Thank you for standing by, welcome to today's program, the Enovix Corporation first quarter 2023 earnings call. After the presentation, there will be a Q&A session featuring Enovix management. With that, I'd like to turn it over to your host for today's program, Charles Anderson, Senior Vice President of Investor Relations and Corporate Strategy. Please go ahead, sir.
Thank you. Hello, everyone, and welcome to Enovix Corporation's first quarter 2023 financial results conference call. With us today are President and Chief Executive Officer, Dr. Raj Talluri, Chief Financial Officer, Steffen Pietzke, Chief Operating Officer, Ajay Marathe, and Chief Commercial Officer, Ralph Schmitt. Raj will give an overview, and then we'll take your questions. After the Q&A session, we'll conclude the call. Before we continue, let me kindly remind you that we released our first quarter 2023 shareholder letter after the market closed today. It's available on our website at ir.enovix.com. A replay of this video call will be available later today on the investor relations page of our website. Please note that the shareholder letter, press release and this conference call all contain forward-looking statements that are subject to risks and uncertainties.
These forward-looking statements are based on our current expectations and may differ materially from actual future events or results due to a variety of factors. For a discussion of factors that could affect our future financial results in business, please refer to the disclosure in today's shareholder letter and our filings with the Securities and Exchange Commission. All our statements are made as of today, April 26th, 2023, based on information currently available to us. We can give no assurance that these statements will prove to be correct, and we do not intend and undertake no duty to update these statements except as required by law. During this call, we will also discuss non-GAAP financial measures which are not prepared in accordance with generally accepted accounting principles. You can find a reconciliation of the GAAP financial measures to the non-GAAP financial measures in our shareholder letter.
I'll now turn the call over to Raj to begin. Raj?
Thank you, Charlie, and thank you everyone for joining our call today. I'm delighted to communicate to you that at Enovix, we are executing really well, and it's been a solid quarter. We did hit a lot of key milestones this quarter. Firstly, we produced 12,500 batteries in our Fab-1 here in Fremont. This is ahead of our forecast of 9,000 batteries that we talked about last time. Now, we also completed a rigorous design approval of our Gen2 auto line, and we did this ahead of schedule. We completed the purchase orders for both the high volume Gen2 auto line and also the Agility Line, which we will use for sampling our customers for qualifying their products.
We also chose a site in Malaysia for our Fab-2 , and we did this also ahead of schedule. I'm super excited also to tell you that we hired a leadership team there and 25 engineers already, and we see a path for non-dilutive financing of our first production line. I'll expand on that in a moment, you know, as we go through the presentation. After the quarter, we closed a $172.5 million convertible debenture, which is intended to fund our Gen2, 2, 3, and 4 auto lines. We did it at a very minimum dilution to our shareholders. Super excited by that offering that was that we closed. This quarter, we made a number of leadership additions.
Very excited by some really strong people that joined our teams from our previous associations, and now I believe we are totally set up to scale. Now, we are already seeing the impact of the people that we have hired with strong progress in all our R&D programs and also in the manufacturing that we are making. Now, format-wise, I really wanted to cover two topics today, and then we'll have into Q&A and, you know, and answer any questions you have. Firstly, in the last three months that I've been here, I received most number of questions about two things, and I'm gonna get to those.
The first question was, that I've received many times, is, you know, why do we believe that our Gen2 line will be successful and we'll be able to produce millions of batteries and do high volume manufacturing, given that we had some early missteps of our Gen1 production line. I'm gonna talk about that now. Now, I've been here, a little over three months, and Ajay has been here about five. I can tell you, both Ajay and I have tremendous experience for many decades in the semiconductor industry. Drawing from that, we've come to the conclusion after looking at our Enovix manufacturing process, that these can absolutely scale. Actually, they have some inherent advantages even to making chips, and I'll tell you why here in a few minutes.
Now, in semiconductors, if you look at manufacturing chips, really there are two processes. There's a front-end process and a back-end process. The front-end process is where you make the wafer fabrication, which is a very complicated process where we, you know, use very expensive machines to make the wafers. There's the back-end process, which is basically assembly and test. Here, you take the dies that are cut into small pieces and the small dies, and then you put them in a package. The front end is, you know, deep submicron manufacturing, and the back-end process is actually a lot more forgiving. Here, the mechanical tolerances to which we have to do are actually in single-digit microns.
If you apply that analogy of semiconductor manufacturing to how Enovix makes batteries, the front-end process of the semiconductor manufacturing is very similar to the materials that go into the battery. You know, these are the anodes and the cathodes and the electrolytes and so on. We at Enovix don't manufacture those. We actually buy them from the best suppliers in the world. They come in big rolls of coated electrodes. What we do then is we laser pattern them, we stack them, apply mechanical constraint, and that is really similar to the back-end process in semiconductors. There's one big difference, the tolerances to which we have to make these batteries, the tolerances to which we have to design our machines and execute this manufacturing is in the 50 microns range.
