Hello and welcome to X-FAB's second quarter 2025 results conference call. On today's call, we have Rudi De Winter, CEO, and Alba Morganti, CFO. 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 over to your host, Rudi De Winter, to begin today's conference. Thank you.
Thank you very much. Welcome to the X-FAB Silicon Foundries SE second quarter 2025 results call. In the second quarter, we recorded revenues of $215 million, up 5% year on year, and up 5% quarter on quarter. Excluding the FRS 15 impact, the quarterly revenue was $218 million, which is well above the guidance of $200 to $210 million. The second quarter revenue in our core markets, automotive, industrial, and medical, was $206 million, up 8% year on year, and up 9% quarter on quarter. This is the highest quarter in the last six quarters, and it's now growing for two quarters in a row. 2025 is progressing more favorably than initially anticipated, and we upgraded our full-year revenue guidance to $840 million- $870 million. The order intake has increased for two consecutive quarters now.
Our business is no longer constrained by capacity, and factory cycle times have shortened, and customers place orders later than usual and more frequently and at short notice, resulting in a reduced visibility. The shorter ordering behavior is also a result of the geopolitical uncertainties where everybody is more careful. All in all, the backlog in the second quarter increased by $26 million - $413 million. Now, when looking into our different end markets, starting with automotive, the revenue totaled $143 million, up 1% year on year and up 6% sequentially, mainly driven by EV-related applications. The inventory levels are a mixed picture. On average, it's still on the high side, and at the same time, we see products with rush orders indicating that the industry is conservative in ordering.
Industrial revenue came in at $47 million, recording a very strong growth of 37% year on year and 20% quarter on quarter. The highly fragmented industrial end market is picking up again. Our industrial business also benefited from increased demand following the last time-buy announcement for some of the 150mm CMOS technologies. This will continue to be strong throughout 2026, and the industrial also benefited from new business-generating revenue by prototyping new projects. X-FAB Medical business recorded a quarterly revenue of $15 million, up 14% year on year and 9% quarter on quarter. The growth in the second quarter was mainly driven by medical-grade contactless temperature sensors using microsystems technology. In the second quarter, all technologies showed progress compared to the previous quarter. The CMOS progressed thanks to additional capacity that became available and the demand for EV and also the strong demand for EV-type products.
The microsystem progressed well and also had good bookings. The silicon carbide is now clearly progressing. The gradual recovery of X-FAB Silicon Foundries SE silicon carbide business is not fully reflected in the evolution of the top line. Sequentially, the silicon carbide revenue rose 32%, while the number of silicon carbide wafers produced grew by more than 60% quarter on quarter. This is due to the greater portion of silicon carbide consigned wafers. During the first half of 2025, X-FAB started production of more silicon carbide wafers in its factory in Texas than it did throughout all of 2024, primarily due to demand from data center applications, and this sets us up for further growth in the second half year. On the silicon carbide business development side, it's also progressing well.
Our latest technology platform that we released last December is driving strong engineering and prototyping activity, and the customers are very pleased with the results that they achieve. Quarterly prototyping revenue was $21 million, down 1% year on year and up 30% quarter on quarter. The achievement of key milestones in customer-specific microsystems projects has contributed to that. Now, let me update you on the operations side. The end of the second quarter marks the completion of X-FAB 's three-year program to expand manufacturing capacity across the group. Main focus in the first half of the year was on equipping the new clean room in Kuching, Malaysia. All equipment has been delivered and is at different stages of installation and qualification.
A number of tools and machines have already completed qualification, allowing for phased ramp-up of our 180-nanometer CMOS technologies where we have particularly strong demand, and we expect further growth in the third quarter. CapEx in the second quarter amounted to $54 million, a clear decline from the previous quarter. For the first half of 2025, the CapEx totaled $155 million, coming in slightly lower than expected due to the deferral of some CapEx into the second half of this year. Due to this shift, we might see a small increase in the third quarter to drop further in the fourth quarter. The full-year capital expenditure projection remains unchanged at $250 million. Now I would like to pass the word to Alba for the finance.
