Earnings Call: Q4 2020

Feb 25, 2021

Ladies and gentlemen, welcome to Xtron's Full Year and Fourth Quarter 2020 Results Conference Call. Please note that today's call is being recorded. I will now hand you over to Mr. Guido Pickett, VP of IR and Corporate Communications at Exteron for opening remarks and introductions. Thank you very much, operator. Let me start by welcoming you all to Exelon's presentation of the full year and Q4 2020 results. I'd like to welcome the members of our executive board, Doctor. Felix Gravel, Doctor. Ben Schulzepp and Percelorven Link, who joined us last in October as well as our VP of Finance and Administration, Charles Russell. As indicated, this call is being recorded by ExOne and is considered copyright material. As such, it cannot be recorded or rebroadcasted without permission. Your participation in this call implies your confidence to the performance. Please take note of our Safe Harbor statements, which can be found on Page 2 of our results presentation slide deck as it applies throughout the conference call. We may also wish to have a look at our latest IR market presentation with additional information on Exelon's market and its technologies. Both slide decks are available on our website. This call is not being immediately presented via webcast or any other medium. However, We will place an audio file of the recording or transcript on our website at some point after the call. I would now like to hand you over to first hand Schroeder for opening remarks. Many thanks, Guido. Let me now welcome you to our full year 2020 results presentation. And I will start, as usual, With an overview of the key developments for the year before handing over to Charles for more details on our 2020 figures Felix giving you updates on our achievements in our business areas as well as the outlook for 2021. Let me start by giving you an overview of the key developments last year on Slide 3. In Q4 2020, orders came in at €92,000,000 which is 30% higher And the same figure in Q3 2020. As broadly expected, revenues in Q4 were strong at €108,000,000 which was almost 70% higher than in Q3 2020. While our optoelectronics business Slightly lower in terms of revenues compared to 2019, we saw increasing demand resulting in almost doubling of the orders proceeding compared to 2019. This trend was driven by both lasers for Datacom as well as for 3 d sensing With a particular order strength in Q4, in Power Electronics, revenues and orders were up significantly, Driven by strong demand for GaN Power equipment. Felix will give you more details later on. In fiscal year 2020, we fully met our 2020 guidance with a total order intake of €301,000,000 And revenue of €269,000,000 Gross margin was at 40% and EBIT margin at 13%. Let me now quickly give you an update on our potential impact of the spread of the COVID-nineteen disease. Our increased internal safety measures have proven effective to mitigate the risk of infection within our premises. We continue to have we continue to not have recorded any significant effect related to COVID-nineteen and our operations and business. However, we will continue to watch the development of the global pandemic very carefully And we remain to be ready to take measures if necessary. Before handing over to Charles, let me say a few words To our dividend proposal, we have made due to our strong results achieved during fiscal year 2020. We, the Executive Board as well as the Supervisory Board, propose to pay out a dividend for full year 2020 of €0.11 per share. This will not have to be approved by our shareholders on our Annual General Meeting on May 19, 2021. This represents a payout ratio of 36% of our Ooznet Which was €34,500,000 At this point, let me now hand you over to Charles for a more detailed overview on the full year 2020 numbers. Charles? Thanks, Bernd, and hello to everyone. Starting on Slide 4, our income statement. As expected, total revenue for the year was €269,000,000 compared with EUR 260,000,000 in 2019. Gross margin of 40% in 2020 was 2% lower than the 42% in 2019. The difference is attributable to the U. S. Dollar euro exchange rate effect between the two years. Overall operating expense in the year increased from €70,000,000 in 2019 to €73,000,000 in 2020. G and A expense increased to EUR 18,000,000 in 2020 from EUR 16,500,000 in 2019, mainly as a consequence of increased recruitment costs and other variable expenses. R and D expense of €58,000,000 was €3,000,000 higher than in 2019. This is a reflection of our product development work for our MLCVD systems, including power electronics and mini and micro LED. Here we've taken next steps and will start to ship first systems to test customers worldwide. Towards the end of the year, spending on our OLED development reduced. However, costs for the full year were similar to 2019 at €17,000,000 Net other operating income of €13,000,000 in 2020 compared to €12,000,000 in 2019, mainly consisted of R and D grant income of €8,000,000 and a €3,000,000 reversal in Q1 of an impairment charge on the facility in We generated an EBIT of €35,000,000 for the year compared to €39,000,000 in 2019. The effective tax rate in 2020 was 2%, mainly due to the recognition of additional deferred tax assets and because of the reversal of the building impairment. Without these adjustments, the effective tax rate would have been a further 12% of pretax profits. The net profit for 2020 was €34,000,000 compared with €33,000,000 in 2019. Turning to the balance sheet on the next slide. As