As I mentioned, in backend semiconductors, typically it is in the five microns range. That's kind of a long way of saying it's an order of magnitude simpler problem in mechanical tolerancing. This is why, Ajay and I believe is absolutely we'll be able to do this, and we'll be able to manufacture at scale. The proof of that is what you're seeing in the operational improvements that you're seeing from us. You can see how we are executing on Fab-1, you know, continuing to produce thousands of batteries. We're also hitting all the key milestones on getting the Gen2 up and running. Gen2 compared to Gen1 is really all about adding speed. Adding speed and automation and parallelism so that we can handle more tasks at once.
To give you all a feel for what Gen2 looks like compared to Gen1, we made a short video where Ajay describes how this works, and there's a link to the video in the shareholder letter that you received, and it shows you Ajay presenting side by side how these work of Gen1 and Gen2 machines. I'd encourage all of you to please click on that and take a look at that. It's a short video, but it does really illustrate the point that I'm trying to make here. Now, what is this advantage that Enovix batteries have compared to semiconductors?
You know, one of the aha moments for me in the last quarter, since I've been here at Enovix, is realizing that we can produce higher density and much better capacity batteries with the longer cycle life without having to change our manufacturing process. Now, this is actually very important to understand. Now, in my experience in semiconductors, let's say you wanted to make a high-performance processor or a high-density memory. You pretty much, most of the time, have to buy brand-new machines and go from one process node to the other. Again, these are deep submicron lithography machines that cost hundreds of millions of dollars. And sometimes the fab has to be kind of, you know, upgraded and rebuilt to really house these machines.
What we find at Enovix is that the manufacturing lines we're building, since they're akin to the backend manufacturer, as we make advances in getting better electrodes, better cathodes, better, you know, silicon-based anodes, better electrolytes, which we have, you know, our electrochemists are working on sourcing them and making, you know, experiments with them. We can use the exact same machines that we are building to make those batteries. In other words, as we make advances in electrochemistry, and we make advances in higher energy density, our manufacturing footprint totally scales. It's not like we have to build completely new batteries in new manufacturing facilities every time you want to improve the energy density. This is a fundamentally a huge advantage for the way we manufacture batteries.
That is what I believe will make this business ultimately very profitable in the long run. The second major topic I want to talk to you about is the capacity build-out. I've gotten a lot of questions on this in as I talked to investors over the last quarter. I mentioned last time that we will have multiple options to raise money or build, get the financing we need to build our capacity. We are now executing towards that. This quarter, we got a non-binding LOI or a letter of intent from our manufacturing partner, YBS International in Malaysia. This LOI has YBS working on, you know, giving us an existing building space in Penang Science Park to house our high volume manufacturing lines, up to four lines, with dedicated personnel to staff that line.
This is very similar to how we would use a semiconductor backend assembly subcontractor. Now, YBS, in addition to this, is working with a syndicate of local banks to make a significant investment in our Gen2 auto line. This is subject to some purchase commitment from Enovix. Now, while we are negotiating all the details, what I can share with you is that we are seeking at least $70+ million of non-dilutive financing to fund the first line. Now, as I said earlier, this funding is not secured yet, but we are very encouraged by all the discussions we have to date with them. Securing this funding now would alleviate us from spending the $120 million full year CapEx forecast I gave you last time. Now, we'll provide an update for you on this in the next quarterly call.
Beyond that funding, we recently closed a private offering of the $172.4 million convertible senior notes. That gives us the CapEx, the capital we need to make the Gen2 auto lines two, three, and four. In other words, we are now set up to be able to build four auto lines in Malaysia in terms of, in terms of CapEx that we need. Let me close with our outlook, with a few remarks here. For the full year of 2023, we continue to expect to produce the 180,000 cells that I mentioned last time, including 18,000 cells in second quarter. Once again, we're not forecasting any service revenue at this point because this tends to be episodic and based on milestones.
I want to reiterate our full cash guidance of, you know, $240 million of spend, half from CapEx and half from operationally running the company. We do plan to revise this guidance in our next quarterly call as we get more visibility on the YBS transaction, in addition to our own efforts to internally operate a lot more efficiently. In closing, we're off to a fast start. We are making substantial improvements in Fab-1. We're hitting all the milestones we set for ourselves and that I communicated last time to you in our journey to scale in Fab-2 in Malaysia. We are working to fund our capacity build-outs while protecting our cash and limiting our dilution.
I really want to thank all the Enovix employees for their hard work this quarter, along with the investors who actually are supporting us in our efforts. We have a busy year in front of us, but I'm even more confident today than I was when I joined that we have the right product and the right team to achieve our goals and enhance the shareholder value. With that, I will turn it to Q&A.
We will now begin the Q&A session. Please note that this call is being recorded. If you have joined via the Zoom application, please use the raise hand functionality to ask the question. If you have joined via the audio line, please press star nine. Questions will be answered in the order they are received. Please ask one question and one follow-up question at most. We will now pause a moment to assemble the queue. Our first question comes from Bill Peterson from JPM organ.