Thank you, Rudi. Good evening, ladies and gentlemen. We will now go to the financial update. I would like to start by highlighting that in the second quarter, we succeeded to increase quarter on quarter our gross profit by 12%, and our EBITDA grew by more than 5%. Our revenue increased as well by 5%, totalizing $215 million, which was in the upper part of our guidance of $200 million- $210 million, and at the highest since more than a year. More specifically, our second quarter came in with a $51.6 million EBITDA with an EBITDA margin of 24%. If we exclude the impact from revenue recognized over time, the EBITDA margin for the second quarter would have been 24.3%, within the guided range of 22.5%- 25.5%. Our profitability remains unaffected by exchange rate fluctuation because our business is naturally hedged still. At a constant U.S.
dollar euro exchange rate of 1.08 as experienced in the previous year's quarter, the EBITDA margin would have been the same at the same level. As said, from a business perspective, we are fully hedged. If you look at our financial result in the second quarter, you will see that we recorded a loss of $17.4 million, which includes an unrealized foreign exchange effect for $17.2 million, primarily related to the reevaluation of euro-denominated debts. It is still unrealized at this stage, so it's not a cash item. Cash and cash equivalents at the end of the second quarter amounted to $157.7 million, nearly unchanged from the previous quarter. As Rudi already explained, our capital expenditure payment went significantly down in the first half of 2025, totalizing $156 million compared to $510 million in the full year 2024.
We should then stay around $250 million for the full year this year. To conclude this financial section, I would like to share our new quarter's guidance. Our Q3 2025 revenue is expected to come in within a range of $215 million - $225 million, with an EBITDA margin in the range of 22.5% - 25.5%. The guidance is based on an average exchange rate of $1.15 euro dollar and does not take into account the impact of IFRS 15. We have upgraded our financial full year 2025 guidance, projecting an annual revenue in the range of $840 to $870 million, with an anticipated EBITDA margin between 24% and 27%. I would like to give the word back to Rudi.
Thank you, Alba. I'm very pleased with the progress we made in the second quarter, and we expect this trend to continue in the second half of this year. I'm particularly pleased about the above-average order intake for our microsystems business. It stands for highly complex technologies and applications with great purpose for medical and road safety. This business has very high barriers to entry and will be long-term. With the completion of our capacity expansion programs, we are ideally positioned to grow profitability together with our customers. Sufficient capacity is now available for our most popular technologies, BCD on SOI, that is in great demand for a broad range of applications in automotive and in particularly battery monitoring systems for EV, as well as industrial piezo applications or automatic test equipment for semiconductors, and in medical for ultrasound applications.
With this, I would like to open the line for questions.
Thank you, ladies and gentlemen. As a reminder, if you would like to ask a question or make a contribution to this call, please press star one now on your telephone keypad. To withdraw your question, it's star two. The first question is coming from Guy Sips calling from KBC Securities. Please go ahead.
Yes, thank you. First of all, congratulations with these nice results. I have a question on the industrial segment. I saw a very nice year-on-year and as well quarter-on-quarter lift-up of the sales in industrial. The question is, can you elaborate a little bit on this, where it is coming from, and is this sustainable going into the second half of this year? Thank you.
Thank you. In this portion of our business, there is on the one end a very fragmented industrial business that's typically CMOS type that is stable, is recovering, and is looking good also going forward. There is also our silicon carbide that is to a large extent in industrial, which overall silicon carbide increased with $2 million compared to previous quarter. As I mentioned, there is data center infrastructure, power management, ICs in the silicon carbide that is particularly driving this. I mentioned that we have started a lot of wafers in the first half or as much as the whole of 2024. This will also, they will also further increase in the second half. That will also have a positive effect there. We also had some good prototyping from new contracts that also contributed.
Altogether, it's a strong industrial, and I expect this to hold for the second half of next year.
Okay, thank you. On the yield of the new machines, can you give us some clue how that is improving and what we can expect of that going forward? Thank you.
When you refer to the yield of the new equipment, the installation is progressing well and the qualification. So far, they help with the additional capacity, so that we are not in allocation and we can support the full demand that is out there. On the yield side, the production quality is okay. There are no issues there. Everything looks okay, if that was the nature of your question.
Yes. Okay, that's it from my side. Thank you.
Ladies and gentlemen, as a second reminder, if you'd like to ask a question, please press star one on your telephone keypad at any time. The next question comes from the line of Robert Sanders calling from Deutsche Bank AG. Please go ahead.
Yeah, hi, good evening. Maybe you could update us on your China strategy. I understand you're serving some of the fabless companies like Novosense, and you obviously have a direct relationship with BYD, but Melexis, your largest customer, is wanting to work more aggressively with local foundries. Are you willing to license your process IP to Chinese foundries in order to support your companies like Melexis' localization strategy? If so, which IP and which sort of flavors of IP and which nodes would be interesting? I have a follow-up. Thanks.
Thanks for that question. Our strategy primarily is to support the Chinese market with all of our technologies, but from the factories that we are operating. The strategy going forward to outsource or license technologies is still under evaluation. There is nothing to report on that right now.
Is there an opportunity? It sounds like Chinese companies are now preferring European suppliers over American suppliers. Is there either an opportunity from market share in foundry, or is there perhaps an opportunity because you have more of a European skewed customer base?
