Thank you for standing by, and welcome to the Enovix Corporate Update Webcast. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. As a reminder, today's program will be recorded. Now, I'd like to introduce your host for today's program, Monica Gould , Investor Relations for Enovix. Please go ahead.
Thank you. Earlier today, Enovix issued a press release announcing a leadership transition. The release, along with an accompanying presentation, can be found on the investor relations section of the company's website. Joining us today are T.J. Rodgers, Executive Chairman, Ryan Benton, Interim CEO, Michael Vyvoda, COO, Samira Naraghi, Chief Business Officer, and Jon Doan, SVP of R&D. They will provide prepared remarks, and then we will open the call for questions. Joining us for the Q&A session will also be Ed Casey, SVP of Operations, and KH Park , SVP of Global Manufacturing. Before we begin, please note that certain statements made today may be forward-looking and are subject to risks and uncertainties described in our SEC filings. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission.
All statements made on this call are as of today, August 17, 2026, and we undertake no obligation to update them except as required by law. During the call, we may also reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the materials posted on our IR website. With that, I will turn the call over to T.J.
Hi, I'm T.J. Rodgers, the Executive Chairman of Enovix. I rarely open with an apology, but I'd like to apologize for the British-speaking AI voice and the reading of long legal disclaimers. I'll get that fixed in the future. You're going to listen to real people who are in the picture, talking English real-time. I've got the staff here. I decided to bring them in because I want them to tell you what they have to do, since they are really the people who make this company work. Point 1, we have a CEO transition. I won't spend time on it. It's water under the bridge. He said, she said stuff is irrelevant really. The question is where are we going forward? That's what I'm focusing on here. I've only had since Thursday of last week to work on that, and I was up to speed pretty much already.
So there's more here. What is changing? Raj resigned last Thursday, and the statement to me was it was to pursue a dream job. It's for you to decide about that statement. It could well be. I think he had a dream job here. He disagreed. This is America. He can work anywhere he wants. The next day, we had a board meeting and the board unanimously accepted the resignation. We appointed Ryan Benton the Interim CEO. I got appointed back up to executive chairman, meaning I'm going to be making decisions and weekly appearances at the company working on stuff, and I take it as my number one job right now. We launched a parallel CEO search. We're going to look to find the best we can outside. We're using the same firm that found Raj. We were happy with what they brought bringing Raj to us.
We're also looking inside. The people that are here can cut it. Question is, can they cut it in the long haul? Can they have the long-term strategic vision? That we'll wait to see. What is not changing is more important than what is changing. What is changing is a single position, an important one, of course, not minimizing it. What is not changing, strategy and product roadmap. We're working on three things. Smartphones we've been talking about now for years, and getting them qualified is our number one job. While we've been working on number one, number two has turned into reality here in Silicon Valley. We're right downtown Silicon Valley in the Enovix cafeteria. That is important companies, household words, are going to bring eyewear to the market. Obviously, the market's huge, 300 million Americans.
We're in the middle of that, and we've got some early wins. We'll talk about that. Last is defense. Defense wants batteries that are made in America or made by American companies with non-FEOC, that is non-foreign entity threatened offshore sites. We're in the middle of that. Our batteries also perform very well, state-of-the-art. That business came to us, and we're working on it. So, I've got our main line and the two things that we will ramp and make money on while we're getting the main line ramped up. Another thing that didn't change is our 2Q 2026 guidance. I'll show you this for a minute or two, but I'm not here to talk about guidance. Customer programs and qualification schedules haven't changed. We have teams working on their customers. They're not changing. Their job is not changing. There's no charter or personnel changes on them.
I'm actually going to be reviewing this week, customer by customer, the strategic plans Operating leadership, then I've given all the names, including the Malaysian, Korean groups not changing. The balance sheet is the plum of the company. I work in other companies that would love to have this balance sheet with a decimal moved one place to the left. My point here is I hope the CEO transition does not distract investors from the Enovix Q2 2026 event of the decade. I've worked 14 years to get cycle life on this battery to work, and we finally got it, and that's the headline. That should have been, like, America wins World War II. Instead, this is a distraction that's way less important than an event that really defines the company.
The event of the decade is successfully demonstrating 1,000 cycle life on our AI class smartphone batteries. I want to just tell you to geek out for 60 seconds and tell you what this means. This is the battery sliced in half. On this side, you have the silicon-carbon, silicon atoms encased in a carbon coating. Then you have the separator. On this side, you have lithium cobalt oxide. The lithium comes out of here, and the whole battery is when you charge it, the lithium atoms here turn into ions, move across this barrier and go over here, and when you discharge it, the lithium atoms go back the other way. The energy level of these two things is the energy level of the battery. Think about 3.5 volts. That's it.
The problem is the anode, and the problem is this material we buy with lithium in it. This material is what we add to the battery, and we're using silicon. Silicon is used because it's more efficient. The section over here is one third as big as it would have been if we used the standard, which is graphite. I'm not going to go into that. I actually downloaded a nice little picture of the graphite lattice, and I decided not to time. This is what we've been working on for a decade. By the way, this is what Sony worked on for more than a decade when back in the '90s, they invented the lithium-ion battery. What's the problem? Silicon is a crystal, literally, and therefore, it is a little bit like china, or china as in a material. If you break it will shatter.