Yeah. Hi. Thanks for taking my question. I noticed you said you sampled to 106 customers. I don't recall what the number was in the fourth quarter or even if you stated it, but I looked back, and it was like 25 in the, in the third quarter of last year. I guess based off that, how many are customers you have qualified? How many do you expect to be qualified later this year? I guess how many are you waiting for post, I guess, line two readiness before the qualification will be finished?
Yeah, absolutely. The question is about customers and customer sampling and qualification. I think Ralph is on the call, and he's closest to this. Ralph, if you wanna take that.
Thank you for the question. Yes, we've seen, you know, even a bigger acceleration of the number of customers looking at our product and evaluating the technology. We haven't laid out the exact numbers as you asked for them, Bill. As you saw in the release, both the active and the design category that we have in our funnel has increased to about $718 million. All the cells we've been shipping over the last few quarters are now in qualification and take, you know, numerous quarters till those qualifications are done. We're still on schedule exactly how we thought that in the back half of this year, we'll start seeing customers put products into the market with our batteries in them.
Okay. Thanks for that. my follow-up question is related to new product development and somewhat related to the prior question. I guess when do products such as the EX1 to EX1.5 and EX2, when do those intercept and I guess get moved to Fab-2? I don't think you mentioned BrakeFlow, but similar type of question. When do these get qualified in Fab-2 and then sent to customers for either qualification or I guess ultimately, most importantly, for high volume production and revenue?
Yeah, sure. I can talk about that. As I mentioned, you know, in my opening remarks, it's really exciting, our manufacturing strategy that we can continue to improve our process technology and continue to improve the energy density with, you know, as some of you may or may not know, EX1.5, EX2 are our various, you know, recipes or process technologies that actually improve energy density and cycle life and so on. We are on target on all of those. EX1.5, we expect to, you know, sample towards the end of the year. We expect to run all those in our factories in Malaysia.
You know, Malaysia factory, as I mentioned, will produce samples like in April next year and get into high volume manufacture towards the end of the year. We will continue to run. As we make progress in our process technology, we will run them through, you know, our Malaysia factory. As for BrakeFlow, I'm very excited by BrakeFlow. It's a phenomenal piece of technology where, you know, as you put more and more energy density into batteries, safety is just paramount importance. BrakeFlow is a technology that Enovix has that really provides great safety by not allowing the battery to go into thermal runaway. Our line in Malaysia will have BrakeFlow integrated when we make these batteries.
In fact, we are sampling batteries with BrakeFlow now.
Thanks.
Our next question comes from Colin Rusch from Oppenheimer. Please go ahead.
Thanks so much, guys. you know, separate from the engagement and design activity, can you speak to the incremental specificity that you've been able to gain on customer needs and adequacy of the current product roadmap to meet those needs as you've gone through the last, call it four months or so?
Yeah. I'll make a few comments. Again, I'll ask Ralph to comment on this because he's just a lot closer to it. One thing I found as I visited a lot of customers, as I, you know, been spending more and more time here. As you guys know, the customers we are now talking to are the same customers that I've shipped for many, many years when I was at TI and Qualcomm and Micron and so on. I've got solid feedback from many of them that the battery technology that we have is superior and produces higher energy density than anything they have today. Now, the requirements we're getting are actually a lot more specific. You know, I did mention that we hired more people.
I hired Samira, who's actually used to work at Qualcomm before, who is the head of products, reporting to me. She's able to, you know, along with Ralph and his team, meet the customers and get more precise requirements on how is the battery charged, for example. What voltage is it charged at? What are the different waveforms that we use to charging? You know, cycle life versus energy density trade-off. Getting more specific on the shape and size of the batteries that fit in wearables versus computers versus phones. We are getting Detailed specific requirements, that is really helping us, you know, drive a much stronger product roadmap. Ralph, if you want to add more to it, please do.
Yeah. I think you covered it well, but, you know, what I'll say is our expectations has been that the current technology that we have in the line that we're running is really meant to be targeted towards the IoT space and the wearable products. We're very, very well aligned with that because we're way down the path. The other markets that Raj mentioned, both mobile and laptop, we've been engaged for multiple, almost years at this point, with those customers and have their needs as well and their requirements. You know, we continue to add, you know, or slightly change things as we move forward to better address, you know, those market requirements.
It's still the same strategy, and we're very well aligned with the market, needs in each of those kinda at, you know, in different stages. Wearables we're frankly, you know, close to the production stage. Mobile and laptops are just after that.
Let me just add a little bit more to that. Maybe I'll just add a little bit more to that. The fact that we're able to sample and give a lot more batteries now is really helping us get much better feedback too, because now they're running hundreds of, you know, they have hundreds of batteries from us that they're testing, so the feedback is just much more, much stronger. It's so important to be able to make these batteries now and sample customers.