expected, the high level of sales in the quarter produced a substantial reduction in inventories between the end of Q3 and year end. At €79,000,000 inventories were similar to the previous year's level. The high quarterly sales volume is also reflected in the increase in receivables to €41,000,000 most of which will be collected in Q1 2021. Advanced payments received from customers of €51,000,000 It's similar to the end of 2019. Advanced payments have represented 34% of the backlog. Our cash balance increased to €310,000,000 at the end of the year, including €60,000,000 shown in other non current assets on the slide. Moving to Slide 6, which shows our cash flow statement. Operating cash flow of €23,000,000 was lower than 20.19 to €9,300,000 from €7,700,000 in 2019. This reflects an increase in demonstration equipment The expanded product range and investments in facilities needed for an expanding business activity. With that, let me hand you over to Felix. Thank you, Charles. I would like to give you some perspective on our adjusted market on Slide Before concluding with the outlook for the rest of the year. In 2020, our optoelectronics business was slightly lower In terms of revenues compared to 2019, however, towards the end of this year, we saw a strongly increasing demand. With this, the orders received in this area almost doubled in comparison to 2019. This trend was driven by lasers for datacom from the 5 gs rollout as well as lasers for 3 d sensing. Here we see a growing adoption of 3 d sensing applications on both sides of the smartphone and in other devices. In the LED space, customer inquiries for tools to make raw LEDs are strong driven by demand from the areas of Full color LED displays and backlighting units. For the first time, in 2020, we have received significant orders for ROI ADEs targeting the horticulture markets also called indoor farming. In microLEDs, we have seen the transformation of the industry from Pure are weak to the manufacturing feasibility stage, making the adoption of this technology more probable than before. At this page, the order volumes for this segment are still comparatively small. In Power Electronics, The 2020 revenues and orders were up significantly, mostly driven by strong demand for gallium nitride power equipment. Here, we continue to receive orders from customers who address the growing end market of efficient gallium nitride charger for consumer electronic devices, such as smartphones and notebooks, as well as efficient gallium nitride power management solutions for service and data center. In 2020, we have clearly seen the tipping point of broad gallium nitrile power adoption, And we are now in the volume ramp phase for GaN Power Solutions that replaced the incumbent silicon based power management business. At the same time, we see increasing momentum in the area of Gallium Nitride and Gallium arsenide RF solutions, driven by the 5 gs build out. In silicon carbide, we have achieved the qualification of our fully automated I had 2 questions from 2 customers, and we continue to work hard to achieve the same with additional customers. With regards to OLED, we have achieved the customer acceptance of our Gen 2 in December 2020, And we are now in customer discussions related to a scale up of the system to larger size, which will be the final part of the qualification process. Let me now come to our outlook for 2021 on Slide 8. For 2021, we expect order levels to once again increase year on year to a range between €340,000,000 €380,000,000 This expectation is based on many orders that we have already at the beginning of the year and a very healthy level of customer inquiries across all applications. Starting with the backlog of €151,000,000 we expect revenues for 2021 in the range between €320,000,000 €360,000,000 We expect our gross margin to again be around 40% despite as well We expect an EBIT margin of around 16%, With bigger increase, increased ROV expenses for the completion of the development of our next generation products for lasers, microLED, With this large portfolio initiative, we expect to secure Our leading market position in our rapidly growing core markets. Important to note is that order, All our backlog and the other guidance figures are based on our 2021 budget exchange rate of €1.25 per €1. In the quarters to come, revenues and profit margins will be reported based on actual exchange rate. We have made our guidance based on the assumption that the current COVID-nineteen pandemic will continue not to have a significant impact on our business. Please also note that these estimates fully include the results of Apeema from top to bottom line. With that, I'll pass the back to Guido before we take questions. Oren, I think you're right. We are now open for questions, Oren. Please ask operator, please ask And the first question comes from Oliver Honeychurch from Liver Room. Over to you. Hi, thank you for taking the question. I just wondered a couple for me actually. I just wondered if, first of all, you could Talk a little bit more about the OLED project that you currently have ongoing with one of your Korean customers. Have there been any more developments there over the last couple of months? And I guess elsewhere sort of regardless of that customer, Is it possible that you might look to mirror that project work with other customers going forward as well, for example, in China? That's my first question. Secondly, just on silicon carbide power applications. Can you talk a little bit more about what sort of