Hello, and welcome to the Soitec second quarter of fiscal year 2022 sales conference call. My name is Val, and I will be your coordinator for today's event. Please note, this conference 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 at any time. If at any point you require assistance, please press star zero and you'll be connected to an operator. I will now hand you over to your host, Paul Boudre, Chief Executive Officer of Soitec, to begin today's conference. Thank you.
Thank you, operator, and welcome to Soitec conference call dedicated to the publications of the second quarter revenue of our fiscal year 2022. This is the quarter covering the period from the 1st of June to the end of September 2021. I am Paul Boudre, Soitec CEO. Together with me on this call are Léa Alzingre, our CFO, and Steve Babureck, our Investor Relations Officer. As usual, we will briefly comment on our sales performance, and after that, we will open the floor to questions. Before getting into our Q2 figures, let me reinforce our key announcement of today. We have raised our revenue guidance from $950 million - $975 million, thanks to our capacity to capture a stronger demand. We also raised our EBITDA margin guidance from around 32% to around 34%, thanks to higher operating leverage and industrial performance.
Let me give you an overview of our Q2 revenue performance. As you may remember, we had a very strong start of our fiscal year 2022 with an organic growth of 69% in Q1. Today, I am very pleased to report that we achieved another robust performance in Q2. Q2 revenue was up 37% on a reported basis over Q2 last year. This includes a 3% negative currency impact. At constant exchange rates, Q2 2022 revenue was up 40% over Q2 2021. On a sequential basis, it represents a 5% growth, excluding currency impact over Q1 2022. 6% growth on 150, 200 millimeter wafer sales, and 4% growth in 300 millimeter. This is our fifth consecutive quarter of sequential organic growth since the low point achieved in Q1 2021 in the midst of COVID crisis. Q2 revenue reached EUR 193 million. This is our second highest quarter ever.
It brings our H1 2022 revenue to EUR 373 million, which is the record semesters in Soitec's history. H1 2022 revenue is up 53% on a like-for-like basis or up 47% on a reported basis compared to H1 2021. This is for the key figures, and let's now take a look at the drivers of this strong performance. We continue to enjoy strong tractions on all our products and across our three end markets. Mobile communications is still by far our largest end market and a key driver of our performance. Our revenue growth continues to be boosted by the deployment of 5G and the increase in Soitec's products content in every 5G smartphone, and of course, the introductions of new products. As you know, this is mainly benefiting our RF-SOI and POI products.
We also continue to benefit from the recovery of the automotive industry, which is very positive for our Power-SOI and FD-SOI products. Our revenues in smart devices also increased, driven by stronger sales in FD-SOI and Photonics-SOI wafers. Our efforts in increasing capacity triggered by higher customer demand translated into increased production across the board. This is the case with a good ramp-up of our productions of 150-millimeter POI wafers at Bernin 3. We are accelerating the ramp-up our productions of 150-millimeter POI wafers. The ongoing ramp-up in Singapore led to higher productions of 300-millimeter SOI wafers, and we also delivered a higher output of 200-millimeter SOI products. Let's now dive deeper in our Q2 figures and look at sales by revenue type.
150, 200 millimeter wafers recorded sales of EUR 85 million at 22% increase compared to Q2 last year, excluding currency effect. This reflects a strong volume growth, of course. Sales of RF SOI in 200 millimeter were stable compared to Q2 last year. Sales of Power-SOI were much higher than in Q2 2021, highlighting the strong rebound in the automotive market. In addition, we benefited from another strong surge in 150 millimeter POI wafers for RF filters. Thanks to, obviously, the robust ramp-up in productions at our Bernin 3 facility. We have been able to respond to the increasing demand for POI. POI adoption is getting traction on 4G and 5G smartphones filters to cope with the increasing number of frequency band and the requirements for enhanced performance.