We have a European skewed customer base, that's right. We also have good traction in China with our unique technologies like the BCD on SOI that is not available very much in foundries throughout the world. We get good traction for such technologies from China, also China design houses. For the time being, we have capacity in our factories to serve that. There is no need for licensing from a capacity perspective. I also said that in the longer term, I think we have been licensing or outsourcing technologies in a period where global capacity shortages. Going forward, that is definitely also part of the strategy rather than aggressively further expanding internally.
Got it. On TSMC exiting gallium nitride in July 2027, Navitas, one of their larger customers in gallium nitride, has announced that they will move to PowerChip. Were you in the running for that business? How much other business do you think is out there to win as TSMC exits in just two years' time?
Yeah, as Navitas also disclosed on Bloomberg, we're their silicon carbide supplier, and we have a very good relationship with them. We're not particularly competing with other sources there, but we are collaborating with Navitas on a broader perspective.
Are there other opportunities in gallium nitride from outside of Navitas?
The fact that TSMC made this announcement, as we have a quite broad pipeline of developments that we are doing in gallium nitride, particularly from our factory in Dresden, this announcement, of course, gave a bit of a boost on the interest, but it all first needs to be developed before things can turn in volume production.
Got it. Just lastly, on the data center opportunity that you see, are these small silicon carbide U.S.-based fabless companies, or what in silicon carbide, is there a gallium nitride opportunity? What is the opportunity that excites you the most? Obviously, Navitas is already working with NVIDIA. Which particular part is the part that you think you can gain a lot of traction?
As I mentioned, the data center applications, they are silicon carbide, and that is running in quite attractive. That is the main growth driver for now for the silicon carbide in the past quarter and for this year.
Is that MOSFET? Is that just a standard MOSFET? Where is it? Is it for cooling? Which type is it?
No, this is not for cooling. It's for the power conversion. These are high voltage silicon carbide trench and junction FETs.
Got it. Okay, thanks a lot.
We are now going to take the question from Trion Reid calling from Berenberg . Please go ahead.
Thanks for that. Hi, yes, Trion here from Berenberg . I just wanted to ask about the comments about shorter-term orders. It seems like some of the Q2 sales strength was driven by these later orders. Are you able to increase pricing for these, maybe to offset a bit of the reduced visibility that you also talk about?
Yeah, the pricing in this year is rather stable. We do not have, with also the capacity that is becoming available, that's a good thing. The shorter-term orders are not coming at the normal price.
Okay, thank you for that. Just the second question, on the comments about silicon carbide, you're seeing a greater proportion of consigned wafers, which I guess is not great for revenue, but you still get the same EBITDA, which should mean a benefit to the EBITDA margin. I guess the first point is, is that the correct logic? As a sort of secondary point, obviously the sales were quite strong in the quarter, but the EBITDA margin was still within the guidance. Usually, you guys have quite nice operating leverage. I just wondered if you could comment about, one, that impact from consigned wafers and silicon carbide, and two, maybe why the EBITDA margin wasn't even better than it was. Thanks.
Yeah, on the one end, you're right. If the consigned wafers, they result in, for the same quantity of wafers or products we sell, in a lower revenue, but the value add from X-FAB's side is the same because we don't have a markup on wafers that we supply. On the overall leverage, our top line, if it's better, normally it gives a better margin. However, you also need to take into account that our top line is better, but we are reporting in US dollar, and we have around 44% of our revenue in euro, which translates to a higher dollar revenue. We also have costs that are related to the higher costs related to the euro fabs that offset also this leverage effect. I hope that clarifies the fact that we do not see in this quarter, despite the higher revenue, a better EBITDA.
Thanks for that. Could you just, how much of the revenue growth was due to the, obviously, the weak dollar?
It depends on what's the reference point you take. I would have to calculate that. It all depends on what reference point you take. If you compare it with, I don't have the numbers right in front of me.
Trion, we can come back to you with that. Not a problem.
Okay. I was just trying to get an idea of how much of the beat is due to the effects. I guess I could go back and work it out myself as well.
Yeah . We.
I think if there wouldn't be an exchange rate difference, if the exchange rate would be the same as previous quarter, maybe we would be on the high end of the guidance, but not maybe slightly above, but not as much as we are now.
Got it. Yeah, okay. Thanks a lot, guys.
The next question comes from the line of Michael Roeg, calling from Degroof Petercam . Please go ahead.
Good evening. I have a question about the silicon carbide business for the data centers that is doing nicely, especially given your comments about the wafer start so far in the first half of this year. I was wondering where this is coming from all of a sudden, considering your data center business has already been pushing HBM and GPUs for two years now. Is this market share gains or contract renewals with?