Excellent. Then just looking at the ecosystem of equipment suppliers as you know, start planning for lines two to four, can you talk about how much opportunity you're seeing for CapEx reduction, optimization, second suppliers, things like that, so that you're de-risking and shortening the timeframe on the ramp and the install of that equipment?
Yeah. Let me ask Ajay to comment on that. He's right here.
Okay. Very good question indeed, actually. As we start our ramp, as we go into high, higher volume production, even here in Fab-1, in Q3, Q4, we have a lot of second sources lined up under qualification right now. That's just for the 180,000 batteries. Going forward, for the Malaysia factory we have yet, you know, big list of second, third sources which we have lined up actually, which we will be qualifying, going through a rigorous qualification process. For equipment, you mentioned equipment as well. Equipment, what we are doing is we are relying really on the semiconductor value chain, if you will, rather than just the battery value chain. Again, you know, bringing in that mindset.
We localize a lot of that in Malaysia as we set up the high volume operation there. Both are in the works.
Thanks so much, guys.
Our next question comes from Derek Soderberg from Cantor. Please go ahead.
Yeah. Hey, guys. Thanks for taking my questions. Raj, wanted to start with you. Maybe this one's for Ralph, but I'm curious whether or not, you know, you guys have funding now in place for the four production lines with a more or less certain timeframe in place. Does having that allow for certain customer orders or negotiations to move forward that otherwise wouldn't have?
I mean, I think, what actually has always been, you know, in the, in the path of customer orders has been, you know, getting enough samples for them to qualify, getting them to be able to test it and say, "Yes. It looks good in our product." Then getting feedback from them on, you know, on the, on the right sizes of the batteries, right, dimensions, if you will. That's really been what's in the, in the critical path. Again, that, as I mentioned, we have the Agility Line coming in, November this year. November, December is when we'll be able to sample them. Then we get samples from our, high volume manufacturing line in April, that'll go through the process of qualification of our customers.
We expect the, you know, those products to go to manufacture late 2024 and through 2025. In that sense, that's really the timeline that we have laid out. This fundraise and getting the capital is to, for us to make sure that we are ready and we have the funding in place to meet that, rather than accelerate anything else. The timeline will be the natural order of things.
Got it. That's helpful. Then as my follow-up, Steffen, you know, you guys have put out a range of estimates for battery production off the four lines. You know, you've got an agreement with your manufacturing partner. I'm wondering if you can update us on how we should think about the longer term gross margin outlook.
Derek, thanks for the question. We really don't think it has changed on the long range outlook. We still think the 50%, a high profitable business, that is what we are aiming for.
Yeah. Just to add a little bit more color to that. If you know, and I mentioned this last time, I think it's worth mentioning it again. You know, because I get this question quite often, and I want to add a little color. The cost of the battery, you know, 60%-70% is actually in the materials. I think that's important to understand. And as Ajay mentioned, as we get multi-sourcing in place, as we get to scale, where we're making millions of batteries, we see that cost coming down. The cost of the constraint we add on top of that is actually a small piece of it, but with local manufacturing capability in Malaysia and so on, we'll bring that cost down, too.
Another very important thing, I think for everyone to see, as I mentioned in my talk, is that the factories we're building will last for quite a long time because we can amortize those over millions of batteries because it is like the backend in test, and I've seen people run the backend as test machines for 10 years even. It's important to understand that this will be a profitable business. As Steffen said, we're not changing our outlook on that. It's just really a question of getting to scale.
Great. Thanks, guys.
Our next question comes from Gabe Daoud from Cowen. Please go ahead.
Thanks to everybody. thanks for all the remarks so far. Maybe just going back to the mobile phone and laptop batteries. You noted in the shareholder letter the focus or go-to-market strategy for majority of this year and next year is on the wearable side in the IoT market. Just curious, when could we expect first revenue being generated by mobile phone and laptop batteries? Could you just remind us where we are on the tech roadmap in terms of cycle life? I think maybe the larger phone and laptop batteries had higher cycle life requirements.
Yeah. I think the most important thing to remember here is the timeline, you know, which I laid out, which is we will get samples end of this year from our Agility Line in the right form factor, because the current batteries we make don't fit into laptops or phones in form factor. You know, the small ones and the big ones that we make, they really fit in the IoT space. As we make the batteries that are more specific to phones and laptops, we will get that capability by end of this year and sampling again in April next year, then starts the process for our customers to actually start validating them in their own product lines and in their own, you know, in their own phones and laptops and so on.
That'll take us through, you know, that'll be end of next year. 2025 is when we expect to see revenue from those kind of high volume applications, because that's the time it takes to actually make these batteries in the right form and get the validation and get the qualification from our customers. Now, we will continue to improve our energy density. We'll continue to improve our cycle life, that will naturally intersect with the latest technology we have in 2025 when they get to production.