If we now look at our 300 millimeter business, we recorded sales of EUR 102 million in Q2 2022, a 63% increase, excluding currency effects, compared to Q2 2021. This is a direct result of a sharp volume increase. The level of RF-SOI 300 millimeter sales has been booming, and thanks to our leadership, and our anticipated capacity expansions plan. We also achieved another strong quarter in FD-SOI, confirming the rebound initiated in Q3 2021. FD-SOI technology is bringing significant value to applications dedicated to edge computing, automotive, and 5G. As for Imager-SOI for 3D sensing applications, sales remained at the same high level as in Q2 2021. Finally, sales of Photonics-SOI for data centers were much higher than in Q2 2021, confirming the solid trend that we have seen since Q4 2021.
In addition, royalties and other revenues went up from EUR 5.8 million in Q2 2021 to EUR 6 million in Q2 2022. This represents a 3% growth at the constant exchange rate. On the back of this strong performance, we are revising upward our guidance for fiscal year 2022. We are raising our fiscal year 2022 revenue guidance. We now expect fiscal year 2022 sales to reach around $975 million. This is an upgrade from our previous guidance of $950 million, mostly due to very strong demand that we will be able to partially capture, and I will thank here our very strong operational performance. It represents an annual growth of around 45% at constant exchange rate. As a direct consequence of this upgrade, we are also significantly raising our EBITDA margin target from around 32% to around 34%.
Beyond the operating leverage, this upgrade is driven by both a very strong operational performance over H1 that will remain for the full year, a favorable phasing of our bulk silicon long-term agreements, SG&A saving due to strong cost control, and saving on Irines. Before moving to the Q&A sessions, let me highlight a couple of key events which took place recently. The first one is the adoption of our corporate purpose. This was put to the vote of and approved by our shareholders at the EGM, which took place at the end of July. Our corporate purpose stands as follows: "In our soil grows an amazing future." It is a way for us to materialize our ambitions to build innovative products that serve the transitions to a more connected, energy efficient, and intelligent society.
This is perfectly in line with our ESG commitments to have ambitious climate and sustainability targets that notably include reductions of greenhouse gas emissions. Indeed, our goal is to foster the performance of our products while reducing both their energy consumptions and our own direct carbon footprint. The second event is the full conversion of our convertible bonds, OCEANE 2023, into new shares. At the end of March, it represented a total amount of EUR 140 million in debt. As a result, 1.3 million new shares were issued, representing 3.9% of our share capital. This end our opening remarks, and we are now ready to take your questions.
As a reminder, if you'd like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star two. Please ensure your line remains unmuted locally. You'll be advised when to ask your question. Again, that is star one on your telephone keypad. We do have a few questions in the queue. The first question comes from the line of Alexander Peterc from Societe Generale. Please go ahead.
Yes, good morning, everyone. Thank you for the question. Just a quick one on your EBITDA margin outlook and the upside you provided today in the guidance upgrade. The first part would be regarding the forward pricing of wafers. I'd expect that at some point this will wash out of your cost base, so your prices will start reflecting something that is closer to the current spot prices, which are higher. Does this mean that we'll have some EBITDA margin pressure ahead as much as you don't have it today? That's one part. The second part is how much of this upgrade is structural because you have better yields, you have better utilization rates. Does this mean that we should think about your longer-term margin outlook that you provided at CMD to also be proportionately improved given the progress you highlight here? Thank you.
Regarding the long term, what is clear is that we are just starting our new strategic plan, and we will basically end this plan by March next year. Obviously, everything new that could influence what we have presented this year on the long term will be revisited with you guys in June timeframe next year. Back to maybe your questions. I don't know, Léa, if you want to comment first, and I'll take some after.
Yes, sure. Hello, everybody. Regarding the bulk, we have long-term agreement with our supplier. What we can see is we have favorable saving in our bulk silicon long-term agreement. They are based by a calendar year. The negotiation we had regarding this next month were quite favorable. For sure, the price will evolve in the future. I don't know if you want to complete, Paul.
Yes. Clearly, this will be in phase with also our new pricing strategy, our new LTA strategy. We take into account basically the bulk increase that we will see coming within the next year. For that, I think that back to your point, the EBITDA margin level today is clearly based on truly structural impact that we have in our manufacturing in terms of performance. Clearly, we have achieved a yield level that show the maturity of not only our mature site, which is Bernin 2 and Bernin 1, but what we see on Bernin 3 and what we see in Pasir Ris have clearly outperformed some of the, I would say, forecast that we had on the performance itself. We are extremely confident on the operating leverage that we have now built into our manufacturing.
