a higher cost of investment, no? It's just phasing that is running faster than originally anticipated.
Yeah. Indeed.
Okay. Thank you.
Thank you. There are no further questions in queue. I will now hand it back to Marc for closing remarks. Thank you.
Thank you. Thank you everyone for the different questions. I think it's always good and energizing, let's say, to have those questions. I think we are all looking forward to see you next quarter for the earnings call after Q2.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.