The problem here is I was going to say to you the problem is obvious. Now you understand what we've been working on and move on to the next slide. We started here. This was our silicon. This is a chunk of a wafer, and the lithium came in from this side and went into the silicon. As you can see, it cracked up the silicon, caused giant fissures, because the swelling eventually pried it apart. This is a picture of one of our earliest batteries falling apart. It says less than 200 cycles. The answer is, when I first came in here 14 years ago, the answer was less than 10 cycles. Silicon doesn't like lithium to be inserted into it. We changed from crystal and silicon to silicon oxide. It's an engineered material. Here is silicon.
You've got the atoms of silicon in there. The same thing happens. Lithium forms a stable compound with silicon. I'll leave it at that. Here you see this layer on the outside is called the solid electrolyte interphase, and the lithium has to get through this. Then here you see it's big, and furthermore, you can see cracks here. The same thing is happening across an entire battery here. It's happening on these little microparticles. Then here we are now, and this is 1,000 cycles. You can see the particles of silicon have a thin SEI, and they're in good shape. That took 14 years. Of course, each step, if you want to rough cut, seven years, seven more years, and now we're there. That happened in second quarter.
Somebody should have been standing on top of the building, putting up a sign, screaming about this event, and it didn't happen as well as it should have happened. When I came in, I was worried about, oh my God, are they going to quit? Is the morale in the tank, et cetera. I talked to the leaders in the company, these people. These are a quickie. I cut down the resumes from pages to paragraphs. Samira is on the end, so might as well show these quick. Samira is on the end. Then Ryan. She's the Chief Business Officer. Then Ryan, CFO, and now Interim CEO. I want to go over here, Michael Vyvoda is next. And then, just showing you that T.J. Rodgers ran out of time, on the end is Michael Doan.
Jon Doan.
Jon Doan. Sorry. Jonathan Doan, with no H. Okay. This is the staff, and I'll just say it's a strong bench, and rather than go through reading you this stuff, I've asked them to introduce themselves, give their resume, the short version of it, focusing on the most important things they've done in their career, and then tell you what they have to do going forward, given where we are. Samira, go ahead and start.
All right. I've been with Enovix for over three and a half years. I spent over 20 years in some of the most pioneering semiconductor and technology companies, running product management and business development and business functions. I spent the early part of my career in semiconductor companies, including Qualcomm, Integrated Device Technology, as well as Rambus. I then moved to AWS to drive the global go-to-market and business development for some of the fastest-growing compute platforms and led global partnerships for Meta Connectivity at Meta. That brought me to Enovix about three and a half years ago, and I lead the commercial strategy and the commercial organization, including sales, product, and marketing teams. Look, for me, the highest priority right now is a flawless execution on Honor. We got to get through the qualification. We got to make sure this transition on CEO goes smoothly.
Raj and I are getting on a plane the day after tomorrow and we are going to visit our first customer. On the smart eyewear, we have made a tremendous amount of progress. We have commitments that we need to deliver on, and we are well underway on that front. The next step is to expand on our customer base in the smart eyewear side. Finally, on drones, we have made a great deal of progress in a relatively short amount of time. We have a really healthy pipeline and my team's focus and priority is to convert that pipeline into dollars for the company as fast as we possibly can.
Ryan.
Ryan Benton, Interim Chief Executive Officer. I am a 37-year operating executive. All of that has been spent at technology and semiconductor companies. I think the one part of my career, which is listed here on the slide that is the best analog to this situation is my time spent at XR. I joined a Silicon Valley tech company, spent five years as CFO, and then ultimately in a very similar situation, there was a CEO change. The board tapped me on the shoulder to become the CEO of that company. I stepped in, and what I think I did well there was get the team to come together and work as a team and improve execution, not only the speed of execution, but the results. We put a lot of points on the board and ultimately delivered a really nice return for the shareholders.
What I am focused on is doing the exact same thing. I really find the situation really similar in the sense that the ingredients are here, the team is here, really good team that is really focused, and we have enormous opportunities in these three markets that we are focused on, and make sure that we are doing it in a disciplined, efficient, financially prudent way.
Let me do the last person in this room. Dr. Michael Vyvoda. It is actually Michael Vyvoda PhD, and he is our COO. Michael.
Thanks, T.J. I have a PhD in chemical engineering from UC Berkeley, originally in the semiconductor area, but I have had a variety of roles. I think most relevant here is the work I did at Apple. Actually, the two roles that are very relevant. I started when AirPods was a tiny product line and grew that into a multi-billion dollar annual business, moving supply chains, moving manufacturing sites to more financially viable locations, and really increasing the profitability of AirPods and growing that into really a worldwide dominant business. Secondly, I was recently working on electrolytic magnesium manufacturing, which is very close to battery technology. Its electrolytes and so on, very relevant there, and running operations for the first company that is building a new magnesium smelter in the U.S. in the last 30 years.
A couple of examples of how my experience is very relevant building supply chains. But I am a technologist at heart, so I understand the tech and I understand the operational aspects as well. My focus going forward, the team here has built a wonderful foundation, and it is going to build on the opportunities that were discussed earlier. One is really expanding manufacturing at our Korean site. There is an enormous revenue potential there that we are going to expand manufacturing and capture that in the near term. Secondly, there is a strong basis, as you have heard, on improving yield and improving manufacturability of our silicon-anode cells. I am going to be continuing that and making that a real strong focus, which then leads into the third strategic thrust, which is ramping our Malaysia site based on those improvements.
Those three things together are the strategic thrusts that will take us over the next several years.