To maybe close on the long-term CMD that we share with you, 35% was the EBITDA margin on the horizon and still is. We consider this as a floor for the long term.
Just very briefly, can you say on Pasir Ris, what rate is occupied now and where you will be in terms of the ramp-up of that capacity by the end of the year?
In fact, in terms of capacity, we say that we will cash out EUR 240 million CapEx this year. 50% of this EUR 240 million was dedicated to Singapore, 25% for Bernin 3, as a reminder, and the rest for the existing factories. Clearly, that's where we are. We are ramping Pasir Ris as quickly as we can, but also in line with our demand. That's where we stand.
Thank you very much.
Thank you. The next question comes from the line of Sébastien Sztabowicz from Kepler Cheuvreux. Please go ahead.
Yeah. Hello, everyone, and thanks for taking the question. Could you please make an update on your technology roadmap on silicon carbide? Have you made any progress there? If yes, could you please share with us any data points that you have with you? The second one could be on POI and notably Bernin 3, the ramp with Qualcomm. What kind of fab loading do you expect for the fiscal year 2022 there, and how the ramp with Qualcomm is progressing? Also, regarding POI, have you made any progress with the other RF players that you are working with? Thank you.
Thanks for the question. I'll start with silicon carbide. Yes. You understand the value that we bring with this technology. It is clearly as we go into more and more work with internally, but also with our partners, we realized the value that we could bring in terms of, obviously, quality, performance, cost of ownership. Clearly, this is potentially a game changer if we succeed. Now, what is true is that we are continuing to work with our partners, as I said, to make sure that we can build a very complex device on our wafers. We have made continuous progress over the last few months in the quality and the performance of the wafers that we are able to ship right now to our partners.
I have no major news in terms of these business milestones that I was talking about before, because it's still on progress. I would say that our level of confidence continued to go up, and I continue to confirm that we will have to make decisions before the end of our fiscal year 2022.
Thank you.
Sorry, on the POI, I skipped the POI question. On the business side for POI, beyond Qualcomm, several customers are under qualifications. I confirmed that already. We developed several products to address mid and high-band right now, and we have several products running into production as we speak. We are clearly working on addressing all segments. I mean, the low, the mid, and high-band. In terms of the capacity where we stand today, we have basically increased 4x our capacity versus last year. You know the competitive advantage that are really pushing us. It's clear that we continue to confirm that temperature stability die integrations for multiplexers, larger bandwidths are still the driver for the new product to come.
How many wafers do you believe you will have in capacity at the end of this year at B3?
This is not really a number that we share. I'm trying to give you a little bit of a trend, 4 x more capacity than last year.
Thank you gentleman.
Thank you. The next question comes from the line of Didier Scemama from Bank of America. Please go ahead.
Good morning, everyone. Thanks for taking my question. I apologize, I didn't quite understand the answer related to your input cost. Can you just clarify a little bit what you meant with your LTAs in terms of raw wafer prices? How much of that is already captured and how comfortable you are, if you want, for calendar year 2022? I just didn't quite get the answer. Thank you.
To maybe start with the answer, we are very comfortable. Okay. It is well under control. We have bulk wafer prices that are part of our new LTA that will show some bulk increase in the range of single digit versus fiscal year 2021. In parallel to that, we have also signed new LTAs with our customers, and these LTAs take into account bulk increases. As we go into this year, but also next year, we are very in sync, I would say, with the overall price increase, and we do pass through our bulk increase to our customers.
Understood. That's very clear. Of the EBITDA margin upgrades, how much of that is due to you sort of more than passing on, if you want, your rising input cost?
You will get more details on the H1 results. That's for sure. You will get all the details. It's very structural, what I can say.
Okay. All right. Thank you, Paul.
Thank you. The next question comes from the line of David O'Connor from Exane BNP Paribas. Please go ahead.