applications That you're currently seeing strong demand for at the moment. And maybe give a bit more color on whether you're getting any closer to qualification with customers with your platform as you did towards the end of last year? Thanks. Yes. Thank you very much for the two questions. Let me get started with Ole first. So the key development towards the end of the last Here with the completion of the Genpoo project, we achieved the full qualification and the project is concluded. So the Final acceptance has been reached together with the customer to expect us to fulfill, so to say. And with that, This qualification project is concluded. And if you recall, this was the Gen 2 project, referring to a Gen 2, a Smaller size or R and D type size of substrate, of glass substrate, which was attached to the R and D line of our customers. And that project is concluded. So in other words, you can say the proof of concept has been done that the OVPD technology or the new technology is Working. And that's concluded. And now we are in discussions with customers, both In Korea and outside of Korea, about a scale up to larger substrate sizes. And larger substrate sizes are needed for a full volume production where ultimately the technology would go. And those discussions are ongoing. It involves a lot of Technical details, technical specifications. So that is something which we expect to take a couple of months. That's what I like what I would like to give a little summary for the OLED discussion. With that, I come to your second question on silicon Carbide, I think we have 2 elements. The first was what applications we addressed and about the qualification status. With respect to applications, we expect the biggest volume to go in the market for Electro Mobility into the electric drivetrain in the main inverter of cars. We furthermore The silicon carbide element to go in the onboard charger for cars, this is the compact power charger converting The energy through the cable into the DC voltage and the battery. But we also see further use cases and volumes not as large Smaller quantities compared to the first two months. In fast charging stations, in infrastructure, For example, along the highway or as today, we call it gas stations. In the future, it will be electric charging stations. The discussion is going on about 100 kilowatt, 350 kilowatt charger, which can charge, for example, 100 kilometers Driving this for your car in, let's say, 5 minutes or so. This can this will clearly lead silicon carbide as a power converter. And also, we see silicon carbide going into the electricity generation, so into inverters, For example, for solar power plants of a wind power plant. So there is many, many applications around. But by far, the biggest use case is around electromobility, and that's the main driver in quality. To your second question, we have concluded the qualification with 2 As we mentioned before, with other customers, our system is standing on the shop floor and qualification programs are running. Such a qualification typically takes several quarters because it not only involves That our tool produces appropriate waiters in a reliable manner, but it also means that these waiters need to be Put through the production line of our customers, with a full MOSFET of full devices being produced. And only when these fully Produce devices pass the qualification test for our customers that they'll simply also accept the tool. So that is a multi quarter ongoing effort, Which will well extend into the year 2021. And the next question comes from Uwe Schupp from Deutsche Bank. Over to you. Yes. Thank you. Good afternoon, gentlemen. Two questions, please. Firstly, on the gross margin and secondly on the gallium nitride opportunity. So just firstly on the gross margin. You get a relatively broad revenue range with about a €40,000,000 or so Number, I was just wondering how we should read the 40% absolute gross margin And why you also didn't decide to give maybe a bit of a range? I would expect given what you what we saw in the past 2018 or even before that, there should be some benefit from higher volume. And I would also assume that your product mix It's probably going in the right direction with silicon carbide and potentially also some VCSEL business coming back. And then secondly, just like to hear thoughts on the gallium nitride opportunity as in how big do you see the market this year? I guess some of the concerns would be, is gallium nitride power really comparable maybe only to the 3 d sensing market in 2018, when you basically had one strong year, or do you really think the opportunity is maybe a bit more structural, more longer term And really comparable maybe even to the silicon carbide of activity. Thank you. Yes. Thank you, Mr. Schuch, for your questions. Let me get started with the gross margin first. So we have Titus, on the 40%, not to give a range, but the 40%, if you make a delta inter variable a couple of percentage points below and a couple of percentage About 40% is what we mean with the 40% range around 40%, yes, just to address the aspect of the numbers. What are the drivers behind the 40%? First of all, there is a number of mixed effects behind it. And also in 2021, we have significant volume from the ROI M and E market. Also in 2021, we have some very large or we expect some very large orders, volume orders With customers who expect and can expect for good reasons appropriate Lower pricing points, so there is a mix effect mixed into the 40%. In addition to that, The