We have five R&D groups in the company. It is justified. You might ask why so many. I will give you one example. In India, we have an R&D group that works on electrolytes, which are exotic, complicated mixtures of compounds that are the liquid in the battery. You cannot use water because lithium reacts with it. That is a whole R&D site unto itself in India. He has an R&D group that makes equipment, and the idea is how do you make new equipment that the world has never seen before and make it function right? That is the Moore's Law problem every two and a half years. That is what the semiconductor guys face. Finally, I would like to talk about operations. Having a nice early start, KH Park and Ed Casey. So, give them your resumes and tell them what you got to do.
KH go first.
Yep. Hello, this is Kihong Park. I would like to briefly introduce myself. My major is the Master of Chemical Engineering. I am a manufacturing and operation leader with over 30 years of experience in lithium-ion battery manufacturing across Asia, Europe, and North America. I joined Enovix in 2023 following the acquisition of Routejade, where I served as CEO. Since then, I have led the integration and manufacturing improvement efforts in Korea. Today, as a Senior VP and Head of Global Manufacturing, I oversee manufacturing operations in Korea and Malaysia, focusing on production scale-up, operational performance, and volume execution. Before joining Enovix, I had leadership roles at SolarEdge Technologies Korea and Kokam. I am now focused on applying my high-volume manufacturing experience to support Enovix's next phase of commercial growth. That is it. Thank you.
Thanks.
Hi there. This is Ed Casey. Currently responsible in Enovix for the development, build, and ramp into high-volume production. Our fast speed dicing, as you know, we currently use laser. It is quite slow, so in 2027, we will roll out the mechanical dicing. My background is high-volume manufacturing, starting in the thousands of units and then eventually ramping into millions in a very short period of time. I have spent over 11 years in country, either in Malaysia or Singapore. Most recently, prior to Enovix, I was with the company ams-OSRAM. We were a single source to Apple for various components, and at the time I joined, we were making a few thousand. Yields were low, productivity was low, and over the course of a couple of years, we ramped that into billions and extremely high yields in world-class manufacturing and also implemented automation.
One comment on KH. We acquired his company, and the idea was for them to make the anode and cathode material for us, which is the anode material is copper foil about the thickness of the aluminum foil you have in your house with silicon on it. I showed you a picture of it before. We found out he had a very competently run factory there, and it was about that time that Western democracies realized they cannot buy their stuff, their batteries, from China, right? China can shut you down, and they may be an adversary someday. All of a sudden, that manufacturing facility, which is a good one, that we bought, turns out to be a revenue generator for us. That was not part of our plan. We always knew it would happen, but not to the level it is happening.
He also is, with regard to the people here today, done the funniest line of any of our VPs. I was in a meeting with him, and we were talking about his facility in Korea, and he said, quote, "I was very disappointed to find out that our factory is doing so well after I left." In other words, a wisecrack about a well-running plant that did not need the head guy in order to run. I wanted you guys to understand who is here, and frankly, I will give credit to I have been here during all this. I have been here a decade before this, but the guy that did this was Raj, and he in effect hired a competent group that can make things happen. By the way, give me one statement each, you guys. The number one thing you have to do.
Go ahead, Samira.
I'll go.
Okay.
My number one goal is to take fast speed dicing into manufacturing in 2027.
On our qualifications. It's important call. We're starting on staff meeting here. Yeah.
My mission is first, produce max production for [McPike]. Enovix is the first mission in this time.
Mine's simple. Mine is to ramp capacity.
Yeah.
It's to take the progress we've done in R&D, match it with manufacturability, and get those factories ramped.
Given that I had exactly two working days from hearing about the resignation to give this presentation, I skipped Jon Doan, but Jon, tell us the groups you have and what your top priority is right now, just one and two.
Yeah. We have four groups in R&D, one in India, one here in Fremont, one in Korea, and one in Penang. Our top priority right now is how do we take the great batteries that we're making and transfer them efficiently and quickly into high-volume manufacturing? We'll be working closely with Michael and getting that done.
Okay. I'm going to talk about them as the bench or the strong team in the future going forward, and as I answer the question, what are we doing? To give credit to Raj, each of these moves was announced publicly months before this transition. The execution bench is not a reaction, it's part of the plan. Okay. The only guy that hasn't been introduced is me. I'm a chemist and a physics major from Dartmouth. I was on the board of trustees at Dartmouth. I came to Stanford for graduate work, got MS, EE, and PhD EE there. I worked in two Silicon Valley companies in the line making wafers. I started Cypress Semiconductor in 1982, and I was 34 years at that job, which is a record.
As you might imagine, there's kind of a turmoil out here and a lot of turnover, and I settled in. The reason I settled in was my job changed every year, and I realized that. I didn't become obsolete as a techie geek who couldn't run things at that transition point. When it came to getting technologists better than me in certain areas, I got them. They worked for me, but I didn't do that job anymore. At the end, I worked primarily in financial relations with investors and with people that funded us, and I worked on quality, about almost half my time on quality. I turned around Enphase, that was one of my projects after I left, and at Enovix, I've got 22 million shares, 21 million invested, and I've been on the board since 2012.
Okay, you've seen these people way better than me reading it to you. Status of our markets, smartphones, smart eyewear, drones, and defense. This technology is artificial intelligence technology number one. This is the process, if you will, that they're made in. AI requires a lot of energy because it burns a lot of power. It requires the ability to put out power, and it requires energy density, which is a conflicting requirement all in one package. Our first-generation technology is what we'll make smartphones and eyewear with. Then we have the technology from Korea. We put a turbocharger on it. We put 20% silicon in the Korean technology, and now for a standard technology, a state-of-the-art. They know how to make stuff, and they've got good quality, and it's a well-run plant. Didn't fall apart when KH left, and we're all happy for that.