Thanks, Raj. That's helpful. Okay. If we could just maybe just for my own understanding, make sure I'm thinking about the timing correctly. Gen2 auto line begins to arrive in Malaysia November this year. I guess with factory acceptance taking maybe a quarter or two, start of production is 2Q 2024, and then still expecting four lines at Fab-2 by 4Q 2024? Is that how we should be thinking about the ramp?
No. The way I mentioned that is we ordered one line, and that's the line that will be there, you know, as you said. Actually, the first two pieces, we ordered 1 line, but we ordered one part of that line twice. What is called the Agility Line, which will come here to Fremont in November, December, and the same stuff will go to Malaysia too. The Agility Line here will help us sample our customers with custom-sized batteries. Meanwhile, the Malaysia build-out happens in parallel, and the Malaysia build-out happens in such a way that April next year we'll be able to get samples in the Malaysia line. We only commented on building 1 line through 2024.
We have the ability to build more now that we have the CapEx stuff, you know, sorted out, but we will pull the trigger on those as and when we see the right customer demand come in. The most important thing in running a manufacturing company is to match the supply and the demand. As the customer qualifications progress, we'll have better and better visibility into when to build that. Now, the one thing that Ajay and team have done is to make sure that the facility that we are, you know, doing in Malaysia with YBS has the ability to host all four lines and has the facilitization to run them.
We have set up, and we also talked to our suppliers that, hey, we will probably need much more than one line and you know, please be ready for it. We're not making any commitments on when exactly we'll pull the trigger on that.
Okay. Got it. Got it. All right. Thanks a lot, guys.
Our next question comes from Alex Potter from Piper Sandler.
Perfect. Thanks very much, guys. I had a question regardless of how long it takes to ramp. I guess once we're up and fully scaled in Malaysia, I know that there is some nuance here about what exactly a quote-unquote unit is. In the shareholder letter from today, you mentioned between 38 million and 75 million batteries per year in the aggregate coming out of Fab-2 in Malaysia. If you divide that by four, right? It's between 9.5 million cells and almost 19 million cells per line. This could be semantics, I know, because there's, you know, there are small cells, there are big cells. To me, when I first saw those numbers, it seemed like an upward adjustment versus your expectations for per line output versus what you historically said.
Is that correct, or am I reading that incorrectly?
Yeah. I'm going to let Ajay answer that.
Yeah. Again, good observation and good calculations. Let me just direct you towards the way we are designing our lines is the first line is more of a universal line because we have so many engagements with, you know, multiple customers. First line would be able to do small and large, both, you know, form factor. In other words, the corner cases are pretty wide in terms of what can be done on the first. So we, for that, we give up a little bit of capacity on the first line. Second line onwards, it'll be highly optimized towards, you know, narrower window of the dimensions, and therefore, we'll have a lot more capacity per line, which is why when Raj said it in the investor letter, it's between 9.5 million to 19.5 million batteries per line.
You can, you know, depending on, again, the demand and how we match the supply to the demand, that's how you'll get to the number of lines required for the volume that you just stated. That's how I would look at it.
Okay. That's very helpful. Maybe the follow-on question to that then. If I wanted to take those unit numbers, and translate that into revenue capacity, to the extent you're comfortable talking about this, right? If I don't know. I know that $5. I've always historically assumed $5 for a wearable and maybe $10 for a cell phone size battery or something like that. Could you take those $5-$10 unit ASPs and multiply it by the range of those unit numbers and get to something in the neighborhood of $375 million-$380 million of annual revenue capacity out of Fab-2? Is that in the ballpark?
Yeah, that's a good, first order approximation. It just depends on which ones we sell how much, but that's a good first order approximation.
Very good. I appreciate it. Thanks a lot, guys.
Our next question comes from Gus Richard from Northland Capital Markets. Please go ahead.
Yes, thanks for taking my questions. What, you know, what run rate do you have to hit in manufacturing before, you know, one of your customers commits to production?
You know, I mean, it's not that simple as run rate. That's not the only factor that decides. I think the most important thing for our customers is that we be able to. Well, let me remind a little bit. There's a lot of customers today that are actually, Ralph is sampling, that are comfortable going to production with our small cells and big cells, and we'll see revenue from them this year and next year. In that sense, you know, we already have customers who are comfortable going to production with what we're producing. You know, the key was to give them enough samples and show that we have enough backlog, enough inventory that we can actually meet their demand as they start ramping the product. It depends on the volume of the product.
You know, if the product goes in millions of units, we clearly don't have the capacity this year. Next year we aim to be able to produce millions of units, so I think then customers are more comfortable. Large volume customers are more comfortable. It really depends upon the run rate of a particular product, right? If the product run rate is in the millions, we need to have that capability. If it's the tens of thousands, you know, we are ready today. That's kinda like how I look at it. The other variable is we need to give them the battery in the right form, factor and shape that they can test it in the product that they're putting it in to be able to say, "Okay, you know what?
I think we should go with this." Right? Those are the two big variables.