U. S. Dollar in the year 2021 now with 1.25, of course, is a heavy burden on the margin. If you compare that with the year 2020, where over mainly part of the year, we were at an exchange rate of about 1.1, yes? So this is a big, This heavy load on the gross margin. And last but not least, Our production model is not too much asset heavy. It's relatively asset light And relatively flexible due to a high level of an outsourcing of third party contract label. So we do not have so big avoidance effects Of dilution, fixed cost dilution, fixed cost digression, as one would have, for example, a semiconductor company who has their fab, their equipment standing there Secondly, more volume is being produced on the same asset. This is not the case for us. So the volume effect that must be by such a big benefit. I think these are the main points going into the 40%. And maybe to add to Michel from when we We say around 40%. I mean, we imply we have certainly a certain range. It could be slightly above or slightly below 40%. It doesn't mean it will be exactly 40. Okay. That's clear. Yes. With that, I Your question on gallium nitride, which was essentially, is this one strong year as we have seen with the VCSEL or is this a multiyear trend? So I expect that this is a multiyear trend. And of course, around the trend, there's always ups and downs. This is also very clear. What we are seeing today is the big the first investment, which to a large part, I expect to be covering the demand for Chargers and mobile devices, which is one sub segment of Gallium Nitride. But we all, as we also explained, in multiple instances, That's that gallium nitride will step by step penetrate with the subsegments. And it could very well be that The 2021 demand is covering the portable mobile device segment. But then we also look at the segment of IT infrastructure, the structure, be it in data centers, yes, the power supply for servers Obviously, power supply for mobile base stations and mobile communications, we're very hungry in terms of power. But later on, we're also expanding in markets such as motor drives and integrated power circuits, Which, for example, you would find in white goods, household appliances and air conditioning devices. And based on that, we expect that the gallium Nitride is a multiyear growth trend. However, we clearly see as well the weight of this trend lead to a very particular application. We also know Consumer electronics, in particular, is an area where trends have very hefty and heavy movement because the adoption is very fast, While other more industrial applications that have a much more steady slower momentum, yes? So in a nutshell, yes, there is a strong raise, But it will continue as a long term growth driver. So to summarize, the growth this year will be really mostly as far as you can see For the fast charging opportunity in mobile devices? I would say this is the biggest driver. That's very clear. Thanks, Felix. Thanks, Bernd, and all the best, Bernd, for the next chapter of your life. Thank you. The next question comes from Jurgen Wagner from Stifel Europe. Over to you. Yes, good afternoon. Thank you for taking my question. And you mentioned in your prepared remarks that microLED is moving to Pilot production, when do you see that market developing in volume? And who would be your closest potential competitors? And a clarification on the OLED. You said you have Arkeva included from the top to the bottom line. Does that mean that there's Any OLED contribution in your revenue forecast for 'twenty one? Thank you. Yes. Thank you, Mr. Wagner. For the microLED, you're right. I mean, we're going our customers are going now in testing MicroLED production on small scale, but really testing the feasibility of mass production methods To build devices such as small displays for smartwatches or The large displays for TV. The time line, how we see it in the moment is that you might see 1st, TV is in the market, but they're on very small volumes. Certainly, starting basically more like a market test Maybe in 2022 already. While the mobile Applications will take a bit longer. I would not expect them before 'twenty three, 'twenty four, really on the shelf here in the shops. Competition is the traditional one. We see in terms of gallium arsenide system, Our old friends from the U. S, Vico as our main competitor. And we take certainly that situation and that Competition is very serious, but we strongly also believe that currently that we have a clear up ahead. With that, let me come to the second part of your question relating to Achieva. And the question was whether We have modeled in our guidance some revenue for Ateezer. Yes, we have modeled in some revenue for Ateezer based on most realistic Scenario, so to say. And we hope that this scenario does materialize. Can you say how much? Honestly, I don't have it off my head. It's not a significant number. Okay. Thank you. The next question comes from Stephane Bourie from ODDO. Actually, I have two questions. So the first one is about 2021, and I would like to know if you can rank By opportunity, the fastest growing opportunity this year between power, LED And ladies and inside Power, I'm a little bit surprised that you seem to be more bullish On ZYN than on ZYNK for the time being. So does it mean that the that you're driving your orders at the moment is not yet Siq, and Siq is for the years to come. So that's the first long question. And the second question is about the operating leverage. You have discussed about the gross