Yeah, good morning. Good morning, gentlemen. Thanks for letting me ask a question, maybe one or two, Paul, from my side. Firstly, on the raising the guidance to the $975 million versus the $950 million previously. How much of that is RF-SOI? If you could split it out, units versus price, how would you define that kind of incremental there if you had to split it up? I have one or two follow-ups. Thanks.
Clearly on the revenue side, the higher market demand is coming from specialty SOI, FD-SOI, and some from RF-SOI. Clearly, you can see that I started with specialty SOI and FD-SOI because that came as a very good trend and very strong trend for the second part of this year.
Understood. Maybe if you can run through the loading of the fabs, especially Singapore, that'd be helpful. Thanks.
In fact, you know that our loading is in Bernin 1 is full. Our Bernin 2 is full. We are ramping. As we enter tools, clearly, in Bernin 3 and in Pasir Ris, we are rushing into tools qualifications and really put these tools at work. I want to mention also that Singapore is raising capacity as well towards the 450,000. This is happening as we speak. Clearly, we do not split really the capacity per se, but just for you, what I can say is that one-third of the 1 million wafer per year will be reached by the end of fiscal year 2022 in Pasir Ris.
That's helpful. Thank you. A last one from my side. The recent TSMC announcement of the new fab in Japan on more legacy mature nodes. What does that mean for FD-SOI and RF-SOI demand when you look at that announcement? Thank you.
Nothing related and no comment on TSMC strategy, but nothing related to us. Clearly, our product are bringing true differentiations on the market. We described during the CMD, our last CMD. We continue to be extremely pleased because the demand that we see and that we continue to foresee for the years to come are completely in line with our explanations that we gave you during the CMD. No link. The industry needs more capacity, that's for sure. That's clearly another example.
Very helpful. Thanks, guys.
Thank you. The next question comes from the line of Emmanuel Matot from Oddo. Please go ahead.
Hello, everyone. Good morning, Paul and Steve. First question, have you changed your main assumptions regarding volume growth of smartphones sold this year on the mix of 5G? It seems that the component shortage in the semiconductor industry start to impact this end market a little bit.
Thanks, Emmanuel, for the questions. In fact, not at all. We stick with the same number. I recall everyone here that for smartphones, we are planning in our models and for calendar year 2021, sorry, high single-digit growth. Which means for us also in term of 5G smartphone, we stick with 520 million. For millimeter wave phones, we still have between 60 million-80 million millimeter wave phones. We stick with it, and we are very comfortable with this. We don't change it.
Okay. Do you expect some positive news flow related to SOI for this 5G millimeter wave in the coming months? How many fabless are currently working on that technology? Is that growth driver a key part of your roadmap for the next five years, or have you taken very conservative assumptions?
Clearly, in terms of the assumptions, I don't think that we are conservative, but we try to be as close as reality. Clearly the commercial deployment, as I said from the beginning, is always targeted for 2022. It could be a little bit sooner. Okay. We need to check on before now and the end of the year, the possible news that we will get from tear down on FD-SOI millimeter wave. Clearly 2022 is the key date. We have not one, several major company that it's not evaluating, but under qualifications on this technology. We are extremely confident on the transitions that we see. To be clear, I didn't change what I told you two years ago. The first millimeter wave adoptions has been driven by simplicity and the fact that IP on bulk was available.
The second wave that is happening, that was up, is based on optimizations on what the industry has today. The third wave, the one that I'm talking about, okay, the one that we will get on the shelf maybe before the end of this year, but in any case next year. The third wave, it's about energy efficiency, and this is why FD-SOI and RF-SOI comes to play.
Okay. My last question is about licenses and other revenues. Why are they not growing faster in the current booming environment for semiconductors? It looks quite surprising for me.
You know that it is based on wafer out, and clearly the one we are really increasing capacity today in this world is Soitec. We are clearly driving in terms of technology leadership, and we are supporting our customers' advanced product, which is clearly a true benefit for us. But also, we have expanded our capacity in 300 millimeter, in 200 millimeter and bringing new products. And the mix product that we are getting is clearly to our advantage today.