Okay, I got it. Then, you know, in the first half, you're gonna produce 30K batteries, if I can add two numbers together. For the full year, you're gonna do 180K batteries. You know, it's a pretty big jump in the second half. Could you just talk about what, you know, what's gonna accelerate that volume, just so you know what needs to happen?
Yeah. I'll have Ajay comment on that. He lives it every day.
Absolutely. Again, a very good question. Yes, as you saw in the Q1, we did 12,500. We're saying we'll do 18,000 in Q2, the quarter we're in already. The ramp is pretty steep. The ramp is driven mostly, and the confidence that we are going to get there, to that ramp, is driven by a couple of things, right? One is the yields. While we don't talk in detail about our yields, which, you know, nobody really, you know, announces their yields, all I can say is we are making significant improvements in yields throughout the year. It is the proof points are, you know, sort of behind us, so that gives us confidence about, you know, second half. That's one. Second is the uptime and meantime between failures of the equipment, right?
Essentially, is the equipment getting a little bit more predictable? Though both those things, we are making good, solid progress day after day after day, which is what is giving us. Between now and end of the year, we feel very, very strong that our assumptions are actually fairly accurate, and we are gonna do the 180,000.
Got it. Thanks so much.
Our next question comes from George Gianarikas from Canaccord.
Hey, everyone. Thanks for taking my question. I'd like to ask about the slides that T.J. presented in January, that talked about. They had red, yellow, and green in terms of just the issues that were needed to be fixed going from Gen1 to Gen2. Some of those included, like I see a red line here for busbar inserts, slot fill. I'm curious if there's any update on any progress that you've made in turning those reds to yellows and those yellows to greens. Thank you.
Yeah, I mean, I'll give a high-level color. We are, we made significant progress on those. In fact, I was looking back at that presentation the other day when someone asked me a question, we're actually on track to almost everything that was said there. That's the reason why we were able to get the approval to make the purchase order for the Gen2 equipment, because we made solid progress in each of those. I'm, you know, I think, clearly, the team has worked really hard. Ajay, with all his experience and the team he's brought in, were able to solve most of this, those issues. We feel pretty confident about that. Ajay, anything else you wanna add?
Yeah, just very quickly, the way we kind of test that, you know, are we making progress? Are we solving real root causes of what was stopping us from, you know, feeling a whole lot more confident? What we are doing is we are building proofs of concept, right? We introduced that last time in the January third meeting called the POCs. There are several POCs in upwards of 3 dozen POCs, which were in motion all the way from January, literally January fourth until, you know, yesterday. I can give you the update. Most all those POCs are doing extremely well, showing us that whatever we assume to confirm the UPH that we are expecting are all being met. That's how we progress.
It's a pretty rigorous way of approving the next step and the next step, et cetera, in the approval cycle, as Raj mentioned. We are feeling pretty good after the POCs.
Thank you. Next question, just on the... I noticed that you have these two silos that you have in your revenue funnel, and one of them is engaged opportunities. That was slightly down sequentially. Is that because engaged opportunities moved into active designs? Is the right way to think about it?
Yeah, Ralph, you want to take that? That's kinda my understanding, but Ralph can come in.
Sure. Yeah. Thanks for the question. Yeah, that's the simplest way to think about it, is that we're, you know, trying to progress these customers into more active and real design wins. You know, that was moving faster than getting new customers into the, you know, front end of that funnel, the engaged part. Really, exactly what you want to happen, in order for us to get them to a revenue state.
Thank you.
Our next question comes from Ananda Baruah from Loop Capital Markets.
Hey, guys. Yeah, good afternoon. Listen, yeah, just a couple, if I could. I guess the first is on, sort of processing getting, you know, Gen2 and mobility line, stood up. Will you be giving us any updates on equipment delivery, and any updates, you know, kind of through the year on the way to getting them to where you wanna be around particular metrics or anything of that nature? I have a quick follow-up. Thanks.
Yeah. We will continue to give you updates in these meetings as we move forward in the different stages and where that is. I think the next big milestone for us is the factory acceptance test, which will come up, like, in August, I believe. After that we'll have site acceptance when it actually be delivered to our site. We'll give you updates on both those milestones. So far, we are very pleased with the progress and, you know, Our teams are visiting our suppliers, the suppliers come here. You know, Ajay and I see this all the time, and even yesterday I saw a video of one of our Gen2 machines, the newest one working. It's pretty exciting. Very exciting to see the progress being made by the team.
Awesome, Raj. Thanks. That's helpful. Yeah, we look forward to that. Then I guess the follow-up question is, how would you like us to think about, you know, incremental capacity? Look, I know you just got Malaysia, right, like in place, and you're just starting to get, you know, You get the purchase orders in, waiting for the equipment. I'm sure we'll start all getting asked as we move forward about, you know, incremental capacity plans and at some point incremental funding plans, you know, like that. Anything you can help us out with context-wise around that, we'd be grateful. Thanks.