margin. But EBIT margin, also some may have expected a little bit more leverage. So where is that? That's the first question. And then what kind of long term EBIT margin So let us address your questions 1 by 1. I think the first question you asked is about The growth driver for the year 2021, Jan. So we see strong momentum and strong growth from all the segments, Which is very nice across the board, both from the optoelectronics as well as the power electronics. The only segment which we have highlighted Particularly strong is the gallium nitride, Which we already discussed with a strong demand coming from the mobile charging segment. Which addresses the second part of your first question, gallium nitride versus silicon carbide. In both these segments, we expect a multiyear growth trend. Nevertheless, in the year 2021, gallium nitride is clearly in the range of several customers Expanding and fully equipping the factory because now there is a moment in the market, a spot on very fast Coming moment where these devices are needed, that is typical for the consumer electronics industry, We are like an adoption of a particular technology goes very fast. Hence, 2021 is so strongly dominated by the growth of gallium nitride. And in comparison to that, silicon carbide, which addresses much more the automotive market, as we discussed earlier in this call, In this segment, we see a dynamic where customers step by step on a more steady, continuous pace equipped their factories. In silicon carbide, in 2021, we do not see customers putting, let's say, 10 systems or 20 systems in 1 shot In factoring, we rather see expansion of customers adding 1 system, 2 business and 3 systems here and there. However, in both segments, we And with that, I come to your second question, Which I understood, and I do not know whether this is right. About the margin, And EBIT margin, we have guided as around 16%. And this, of course, takes into But also for 2021, as we have mentioned before, we expect An increase in our R and D expenses to complete our full year renewal. And that, of course, consumes again a certain portion Are the gross profits realized from the higher top line? Maybe that addresses that part of the equation. Okay. And long term, you think you can reach what kind of EBIT margin if you continue to grow? That, of course, depends on many factors, last but not least, competitive environment, pricing, pricing power and so on and so forth. But I think 15% to 20% should be a reasonable range. Okay. Thank you very much. The next up is Andrew Gardiner from Barclays. Good afternoon. Thank you for taking the question. I had a longer term one Just in terms of the longer term growth outlook, you guys have included a slide for the last few quarters in your deck looking at the growth out 2025 for the compound semi equipment market. We see its industry analyst forecast. And there's some fairly big numbers in there in terms of the 20% to 35% compound annual growth through 2025. I'm just wondering on your current perspective on this outlook. You've seen orders inflect quite strongly at the end of last year. It feels like the business is quite nicely balanced at the moment between Specialty LED, Power and Opto and with Good orders coming across all of them. So what's your current perspective on those kind of long term growth numbers? Are you willing To endorse them as we look out over the next few years. And then just sort of related to that, What are you guys thinking in terms of CapEx need? You've already highlighted, Felix, sort of the outsourced nature of your work of your production. But do you need further CapEx in order to support this kind of growth that you're seeing at the moment? Yes. Thank you, Andrew. I think for all to understand, I think what Andrew is referring to is slightly ahead in Our slide deck, which basically displays the expectations from the whole development about architectural Equipment and market potential. And they have basically 2 scenarios. 1, let's say, a base case and an aggressive Case 1 is about CAGR of 20% and another 35%. And the main difference between the two scenarios is How strong the rising of microLEDs is, more or less? Let me comment. I would generally agree to the fundamental growth concept behind that study. I would be more careful with the absolute numbers because from historical data, we think the absolute numbers Do not stack up like reports there. However, the underlying momentum on the underlying applications I would agree to. And meaning that there is a potential of 20% to 30% CAGR in this market, I would definitely agree to. And the driver is I mean, Phoenix said it many times. It is power, silicon carbide, gallium nitride. Next one certainly would benefit from galindrical even stronger than silicon carbide due to our market position. And then there is the laser business, telecommunications and 3 d sensing As well as the LED market. And the LED market is a little bit the wildcard. And it's, let me call it, whether The MicroLED will make it to a volume product, which is not 100% given, which is currently in the test I mentioned before. But if that turns out positive, I definitely see the opportunity for such projects. And with that, let me come to the second part of your question on the CapEx. CapEx in the last years was typically around €10,000,000 per year, sometimes below, sometimes above. And for 2021, we expect a CapEx of around €25,000,000 And that is driven by 2 major consumption needs. The one area is moderate expansion on our production facilities. And in particular, in terms of testing facilities, test equipment and so This one. And the other part where the CapEx is going or a significant additional amount of CapEx is going this year Additional prototype for our new generation of product, which we're just about to bring into the field. Next up is Charlotte Friedrich from Bailberg. Over to you. Hello. Thank you for taking my questions. 