I think it is maybe, on the one end, maybe related to increased or gradual change in architecture of the power management in data centers, using maybe more silicon carbide than in the past. I think that's one. In general, of course, maybe also a bit of market share gained by our customers in that field.
Do you basically expect, in the first half, you had more wafer starts in silicon carbide, and in all of last year, you expect that pace to at least be maintained in the second half, right?
These starts, they will now, as we go, increase our revenues in the silicon carbide in the second half. How these bookings will continue, that I cannot predict for sure.
Okay. For now, you see no material change in bookings in that.
No, it is healthy.
I do have a question, following up on 300 about margins. I was wondering, you've been adding a lot of capacity across many different fabs and even a clean room in Malaysia. Typically, with large expansions like this, you have a lot of startup costs and learning curves to tackle, and that typically has an impact on margins until you're fully up and running. Have your Q2 margins been held back by such startup costs?
We already have some of the impacts from the middle of last year, where the facility is up and running and the clean room, so the electricity costs and so forth started to come in as of maybe September last year. We already started recruiting additional process engineers and technicians a year ago. These personnel costs are already there for a while. If we can really start producing, then we will have the positive effect of the economy of scale.
Sure, but say if the capacity you added last year may be seeing better margins today, but today you're adding again a lot of capacity, that will hold it back. Let's say in six to nine months, you will have no more startup costs, learning curve. Can we expect better margins?
No, we do not expect additional costs. What will come is the depreciation. We only start the depreciation when the equipment are qualified and ready for production. There will still come an increased cost on additional depreciation, but that will have an impact on the gross margin, not on the EBITDA, of course.
Okay. That's clear. Good. My final question is on the operating costs. Typically, there is not a lot of seasonality in operating costs from Q1 to Q2, but this time in Q2, they were a bit higher. I assume that was because of the weaker dollar. Can you confirm that, or was there also an underlying increase?
Yeah, there is a bit of effect because we have quite some operating costs in Europe in R&D and administration and so forth. That had a bit of effect.
Okay, that's clear.
We also have increased R&D activity that also resulted in higher consumption of wafers that are charged in the R&D.
Okay. A final question, just one I thought of. If I'm not mistaken, you were given a subsidy by the European Union for your manufacturing expansion. Could you provide an update on where you stand, when that will come?
This is what we call IPCEI, the Important Projects of Common European Interest, where we benefit from. I think we reported on that, that that has over the lifetime was something like $80 million. This is spread over four years, roughly, and that's more or less equally spread around $20 million. In that period, I think that runs till 2028 or so.
Okay, that is already. Are you booking that in your P&L on a quarterly basis?
Yes, this goes on to the P&L, so that's mostly R&D. That lowers the R&D reported costing.
That's about $5 million a quarter.
Mm-hmm.
Good. That's it from my side. Thank you.
Ladies and gentlemen, final reminder, if you would like to ask a question, please press star one at any time. The next question comes from, we've got a follow-up question, actually, from Robert Sanders from Deutsche Bank . Please go ahead.
Yeah, hi. Intel recently, I think, canceled their German project, but the EU Chips Act is obviously in a bit of disarray as well. What is your sense from hearing updates from European leaders about the strategy going forward? Because obviously, without Intel, then there could be theoretically more onus on specialty technologies and more money to come your way.
There is a call on chip manufacturing support in Germany that is running. We're also in contact with that, but it's too early to report on that. That's for all kinds of chip manufacturing.
Just the last question, I noticed that Asian foundries are seeing utilization falling in the second half. They're talking about orders dropping 30% in the second half. If you would, they're also saying that there was pull-in, which has now ended. If you contrast that with you, obviously, you guys address more of an auto-industrial end market. Is there any sense that what you're seeing is somewhat pull-in driven?
It's very hard to say. I have no idea. I have no idea whether there is a, I know what you're hinting to, that there could be maybe some, because of all the tariffs and so that people are trying to rush with their orders to escape. I don't think, considering all the relatively long lead times that we have, we're shipping most of our products to Asia where they are then being assembled by our customers, subcontractors, before they go to the U.S. Semiconductors, they are, yeah, excluded from tariffs. I have no idea.
Okay, thank you.
Ladies and gentlemen, there are no further questions. I will hand you back to your host to conclude today's conference. Thank you.
Thank you very much for the participation today. I would like to remind that on the 9th of September, we have our X-FAB Investor Day in Brussels. You're welcome if you have not yet subscribed. Otherwise, we speak each other for the next call on the 30th of October for the third quarter result. Thank you very much for your participation.
Thank you. Goodbye.