I mean, as I mentioned, you know, I have a lot of experience in, you know, high volume manufacturing businesses. The most important thing is to make sure your supply and demand are tied out, and you don't have too much supply or too little supply, and it's aligned with demand, which takes a lot of planning, by the way. It takes a lot of planning in the demand side with the customers, a lot of planning in when we order the equipment and what are the long lead time ones and facilitation. It's a complex problem. Both Ajay and I have a lot of experience running this.
The way we're gonna do this is, first we secure the funds to make sure that we have the capability, you know, to buy them as we need them. Second thing, we now secure the site, in the middle of getting the facilitization done with our partner. Then we give a heads-up to our suppliers on when they need to come. Then we start sampling our customers. You know, like I said, we are set up for the first four lines now. As we get to that stage, you know, we will see the progress in the next couple of years, both on the customer side and both on how our machines are running.
We will continue to optimize the machines, and we'll continue to look to how to expand beyond those four as the demand shows up.
Okay. Okay, great. That's great. I appreciate it. Thanks a lot.
As a reminder, if you'd like to ask a question, you may use the Raise Hand button at the bottom of your Zoom application or if you've joined us by phone, by dialing star nine. Our next question will come from Marc Cohodes from Alder Lane. Mark, your line is open. Feel free to unmute.
Thanks for taking my question. Raj, you've been there for three months, and Ajay a little more than five months. What gives you guys the incremental confidence that you can actually manufacture these batteries at speed? Because everyone constantly hears it's hard to do, it's impossible, pie in the sky, but you guys are sounding more and more confident. What has exactly happened that gives you that confidence? That's question one. Question two is, when are you guys gonna start building batteries for inventory to actually ship commercially for these new products? Thank you.
Yeah. Thank you for that question, Marc. You know, firstly, I think, as I mentioned, the reason that we are, you know, increasingly getting more and more confident the more time we spend here is really because of a couple of things I mentioned in the, in the call. The way Enovix manufactures batteries, you know, is really like the back-end semiconductor manufacturing. It is a back-end assembly test kind of technology that we have to master and do. That technology is been there, you know, many, many people have done it. Even then, the tolerances to which we need to make is an order of magnitude, you know, less stringent than what's done in chips.
You can see, you know, the progress we are making in the number of batteries we're producing over the last few quarters. I mean, we went from almost nothing to 4,000 something, to 9,000, to now 12,500, and we are coming into 18,000 next quarter. Progress we are making in producing batteries as we learn that. Our understanding of the actual mechanisms and the machines that produce this and the tolerances to which they need to do, I think those are two things that really give us a lot of confidence. Thirdly, all these proof of concept experiments that we've been running, were targeted at what went wrong with the Fab-1 when we did it. Where did we lose yield? Where did we lose the throughput?
Where did we lose, you know, machine uptimes? We created targeted experiments to make sure that those don't happen in Gen2. Those experiments proved out, and we are confident now. We picked a new set of suppliers who are actually very capable of producing machines like this. We are not paying them all the money upfront. There's a lot of skin in the game on their side because we only paid, you know, 10% on the first approval. Incrementally we pay the money as the yields come up and as the machine throughput comes up. There's different milestones that we use to check that.
We followed this well-known, you know, process, the EPR process that actually helped us make sure that we are ordering the right machines. All those things give us a lot of confidence, and we feel fairly strongly that we can get this done. As for your second question on inventory, we are now building, we, you know, as you know, in this kind of, consumer electronics markets, when you start giving, units to customers, they wanna make sure that if their product is successful, we have the supply to be able to support them. That's kinda what we are doing through the year.
We are of course, sampling a lot of customers to the batteries we make, but we're also building a reasonable healthy level of inventory. If you know, the products that our customer wants suddenly starts selling really well, we won't run with a bottleneck to not be able to supply them with batteries. It's a, it's a responsibility we take seriously, and we are handling that. Ajay, anything else you wanna comment on the machines?
Just, yeah, very quickly on the Gen2, I think Raj alluded to it, just, you know, from my personal, how I feel confident, you know, I'm a operations guy. Data is the only thing that matters. Yield uptime of the Gen1 is what is giving us the confidence, as I told you earlier. More so in the Gen2, I personally have visited all the suppliers, all of them who are making these POCs, these machines. Spent good time with them, looked through each of these suppliers, you know, the methodology that they're using to build the machine. Looked at the POCs myself. That is what is giving us the confidence. Exactly as Raj said, you know, this is all about back-end of semiconductor type of technology, tolerances, et cetera.
Now we are seeing the, you know, the ramp up, you know, in the upswing of the ramp that we are, you know, producing. That gives us the confidence.
Thank you very much. Our next question comes from Sean Milligan from Janney. Please go ahead.
Hey, guys. Thank you for taking my questions. First, I get asked a lot about, you know, who is YBS and what is the background there. I know you touched on it earlier, Raj, and that they're used a lot in back-end, you know, semi processing. Can you kind of maybe touch a little bit more on kinda how that relationship came to be about, and what gives you confidence in YBS's ability to execute on financing?