Now what I have got is our latest accomplishment, what we have to get done in 2026 and what our status will be or what we have to do by Q4 for each of our three technologies. I am in the process right now of mapping all of our R&D projects onto these three main vectors in the company. The big news confirmed by the lead customer, the life cycles. The problem that is not the end of the journey is because we deliberately make batteries with high energy. That means they last for a long time. That means you do not run out of power at 4:00 in the afternoon. That means if you charge it and discharge it takes a half a day. If you run the thing to the spec, you end up getting two charge-discharge cycles per day.
If you want to check to see if it works for 1,000 cycles, you get yourself a computerized system for charging and discharging. You put the new batteries into it that have the latest experiment, whatever it is, and then you wait 500 days. That is the tyranny of this problem. This problem happens in semiconductors. The solution in semiconductors is called burn-in. Instead of trying to operate a chip for five years under normal conditions, 70 degrees centigrade inside of some box, we run it at 125 degrees centigrade, and we exercise it while we are running it. And that is how the five-year cycle of is the chip reliable, turned into a six-week cycle of testing the part at high temperature. What we need to do is get final cycle life tests completed. And how do you do acceleration in batteries? Well, you charge them faster.
Instead of charging and discharging twice per day, you charge seven times per day, then your time to get information is shorter. Even that is not good enough, and I am going to call for R&D to move faster today. But we now have a customer who believes the battery works. We now have to agree on a test, which is being worked on jointly with us and our customer, who I call Honor, a teaching customer. They used to be highly valued customers in semiconductor world, where the company you are selling to knows more about something than you do, and they are willing to share with you, and Honor has done that for us. And then in Q4 2026, we need to sample a second cell phone OEM, probably in China. This is status, near end goal, yearly goal, and near end goal. Smart eyewear.
We are now shipping our first order, and you heard before from Ed, he said, "I specialize in starting with thousands, going to millions." And that is exactly where we are here. We have got a hard order for 50,000 units, and we are shipping it now. We have to ship 19,000 of those units in this quarter we are in right now. And then, of course, they use it. What they will do with it is they will make 50,000 cell phones or some fraction of that, give them out to everybody and test it, make sure our stuff works exactly right in their environment. They cannot afford to spend millions of dollars on ship samples and then they have to recall them. It would be a disaster. And when they look at making sure stuff works, they look at a lot of stuff. They are very thorough.
And then what we're going to do for them, we have Artificial Intelligence technology-1, we have AI-2. That's my briefcase. Somebody hop on over there and push a button, please. I've got a phone call coming out of my briefcase. AI-2 is a more advanced version of AI-1 that has 20% more energy. So, instead of that, we brought it out so it's louder. My fault. Okay, so we're raising the energy density. This is so when we get into these companies, and they're big household names, when we get into these companies and the other guys are trying to copy us, we've taken a step before they get there. That's playbook of Andy Grove at Intel when Intel was king of semiconductors. Third, drones and defense. Give you one, these numbers are all the most relevant number today.
From nowhere, we've got $183 million backlog, and that's our pipeline, and it was up 41% Q2 2026. So, we're the high-energy, high-performance American battery company, and we've been dealing with defense actually for years. I won't go in it, but there's a vest that soldiers wear that's the electronic vest. It means you can track individual people. It's got batteries and pockets in it, and we supplied that as an early DoD experiment. Because of this, we're going to have to increase our capacity in Korea. Right now, the Korean factory is a $40 million outfit, and we're in the process of upgrading it to $100 million. And it's actually pretty economical to do it, the ROI on this is very high. And today, this is a name of a program in the government, I forgot the acronym.
What they want is 100% non-Chinese capacity, and we can do that. We're just going to grow this and do whatever they ask us to do. We're going to deliver this order and be ready for the next order and actually get a second customer here. Okay, so my agenda. I heard about this thing last Thursday. This Monday, and you might guess Saturday and Sunday were workdays for me, and I had to think, first of all, I've been familiar with the company for a long time, but I had to get into the details of what I need to do. And that made me think for executive staff discussion, what is right that we need to preserve and what needs to get better. So, what I like, Cycle Life works after 14 years.
I got to say it again, that ought to be in capital letters that are bold. I like a strong executive staff, so I came in thinking, "Oh my God, how are we going to do things?" And they told me, I didn't tell them. And my conclusion is, the staff can run the company with no hiccup. Meaning, I do not expect any of our guidance or customer relations to change. The one that we're worried about is our Chinese cell phone companies, and Raj has agreed to take some time off his new job and go to China with us and personally introduce us to the people he brought to the company in the cell phone world. We're going to send three of our top executives from this room, and then three of our board members will be on electronically.
So we'll have a group of six telling those guys we like them, we appreciate their help, and we want their business still. What I need to fix or maintain. One, investor relations. I've always thought this, I've always griped about it, and if Raj and I had one argument over and over, it's this. I don't like the reports. I don't think they're clear. I don't like the verbal parts of it. They're not transparent. They're not what I think investors deserve. Secondly, because we're an R&D company, we have 1,000 employees, and we've never thought carefully about can we afford 1,000 employees. 1,000 employees earning $40,000 per employee per year. Starvation wages in any technical business is $300,000 per employee per year. Once you get to $400,000 per employee per year, it can run a manufacturing company with profit. And we need to get there.