Yeah. I was surprised to learn that Soitec only supply 52% of GlobalFoundries SOI wafers last year. It seems that your licenses are becoming, let's say, key players also in this SOI world.
Absolutely. We need more than one player. Emmanuel, I told you from the very beginning as well, that we have these leadership positions that we continue to have in this industry. The 52% with GlobalFoundries is clearly a very strong number, a very good number. When it comes to dollars, when it comes to the mix product of what we are gaining and getting, it is clear that we have the value product, and this is what we are concentrated on. We cannot manufacture everything, and we need to make sure that our licensee get a share. You know that the positions on our market share is really driven by innovative and value products.
Okay. That's very useful. Thank you, Paul.
Thank you. The next question comes from the line of Ken Rumph from Jefferies. Please go ahead.
Good morning. I think actually most of my questions are answered. I'm left with just to ask about GaN related to millimeter wave and so on.
GaN for millimeter wave. Today, I think it's still a long shot. Okay. We are obviously getting into qualifications, including for smartphones. Clearly first, we will start with applications like 5G infrastructures and at the beginning. That's where we see most of the volume going right now.
Okay. Thanks.
Thank you. The next question comes from the line of Dominik Olszewski from Morgan Stanley. Please go ahead.
Yes. Hi, good morning, everyone. The first question is just to circle back on an earlier question. Could we just think about, at least conceptually, bridging from the 34% EBITDA margin this year to the 35% that you have midterm in the capital markets planning? What elements of that are declining and then improving over time? I know you talked about bulk pricing, also yields as you ramp up capacity. The second question is, you're one of the few companies that isn't flagging supply chain and logistic issues, could you maybe just talk about what you're seeing as well? Thank you.
On the first questions on your EBITDA, trying to understand the dynamic moving forward. It's too early for us to share anything else, what is clear is that it is clearly very good news because, as I said, it's based on structural and clear accelerations that we have made in our operations and overall manufacturing, including all sites. This is something that we consider as a strong achievement. When it comes to global supply chain clearly what we see, shortages maintain for us a high level of demand. We continue to see a high level of demand in smartphones and auto. We didn't get any signals or weak signals from any of our customers. The inventory levels are very healthy across the board, we check that at our key foundries and IDMs, we are in extremely healthy shape here.
The good news, and I continue to say that because this is part of the strengthening of our industry. The good news is that we are clearly getting into much higher visibility. Our customer contracts now are covering 3-5 years. This is really giving us also a strong visibility on our investments and the speed of our investments.
Thank you.
Thank you. The next question comes from the line of Robert Sanders from Deutsche Bank. Please go ahead.
Yeah. Hi, Paul. Just to come back to the millimeter wave FD-SOI opportunity. I think you've said in the past that it's relatively small in fiscal 2023, before becoming very substantial in fiscal 2024. How should we think about the deployment timeline? Is it just going to be a couple of models in the second half of calendar 2022, and one region before becoming all models and all regions? How should we think about the deployment of millimeter wave? There has been some disappointment out there on the last iPhone, for example, not supporting a lot of different regions. I'm just interested to sort of, if you could just provide a bit of color on how you think this ramps up. Does it mean fiscal 2024 becomes a substantial growth year versus fiscal 2023, for example?
Clearly, if you think about millimeter wave applications, these are really the drivers. The good news about this, and I believe you are seeing the same, we see more true applications coming to us, like indoor enterprises. We see transportation hubs. We see fixed wireless access. Clearly, Industry 4.0 is also part of it. We are now seeing real business tractions on this millimeter wave, and that's really also coming into play with what I said, which is the energy efficiency that the industry has to bring to these millimeter wave applications. To your point, I always said yes, second part of fiscal year 2023 for the beginning. Could be a bit earlier. We need to check. Clearly it will start with a few smartphones, obviously, and a few different regions. I believe that.
I do not have the dynamic clearly in mind for the rest of the years. Let's make sure that we start, as we said, the market will like it. The market will like the performance and the overall power efficiency that we will bring to this application.