2.5, please. The first one is sort of related on The order intake, can you give us an idea of the split that you saw with your order intake in the Q4 of 2020? And then also, what kind of quotation level are you now seeing in the Q1? Does it continue at this high level? And then the second topic would be around the gross margin. Do you already have a broad feeling for where the gross margin could go in the 2022, 2023 when we start saving in the new product generation. Thank you. Yes. The order intake in Q4 was strongly, as we mentioned, dominated by On optical electronics applications, laser systems for telecom, datacom and consumer electronics, I think it was quite strong. It was almost around 70% of the order intake. It just came from that application. So that was a certain Q4 effect. And we should also mention, there were very few very big orders, Which drove that demand. With that, let me come to the gross margin. You Around 'twenty two, 'twenty three where the gross margin would go and develop. On average, I would expect for our new product series the gross margin of 45% to 50% on that area because it offers additional differentiation potential and increased productivity. But please keep in mind, when we model that in, that in our markets, the adoption of new product sales typically It takes quite some time. So even if we bring in the product into the market in 2021, 2022, it easily can take 2 to 3 years after the qualification is completed until we see a broader market adoption. That simply comes from the dynamic But when the 4th product is qualified in the sense of when the new tool is qualified, the customer has to requalify All the existing products on this tool, we saw they can deliver broadly for their production. And this is nothing, which is, let's say, on our We are ready to produce. We could immediately switch our entire production from the existing series to the new series. However, our customers will convert New installations step by step. And therefore, I think we will have a transition phase from the existing product series, G4, G5, G5 1 more for our 3 application areas to the new one, I would say in a time period from 2022 to 'twenty And we will see the full rollout of the portfolio around 2024, 2025. And I missed to answer one of your questions, sorry, about the For the intake development, right now, we're seeing a continuation of a very healthy demand in terms of Discussion with customer, contract discussions, quotation levels, etcetera. So we would not be surprised if we see in Q1 order levels So even above Q4 levels. Thank you very much. Now we're coming to the next questioner. It is Malte Schalman from Baboqu Research. Please go ahead with your question. Good afternoon, gentlemen. The first question is on costs. If you look at SG and A, that has been relatively stable over the past years with the Saver sales. Now as you're entering kind of new growth phase, sales 350,000,000 potentially €400,000,000 sales in a few years, where do you see SG and A developing relative Then to say it and in that respect also on R and D. R and D is currently rising due to the new product innovations As your earnings would support spending for other things, so do you see areas of interest where you think, okay, In the past, you abandoned several projects, but as you're in a more better position now, do you see certain areas so that we should expect kind of Inflated or higher R and D position going forward as well as each year capabilities and potential market opportunities. Okay. Let me talk on the R and D spending and what we expect going forward on longer term. I mean, we are definitely 2021, we are on the for the compound product line on a quite high level. And we even expect it to grow over 2020 due to the very ambitious product initiatives we have running. We have started and we have to continue. We want to Continue in order to come out with very competitive products in the course of 2021 2022. And that is the main driver of the increase in R and D cost in these 3 years. And beyond that, certainly, we have to continue also thinking about the next generation Development, the markets start talking about 300 millimeter applications where we certainly have to respond to And we will respond to it. But I would not personally expect a significant growth over the levels we currently are Okay. And yes, go ahead. So potentially stable, so not significant maybe stable at the current level even if it's Currently inflated that you're going to new opportunities going forward and the level might be sustainable. Right. SG and A in terms of sales, I would not expect also a significant change. I mean these are fixed costs. Certainly, If you have bigger and more demanding customers, you someone needs maybe a few more people to support customers And stay in touch with them. However, this is I would say this is probably significant. Yes. Okay. Good. And then on OLEDs, if you talk to other customers besides your lead customer, what's the Potential time lag because your lead customer obviously has an advantage, should be theoretically much, being much closer to decision because of