It's not in the cards on a monthly basis, but we need to install business processes to start moving the company in that direction. We've already installed one. It's a process called the requisition auction, and the discipline is simple. Every week, one or two people leave every company, and instead of just replacing them, those requisitions become valuable property that is called the requisition auction, that are quote unquote, "auctioned off" to the executive staff. So, you come in and say, "This week, we get to hire two people." And then the staff says, "Well, I need this guy for this, that guy for that," and you find out you want five people. And then the answer is no. We're going to get two this week, and we'll wait for the other three until we have other resignations. Then the people that need it the most.
It's a very powerful process. It's been embraced accurately by the company. It's being used. It allows the CEO, any CEO, to climb in the pilot seat and have a dashboard right in your face that you can manage every single week. So, that's one tool we're going to use. I won't take time, but there are several tools like that that exist here. They've been embraced. The employees like them, and that's how we're going to do it. We lose $100 million a year, and if we didn't have the giant bank account, that wouldn't be okay. Now, the argument is you have to invest $100 million a year. This is big leagues. You're competing against multibillion-dollar companies, and you have to have the R&D that size, hence 147, 158?
158.
158 R&D employees. And I'm an R&D guy, and I'm not exactly a cost hawk on R&D. I will be reviewing it, but I can tell you what's going to happen. It's not going to grow. It's going to become better. And as people leave those organizations, they'll be replaced by, at the time, who we think are an upgrade. And over time, the cost will remain constant and a declining percentage of revenue, and R&D is going to get more, not less, effective. That's my experience. We have Chinese smartphone customers at risk. That's the trip I already talked about. That's this week, Friday meeting in China. R&D is competent. Jon is a Stanford PhD. 30% of his people are PhDs. They're smart. You walk through the place, they got their nose in their computer, and they're working.
What's lacking is the next higher level of management, which is to look at the portfolio of projects and ask, "What are we doing? Why are we doing it? And should we be doing it?" Right now, we have those three initiatives I talked about, and we have 20 projects. That number needs to be less, and we need to be faster on fewer things. We also need to solve the problem I talked about before in order to determine lifetime, which is our limiting factor. Does it make or not make the lifetime? We have to first cut it. The talk I said about fast charging cuts it down from 500 days down to 14 weeks. It's still not good enough by about the factor of five.
We have to do the next step, which is to cut it down, so when we do an experiment, in four to five weeks, we can say it worked or didn't work, add it to the process, or start looking for the next way to solve the problem, whatever it is you're trying to work on. Maintaining active engagement. That's really here. Raj was a PhD, and he did actively engage with manufacturing. He is a PhD, and while he was here, he engaged with manufacturing and R&D deeply. We're talking this stuff is complicated. You can easily walk into a room, claim you're going to be out of there in four hours, and then decide to work a couple more hours so you can skip traffic. So, I have to maintain that.
In the hours I'm going to spend here, most of those hours will be dedicated to that, given the executive staff is going to need decision approvals more than decision-making from me. Okay, I wrote this. I'm going to read it. It's the only thing I'm going to read you. I'm not big on reading things, but this was wordsmithed. This is a CEO transition, not a strategy transition. Our Q3 2026 guidance stands. Our balance sheet holds $552 million in cash, and the teams executing customer programs are unchanged. Reporting to proven operating leaders we put in place months ago, the table here. Last quarter, we demonstrated 1,000-cycle life in our AI-class cell phone batteries. Our AI-1 eyewear cell is shipping against firm customer orders.
Our MX-1, that's the Korean process, which is a typical battery process that we boost up with 20% silicon content in the anode, which we know how to do. Obviously, we do 100% now. MX-1 is building out for a defense market that is growing rapidly. The board will run a deliberate search for a permanent CEO with no artificial deadline. That is, if we don't find a hero, we're not going to act, especially if the team we've got here is working. Meanwhile, the company needs to stay focused on execution for customers, factory delivery, and financially. Right now, unfortunately, all of these are working real well. Then we've got this meeting where we've got to talk about a downside event that we have to accommodate. So, that's that.
Time for questions, and we will take any question you ask and answer to the best of our ability.
We will now begin the Q&A session. Please note that this call is being recorded. If you would like to ask a question, please use the raise hand feature on your screen. Questions will be answered in the order they are received. Please ask one question and one follow-up question at most. Your first question comes from the line of Mark Shooter with William Blair. Please unmute your line and go ahead.
Thank you. Hey, T.J., can you hear me?
Yes.
Great. Thanks for hosting the call. We appreciate it. One for Michael. Apple is amazing at leveraging contract manufacturing, and Enovix has two separate facilities and separate battery manufacturing technologies. The novel architecture being in the Malaysia fab. I think a question for investors is once you get demand for the battery technology and you see POs occur, can the Enovix architecture scale profitably? You can make the cells on the Agility Line, but as you move to the high-volume line, there has been some ambitious targets, like 50% gross margins. I would love to know what your assessment is with fresh eyes coming in and seeing the unique manufacturing process and the unique Enovix architecture. Do you think that this process can ramp with economic yields?
The one thing that impressed me most, I was in the factory last week. This is not a tremendously complicated process here. You can build these batteries with a relatively small number of steps. You compare this with AirPods, which is obviously a much more complicated product. I actually do feel with the high-volume lines that we have planned here, with the yield improvement that we are doing, with the manufacturability improvements that we have already kicked off, and with the small number of steps that we have here, I think this could be a very profitable product.