Yeah. A couple of things. You know, look, I mean, I think, if you look at Southeast Asia, you know, there's a lot of contract manufacturers. We, you know, Ajay has, you know, decades of experience in Malaysia, and I came from Micron that built the last factory in Malaysia on assembly test of SSDs. We understand that ecosystem. We understand who the people are that do it well. You know, YBS has got a good track record of actually supplying, you know, and manufacturing for many, you know, top-tier OEMs. They have that capability. Again, they have the, you know, strong connections to the key people in Malaysia. You know, Ajay visited them and they came here.
We talked to them. They're a solid company, and we feel very strongly that they will be successful. You know, so we, you know, based on our experience and what everything we've done, I feel very good that this will get done. It's not something that's obvious to everybody who doesn't live in that part of the world, but we spend a lot of time in Southeast Asia, so we feel good that that'll get done. Maybe Ajay can comment a little bit more because he goes there a lot often than me.
Yeah, sure. YBS is a company I've known now actually for quite some time. They are indeed exactly as you said, in the back-end manufacturing, subcontracting business. I know the CEO and the team there, which he runs. I've been kind of studying them actually for some time, even when I'm in my previous life. The uniqueness about them is they have exactly the talent that we would need to localize some of our supply as in constraints, as in a few other mechanical things. They're really good at that. I localize them to, you know, where I can make them right next door. That is when I'll get my cheapest, you know, total cost and cost will be reduced.
YBS brings a lot more value than just being a contract manufacturer. They are also going to help us with our ecosystem of various components that go into the battery.
Okay, great. No, that's great feedback. My follow-up would just be, Raj, I just wanted to clarify something you said earlier, and it kind of relates to Gen2, line 2, 3, 4, the execution on those. You mentioned that where previously I think the conversation talked about those being there by or ordered or delivered in Malaysia by the end of next year. You were looking to line those up more with demand. Obviously the pipeline that you have is robust. I just wanted to clarify, is that lining up, you know, making 1 all wearables to optimize margins of that line? Or is it really just filling the demand funnel needs to fill to have those lines come in?
Yeah. I mean, again, if, if that's what we want to make happen, we just pull the trigger and get them all out next year. If that's what makes most business sense, we will do that. I'm not saying we won't do that. I'm just saying, you know, I'm just in general a more of a supply demand matching kinda guy. The way I look at it is we have various customers that are actually qualifying our product in IoT devices, they're qualifying it in smartphones, they're qualifying them in wearables, they're qualifying them in laptops. When you pull the trigger on a line, you wanna make sure you're pulling the trigger on the right line that produce the right kind of batteries for the right customer. It's not that. It's not all. I mean, this is the beginning of this year.
It's not all absolutely clear to me which one will be the first one, which one will come next, and what timeframe it'll come. As you guys know, the demand for batteries in the total TAM is huge. We just wanna make sure we build the right one at the right margin, at the right right thing that makes money for the company. That's kind of where I was talking about matching supply and demand. Right.
Okay, great. Thank you for taking my questions.
Our next question comes from Chip Moore from EF Hutton.
Yeah, thanks for taking the question. I actually wanted to go back to YBS real quickly. You know, I imagine seeing the equipment orders and the recent financing only helped them in their discussions around localized financing, tax incentives and things like that. Based on your commentary around revising CapEx next quarter, it sounds like we should expect something fairly soon. Just curious, anything to bear in mind there? My follow-up would be, are you seeing any more interest in similar type of capital light rate, is it too soon for those type of conversations? Thanks.
Yeah. I didn't hear it fully well, but I think the co-question was on, how are we feeling about YBS financing. Like I said in my prepared remarks, we talk to them constantly, and they're making good progress. It's going through the approval process that they need to go through. You know, they're a public company, and it's going like how we thought it would. No, no cause for concern on our side. We are in close contact with them. We're just going through the due diligence, and we're going through all the right step to make sure it's done right. There are other options like that, and we thought this was the best one that we should pick now.
that's about all I wanna comment at this point, is that we do have what we need for the next four lines with this one, once this one gets worked out. I still reiterate the comment I made before, which is, there's a lot of interest from customers, you know, as we begin to scale these batteries where they want assurance of supply. There's interest from other parties like we talked about YBS and so on, and we will explore all of them. I also mentioned that we'll be opportunistic about capital markets, and we were able to accomplish that. I'm just continuing to execute to what I told you guys I would last quarter.
Perfect. Okay. Appreciate it. Thanks.
There are no further questions at this time. With that, I'd like to turn it over to Raj Talluri for closing remarks.
Yeah. I really want to take just a couple of minutes to thank you all for joining in and all the, all the great questions. Phenomenal team at Enovix. We've done really well this quarter, and lot of work ahead of us, but we are committed to executing this and really appreciate all the support of our partners and investors to allow us to do what we are trying to do. Thank you.