Got it. The 80 millimeter squared opportunity you laid out, that's on day one, basically, the 80 millimeter squared opportunity incremental for you guys versus the 60, I think they're doing in the whole mobile today?
Most likely, yes, Rob. This is clearly something that, depending on the architecture and depending on the chips, that the architecture that our customers are looking at, we are very, very confident with this 80 millimeter square.
Okay, great. Thank you.
Thank you. The next question is a follow-up question from Didier Scemama from Bank of America. Please go ahead.
Thank you. I just wanted to get your thoughts on the imager business. It looks like you said it was flat year-over-year. Can you just give us a sense of the sort of sequential performance and whether you were disappointed by that flat year-over-year performance, at least relative to what we can see in the press regarding the bill plan of a particular customer? It sounds a bit underwhelming. Just wanted to understand what was the reason for the flat performance year-over-year.
Yeah, it's more of kind of seasonality here. We continue to see a very healthy year. We continue to see that also for the years to come. We do not foresee any negatives on this product. I was just checking on my numbers. What we see today, we see specialty SOI and Imager as part of it, getting stronger and stronger across the year. No issue on this.
Can you say what the business did, sort of calendar Q3 over calendar Q2?
No, I don't have the data, but it was a single digit. In percentage, on top of my mind, it's a single-digit percentage.
Do you expect that to increase in Q4?
No comment on this.
Okay.
Not going to comment on that.
All right. Thanks very much.
Thank you. The next question is a follow-up question coming from the line of David O'Connor from Exane BNP Paribas. Please go ahead.
Yeah, thanks for the follow-up. Paul, I think there was a question on freight and logistics and concerns in the industry and what you guys are seeing. I didn't quite catch the answer. Maybe you could kind of go into a bit more detail on that, if there's any concerns you have there around freight and logistics. Lastly, can you give us an update on silicon photonics? Thanks so much.
Yes. So far, we have not seen any issues on the logistics itself. We have clearly getting what we want and no issues on that. On the silicon photonics itself. Basically, the silicon photonics, it's clearly an opportunity that we are measuring every year. This is clearly now with the pandemic, we are seeing also an acceleration of silicon photonics towards businesses that I will say health business. We have seen several companies getting into, and some of them having strong tractions on biosensors, for example. There is one that I can probably mention that you have on your radar. It's Rockley Photonics. We see that coming to a stage right now where there is tractions on the photonics itself. We see continuous growth over the year. Obviously, I'm not going to comment for next year, but very, very good.
What I will say is that we are still trying to learn more also on this photonics. We see that the watch business and will embark a lot of these new devices, and we foresee some new release. Some of them happen in September this year, but some of them will continue to show up on the shelf for Christmas.
Thank you.
Thank you. There is another follow-up question coming from the line of Sébastien Sztabowicz from Kepler Cheuvreux. Please go ahead.
Yes, thanks again for the follow-up. One on RF-SOI. Do you see any potential threat to your leading position on RF front-end module with any kind of potential new substrates? Qorvo has acquired Cavendish Kinetics back in 2019 on RF MEMS. Do you believe this technology can be a threat to RF-SOI, or do you see any potential other substrates that could compete with RF-SOI going forward? Thank you.
Thanks for the questions. You know that we are paranoiac with our competitions because this technology leadership is fundamentally one of the strengths that we are building. We are building it with our customers. Because we share a very advanced customer roadmap. We understand with them the problem they are trying to fix, and then we put our organizations in place to really deliver the next generations of products. That's the model. Back to this remark on this competitive technology. We don't see it coming. It's clearly a very small niche applications. The problem that we are looking at, it's clearly integrations, reliabilities. They are far from to be an industry or technology.
Okay, thank you.
Thank you. There are currently no further questions in the queue. Just as a final reminder, please press star one if you'd like to ask a question. I can confirm there are no further questions coming via the audio line, so I'll hand the call back to the speakers for any concluding remarks. Thank you.
Thank you, operator, and thank you for your interest and your questions to all of you. The next date in our agenda will be our fiscal year 2022 interim results on the 30th of November after market close. Again, thank you all. This ends our call for today, and thank you for your attention.
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