Thanks, Michael. I appreciate that. Just to follow up for KH on a similar vein, it is not often we get to interact with Michael and KH. Now that you have seen, you have been put in charge of both architectures, right? The traditional pouch cell that is in Korea as well as the Enovix architecture in Malaysia. KH, I would like to know what your impression of this manufacturability of this design is, and how difficult you see the transition between the two, and how difficult it is to yield out for stacking the thin electrodes versus traditional pick-and-place or Z-fold that you would use in pouch.
That is for KH?
Yeah, he is getting it translated.
That is going to take a while to get translated. Meanwhile, Michael, you can answer that question too, right?
Okay.
Manufacturability of our technology versus standard pouch technology.
Yeah, I do not have any concerns about the manufacturability. The way that we stack our electrodes is a relatively simple physical process. I have seen it myself done in the factory, and I see it just as manufacturable as the technology that is out there today, the legacy.
The problem has been-
Thanks, Michael.
From investor point of view, we, including me, have made promises like we are going to qualify this company and be shipping by such and such a time. In retrospect, those questions were uninformed. That is, we are on the edge of what works and does not work, and it is like determining what quarter calculus is going to finally work. You can make a mistake on that, and we have. Then the next problem then is when you hit quarter X and the investors are saying, "Where the hell is the stuff you promised us to make?" Then you need a reason. The reason has always been the latest problem. The latest reason is laser. We have a line, what UPH is 1,150, what is the UPH of the line?
1350.
1,350 UPH is the line design, and yet the lasers that take big sheets of cathode nanomaterial and cut them into the actual electrodes used in the battery are running at less than 100 units per hour. The entire line is throttled down by a factor of 13. Okay, so we got laser problems. You come in and say, "Well, it did not happen because of the laser." Well, you got a PhD, you should know about lasers, and you do not. We have hired laser guys. The problem was we were on the edge of what lasers can do, and concluded about a year ago, lasers are not going to do what we need to do. Right now they can do what we need to do, but only slowly, and that is never going to get good enough.
Because in order to get good enough, I would need 100 of them at $1 million-$2 million each, all busily cutting away just to feed the line because the line is fast and sucks the stuff up and it is gone. As you well know, and you guys are sometimes more educated than I, we are doing it mechanically. You think about punches. Big machine that punches out a piece of metal and there is a car door. That is an ancient technology and it works. We are working on micro punches now that need to be accurate and can cut this material. We have been working on that for six quarters. That is our way out. They are more than an order of magnitude cheaper than lasers, and you do not need a lot of them. That is our solution. You guys got a schedule on punches in production?
We've said multiple process steps around year-end would be in production.
We've learned about getting beat up, so we're going like this when it comes to schedule. I review that project every quarter, and I think it's going to work. But when you punch out a car door, the error in which you punch out is maybe a 0.5 mm , which sounds like a small number, but on the scale of a battery, it's not a small number, it's a big error. So, we're having to run punches at accuracies that they're not used to, 0.1, 0.2. The stuff we're punching, one of them is lithium cobalt oxide. Cobalt oxide is think rust. Iron oxide is rust. This is cobalt, right, same area in the periodic chart, and you oxidize it, and the stuff's hard and it's abrasive. And the punches have a hard time with that.
We're working our way through that, but that is an easier problem to solve for sure than the laser problem. And I'm not using it for an excuse, I'm just saying this is where we are.
I appreciate the candor and the insight, T.J. I'll hop back in queue.
Thank you. Your next question comes from Colin Rusch with Oppenheimer & Co. Please unmute your line and ask your question.
Thanks so much for the time, guys. Can you talk about the history of the existing team with those cell phone customers? I appreciate that you guys are going over there to get embedded with those folks, but want to get a sense of that relationship. Then I have a follow-up around the technology on the smartphone technology landscape.
I'll take that. So, Colin, first from a relationship standpoint, when we started engaging with these customers, I'd say about three years ago, I've been in every single meeting with Raj. We have our existing relationships, not only at the leadership level, but also at working level. So, we have our CTO, who comes from ATL. He's worked with these customers in the past. He's been actually, in some cases, their leader in the past. So, we have very good relationship at every level that you can imagine. Both on the technology side, on the business front, and at the leadership level. As I mentioned, Raj and I, and with Ryan and Michael, a few others, and board members, we're going to meet with Honor's leadership team this week. So, I'm not worried at all about the relationship. Ultimately, it's a product that has to sell.
We're working towards that. We have to qualify the product and that's well underway. So, we have at least three years of history with these particular customers, and in some cases, in Hongwei's case, many more years beyond that.
An asterisk on that one.
Go on.
An asterisk on that one is the other consumer product we have are eyeglasses, and they are very high- volume. In that case, instead of talking about what machine does not work exactly right, we can make those things to their spec as we speak, and we are shipping our first order. That is the order that creates samples for them and eventually turns into a big order, as in scaling up. So, got to remember, we now have two directions that we can go with the same technology, just two different sets of tooling and machines.
Thanks so much. On the technology landscape, obviously the delay has allowed some of your competitors to continue moving forward with a variety of solutions. Some of the suppliers are common, just even with different architectures. I want to get a sense of how quickly those folks are cycling and potentially putting you guys at risk around some of those cell phone customers?