available data. So if you Other customers, what's the potential time lag? And so when customer really has to gather new data, you can provide, etcetera, Before he might be ready to really decide on the next step. And is he could such a customer Already on a kind of a pilot tool or would he firstly might copy system nothing Such the DENTU project because he has not the same data available as any customer, obviously, he has. Yes. I think there's multiple factors determining the speed of the customer decision. And there's actually very, very different Corporate cultures inside of different customers about the decision making, yes? Some customers are very entrepreneurial and go very fast. Others want to have the almost perfect data before the project starts, yes? So there is a broad bandwidth. And for sure, it will take a couple of months until that is concluded, yes? But we cannot determine and say there is a certain As of decision making, there is a certain time frame because in the end, every customer is different and every customer looks at different That's where they have where they could definitely go on, yes? So unfortunately, I cannot give a very precise answer to that one. The second part of your question about the size of the system It is very clear the focus now to bring the size as a system to a production scale size Because the R and D type feasibility study in the phase has been completed, So the discussions are focusing on upscaling to Gen 8, Gen 6, Whatever the size is out of production equipment, and that's the focus. It's not a replication of another LED type system. Okay. Good. Understood. The quick one on LED, what's the revenue share of the horticulture applications? I think for Q4, it was minor. I think we will talk more about Order intake and we're selling typically on order level of Several of many tools and you know these equipment is versatile in a sense that you can produce LEDs for For me, LED or microLED, this is very difficult. We're just giving you a, let's say, A flavor what drives the demand, but there is no sticker on the tool. This is for Multiparture or this is for red LED, for mini LED. You can do the 2, all of it. And basically, customers should be also serving all markets at once. The next question comes from David O'Connor from Exane BNP Paribas. Over to you. Great. Thanks for taking my questions. A couple on my side, if I may. Firstly, the A clarification on the order breakdown for Q4. What was the percentage of power within that? And does the mix Switch to power in the Q1 order intake or that incremental strength, is that driven by power? And I have one or two follow ups. The power electronics in Q4 2020 was relatively small. This was just around a 10% level. The expectation for the Q1 of 2021 is very different. We have seen about power electronics about a 50% And that is, by the way, very typical that quarter to quarter, we have discussed together many calls, the individual applications It fluctuates quite strongly, and therefore, it is so convenient and so nice now that we have lost multiple end markets And that these fluctuations overall netting out and creates a more steady envelope. Understood. That's helpful. And then maybe a follow-up on the GaN, sorry, of thing. Can you help us size that market for consumer, For instance, to equip the industry for smartphones fast charging, how many tools overall over the next 1 to 2 years Do you estimate that market as? This is a very difficult question. I must say I don't have the correct number off my head. It may be 30, 40, 50 I don't know what exactly. Okay. Okay. No, that's helpful. Thank you. And then maybe for my last question On the silicon carbide side, one of your customers recently announced the move to 8 inches thick wafers. Does that change in any way how Other customers think of their silicon carbide road map. And can this in any way help you craft some of these other customers? Thank you. Yes, that's a very good question. So this is a very interesting trend in the market. Initially, the focus of the entire industry was on silicon carbide 6 inches Now everybody sees That especially in the last one to one and a half years, the plan of all the car OEMs worldwide So electrification has significantly accelerated. And I think we are now clear everything will become electric. It's just a question when it becomes electric, Yes. And we have also seen in the last 1 year that all the car OEMs are significantly pulling in the time line for electrification. I think that was the major change That we saw in the automotive industry in the year 2020. And with that, now for the semiconductor industry, it also becomes very clear That very soon there will be very significant volume of MOSFET for the drivetrain of all these electric vehicles. And this has now put a push on the faster 8 inches adoption, which is for the adoption of 8 inches in new wafer size, the market needs to be big enough. And suddenly throughout the year of 2020, the expectations on that market have become big enough. And with that, customers are now pulling in the conversion from 6 inches to 8 inches It was initially planned around 2024, 2025. And many customers are now talking about the adoption 1 to 1.5 years earlier than that. So the adoption will be somewhere between 2022 to That creates now a new dynamic. Everybody is now starting to make that plan for the 8 inches transition. And here, Xtron has a unique position. And we believe, as you have indicated in your question, that we can exploit that or it's our clear