I have a director in the room who wrote a memo last week about, the bad guys are catching up. Look behind you. And it is true. If you go look at the lifetime learning curve of lithium-ion batteries, the energy density increases 6% - 7% per year. We have recently compared our energy density, which has met our target of 900, it is actually 935 Wh/L . So, power or energy per unit volume. That is the right saying. And we are about 15% ahead of that, maybe 12% ahead of that. That is two years. And it matters. That matters. If somebody has got a thing that they are not getting the energy they want, even from the best battery, that is something they will pay for. The other problem we have had is that we know how to get over 1,000, well over 1,000.
But the problems in manufacturing, transfer to manufacturing we have talked about, kept us working on the old technology, and will keep us working on the old technology for a while. But we also have a future in front of us, and the things our competitors will use to get better. New cathode material with slightly higher voltage. New anode material with smaller volume to store the same amount of lithium. Those are available to the world. And as they improve 6% per year by using those, we can do that too.
Right now, we have locked down our materials so we can go into production. Well-known thing, if you want to never get in production, just let the R&D guys keep changing stuff while you are trying to get in production. So, yes, they have caught up. Yes, the factor of 1.5 or so that we had back when has gotten narrower.
No, they have not caught up. And also, it has become real important to be an American company. That is new and different since we have started this.
Yeah, maybe I will just add a couple of points to that. So, as T.J. mentioned, number one is the technology roadmap, right? They know how we operate. They know what we can offer in the future. They know historically how our competitors have been able to add energy density year -on -year. And they are reaching to the maximum limits of adding silicon doping to their product.
So that is one, technology roadmap. The other thing I would say is that technology is one dimension and performance is one dimension to make a survival supplier. No customer, no OEM likes to have concentration on just one supplier. And these guys have invested a lot of energy, a lot of resources over the last three and a half years on us as a supplier. So, they are really invested in terms of making us work and making sure we are successful.
That is why they are a teaching customer. That is what they are helping us. From a spec standpoint, from qualification, they are cutting corners. They are doing all of that to make us successful. The last piece, as T.J. mentioned, is really aside from the Chinese OEMs, across the consumer world, across the defense world, everybody wants a diversification of supply. We are very well positioned for that.
Samira alludes to another technical point. Way to competitors who are catching up is to use silicon. Problem is, your battery blows. I showed you a battery getting turned into mush by lithium ions. With those batteries, when you start throwing silicon into the battery, eventually their battery will blow up and they do not have a containment cage like we have that holds back 1,000 pounds per square inch from blowing the battery up. The best of them, they used to put in 5% silicon in their graphite. The best of them is 32%. In Korea, the best we were able to do in a conventional technology is put in 20% of the best-known silicon. That makes them better. That is it. They are running out of room, so they are using up a kind of a one-time resource there as well. We are already at 100%.
We need to make it work right and start shipping it.
Thank you. Your next question comes from Ruplu Bhattacharya with Bank of America. Please unmute your line and go ahead.
Hi, thanks for taking my questions. Does Raj's departure in any way change the relative ranking in your minds of these end markets, smartphones, eyewear, and defense? In terms of the relative revenue opportunity from these and how you want to spend R&D with respect to each of these end markets. I will ask my follow-up at the same time. What qualities are you looking for in the new CEO, and how do you plan to go about this? Samira, I know you said that Raj is going with you to China. You have been beefing up your organization in terms of salespeople. Do you think that his departure means that you would look for more talent or people with more contacts in the smartphone space? Do you see more hiring coming? Thanks for taking my questions.
First of all, we have launched the search, but you have the spec for a search. Write down what the guy needs to be. Well, he needs to be a PhD if he has Raj's old job. I am a PhD, and I understand this stuff. But he does not need to be a PhD if you have people we have got. Then you ask yourself, what does he need to be? The answer is, he either is the best guy you have ever met that ran the most enviable battery or fuel cell company. Fuel cells are a close cousin of batteries, difference being in a battery, you have a closed system, and you move stuff back and forth to get power. In a fuel cell, you inject stuff in, and there is waste product coming out. But they work the same way.
Best fuel cell guy or the best battery guy, ran a company, understands it all, technically cognizant, and that person, as you might guess, is really hard to find. Alternatively, with the team we have got, if we make progress while we are searching for Mr. Perfect, or Ms. Perfect, if the team is executing, then we can go look at the skill set we need, where this guy is exactly what we need. In terms of customers and selling, Raj was that guy at the time we brought him in. Now we need to make sure the progress he made does not get squandered.
If I could jump in and chime a couple of things. Ruplu, so again, thanks for the question. I think we said multiple times in the presentation, I do not think it changes the strategy one bit. The priorities we laid out one, two, three in the slide. In terms of the level of investment, we are going to continue to evaluate that. Certainly, the defense and drone market is very capital efficient for us to scale and add capacity there. So, we have taken action in the last two weeks in order to accelerate that capacity expansion.
In terms of, I don't want to speak for Samira, but in terms of the team, we put a little Easter egg in the presentation on August 12th, where we talked about a very key salesperson that we hired from one of our competitors that's in country in China that is going to be really important to that sales effort. That person's going to be joining us in Hong Kong and China later in the week for when Samira and I go there.
I'll just add that from an organizational standpoint, as we discussed last week, we are very well staffed. I don't anticipate Raj's departure to change anything. We, on the commercial side, we are going after all these three segments with as equal amount of aggression, and we're aggressively following up to make sure we execute and win new customers. I don't anticipate any changes from a staffing standpoint in the next foreseeable future. We'll assess it later on depending on where we make more progress.
One of the things, you could use the word blind spot. We spend too much money, and we're not focused enough on cost, and the reason is you guys have given us a lot of money. We haven't had to focus on it. Other companies I'm in, we've got to focus on money literally every morning. I won't say we're recklessly overstaffed, but we certainly can lower staffing by attrition in the process I described earlier. We can understand that the losses at $100 million a quarter are not sustainable. If we just went straight on, we'd have two to three years left, and that's not good enough. That's what I do.
By the way, semiconductors, after you get all done with can you make Moore's Law 55 nm work, the next step is can you make it as cheaply as Toshiba does, and now as the Chinese companies do. That's what I did. I remember very clearly we were arguing about cost reduction, and I was listening to blather. I went in my office and I did a calculation. What would happen if the wires, the little hair-fine wires that are used, let's say 30 per chip, 30 wires to bond the chip into a package, were 100 microns in diameter rather than 125 microns in diameter, which was the industry standard at that time. Given that we put on billions of wires a quarter, the number worked out to be an important number.
The argument from engineers who didn't want to change it was, "Well, we'll have impedance, we'll have IR drop. The chip won't work as well." I did a calculation that's very calculable. Then the guys who didn't want to do anything as a first reaction went against the guy who actually did the work and calculation, and it was bullshit. We're going to do this. Then all of a sudden they went, "Oh, okay, we get it." We have that moment here now. There's a section of our process which is very expensive. It's called pre-lithiation. It basically is to put more lithium in the package because their cycles use so much lithium going back and forth that the materials you get up front don't have enough lithium in them, and you have to add lithium.
Well, we figured out how to get rid of that, and that will get rid of a big chunk of the machine, a big chunk of the time, and it will add dramatically to yield. There are many ways to work on cost, and if you have your mindset on those who aren't economic won't make it, then you work on every front simultaneously all the time. I know how to do that. That's the way chip guys have always worked. That's why there's only three or four chip companies left in the world. When there used to be, when I came into the industry, 110 chip companies in the U.S. alone. There are now about four in the world that are left, and they're the ones that can stand the discipline of cost reduction node to node to node. We don't do that here.
We're not profligate spenders. People do think about economics, but not enough. When I review the 20 R&D projects I'm going to review next week, I'm going to be looking at, in particular, projects that reduce cost.
Thank you for all the details.
The next question comes from Gus Richard with Northland. Please go ahead.
Yes, thanks for taking the question. If I get everything right, you guys have got a UPH of around 100 today. Making some assumptions on yield and ASP, you are probably low single million of revenue in the line in Malaysia, and I am just wondering, do you have a sense of when you can get that in order of magnitude up from where it is today?
I think what is important, we have talked about the mechanical dicing project, which we have been working on for several years, is expected to show through at the end of the year. That is the bottleneck right now, and that is going to unblock the rest of the line in terms of throughput.
Let me give a pre-excuse. As soon as we get rid of that bottleneck and we have got a machine that is running like a newspaper line printing stuff, then we will uncover the next bottleneck. After we uncover that one, then we will find the next bottleneck. So, it is a journey, not an event, to make a high-performance line run quickly. I actually have a patent on automatic lines for assembly and test in manufacturing, and Cypress used them. We had 10 lines. They worked, they made money, and we had 10 lines. So, that is the journey. So, there is no date, there is no magic event. It is basically getting your R&D focused on it and having all of your projects score some cost points along with their other objectives.
Okay.
In other words, rework.
Once you eliminate that first bottleneck, is it a doubling of throughput? Or how do we think about how much you can incrementally improve the throughput once the first bottleneck is out of the way?
Why don't we let our Berkeley PhD answer that so he can put himself on the hook, and I'll write down whatever he says.
As we talked about earlier, the laser dicing process is so slow. It's by far the overwhelming bottleneck. Once we remove that, yes, there will be more, but we're going from something that's much less than 1350 that we want to achieve ultimately 1350. It's more than a doubling from where we are today once we alleviate the laser dicing step and move towards the punch.
Got it. Look forward to the progress.
That, by the way, is find out some other step. You never exercise the speed because you never got enough throughput exercise at speed. That is when you find the next step. One of the ways to get around that is batching material after the slow step and getting a bunch of it, then running it 24 by seven through the line as fast as you can go. You can find a year early where the next bottleneck is going to be and start working on it. We will do that as soon as we get the ability to dice. Right now, our ability to dice limits our ability to sample. A lot of people want samples, and we are not going to give up sampling in order to get a preview of where the next step in our line is going to bottleneck.
This is something I know how to do. This is something that, trust me, I got you on that one.
Got it. Thanks so much.
Thank you. There are no further questions at this time. With that, I'd like to turn the call over to T.J. Rodgers for closing remarks.
Well, I thought carefully about my closing remarks, wrote them down, edited them five or six times, and then read them to you. We've made remarkable progress. Unfortunately, this issue reasonably clouds it. When I interviewed the team to find out where do we go, they all had answers, and they were all dedicated, and we're working on a common plan to go forward, which is the same plan. We haven't changed much in the plan. I would like to beg your indulgence. You will see by the end of this quarter that we're on the same economic plan. It's not a wonderful economic plan, but it's a step forward, and we will show you the progress we're keeping. We will keep you informed on the three different vectors we have for high-volume manufacturing and talk about the market and products for each of those.
We'll talk about it face-to-face, not a script recorded. We'll talk about it face-to-face and let you guys gripe if you don't like it. Then we'll answer your questions if we can.