strategy to We could in our planetary equipment, we typically also in gallium nitride can both low 6 inches wafers and 8 inches wafers. The reactor furniture needs to be a little bit retrofitted. The small kit costs like €100,000,000 200,000 I mean, it's a small fraction of the total price of the pool, and then the pool can be retrofitted. And with this, we are currently now working on a, let me say, revision of our tools, which It's both 8 inches and 6 inches capable. We are in 1st discussions with customers on their tool. Actually, 1st customers have purchased the tool already. We plan to ship it early in 2022. It's standing already on our shop floor here. And that tool will then be both 6 and 8 inch And it will give us an additional value proposition and an additional angle to approach and address more customer Or to crack into those customers where we are not a tool of record yet. That's clearly part of our strategy. Very helpful. Thank you. The next question comes from Harald Schmitzer from DZ Bank. Yes. Thank you. Given the strong demand in power electronics, could you give us an indication how If your market share has improved in GaN and SiC and With regard to SiC for the automotive industry, do you have follow-up orders And that's these questions. And With regards to the tax rate for 2021, could you give a guidance on that as well as on the free cash flow? Thank you. Thank you very much, Jens. Market shares in Power Electronics. Market share in gallium nitride, we estimate that the market share is Somewhere between 90% 95%. In silicon carbide, our market share is strongly driven by which Customer is ordering in this year. In the year 2020, which just passed, one of our customers is placing significant amount of orders Compared to other customers or other players in the market, which are not using our tools, so in the year 2020, we could register, I think around 50%, 45%, 50% of market share in silicon carbide, but that was again strongly driven By the individual ordering pattern of customers and the size of the market share. In terms of the tax rate for 2021, I think I said in the speech that the underlying tax rate In 2020, it was just over 12%. And I would expect somewhere between 12% 15% to be the Tax rate for 2021, bearing in mind that that is all subject to any change in Recognition will be called tax effects or derecognition depending on what the prospects are for future years beyond that. And in terms of free cash flow, we don't usually give the guidance on free cash flow. We stopped doing that during 2020, but I would expect it to be Positive and probably more positive than it was in 2020 itself. Thank you. And the next question comes from Billy Meier from Robert Abbott. Yes. Hi. Thanks for taking my question. My Hello, Operator? Just a second. Yes, let me see where the connection of Li Maier is. Give me a moment. Sorry, Mr. Meyer, the line is open again. Hi, can you hear me? Which albeit is still a bit in the future, it's a bit of a ways off. But you clearly have Technological strength in the ROI market. But historically, In the bluegreen market with GaN, it's been a bit of a more of a challenge from the competition, both China and as you mentioned with Vito, as we move into these smaller, finer feature sizes, Both in Mini and then more importantly at Micro, do you think you can regain your competitiveness outside of ROI, Specifically in green and blue or blue? Yes. Lee, thank you for the question. Definitely, yes. The requirements for microLED are very, very different than the requirements For solid state lighting LEDs, in all three colors, what is the utmost requirement is the uniformity Into leading into good yield levels, low diff activity, etcetera, etcetera. And This comes together with relatively big wafers, 6 inches 8 inches wafers. And if you want to do this with acceptable throughput, We are very convinced, and that's the feedback we're getting from all our customers. The plant carrier reactor is the best choice. And We believe we will have all three colors for MicroMD. Okay. Ladies and gentlemen, I would like to end this call on a personal note. After 28 years with John, in 19 years at the executive board, I will retire end of March. Looking back at At these years, there have been good and bested ones, but all times have been very exciting for me. Even after that long time, I'm still amazed about the technology and the markets Exxon is serving, Exxon's people And the great perspective of the company. I would like to thank you all for your interest and support for Exteron. And I really wish that you will continue like this as I believe there is a bright future. Thank you very much, Goodbye. Thank you, Bernd. I would like to ask a personal voice to that, what he just said. Well, I joined very much working with you, and I will until the end of March, but that's for sure. We have pushed and supported me at the same time, and we always discuss our ideas and views very actively, sometimes controversially. But at the end, it was always fruitful. In addition to that, we went along very well on a personal matter. Therefore, I sincerely regret seeing you go. But I wish you all the best for your time after action with your family and whatever you want to do. Thank you, I have my thanks to all of you for attending. We will be hosting new things on virtual roadshows in different time zones next month. Please let us know if you're interested in joining. Please note that our next earnings call will be on April 29, 2021, for our Q1 2021 quarterly results.