Good afternoon. Thank you for standing by, and welcome to the Wolfspeed, Inc. second quarter fiscal year 2022 earnings call. At this time, all participants are in a listen-only mode, and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star followed by the number two. We ask that you limit yourself to one question and one follow-up. Please note today's call is being recorded. I would now like to hand the conference over to your first speaker today, Tyler Gronbach, Vice President of Investor Relations. Please go ahead.
Thank you, and good afternoon, everyone. Welcome to Wolfspeed's second quarter fiscal 2022 conference call. Today, Wolfspeed CEO, Gregg Lowe, and Wolfspeed CFO, Neill Reynolds, will report on the results for the second quarter of fiscal year 2022. Please note that we will be presenting non-GAAP financial results during today's call, which is consistent with how management measures Wolfspeed's results internally. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered a supplement to, and not a substitute for, financial statements prepared in accordance with GAAP. A reconciliation to the most directly comparable GAAP measures is in our press release and posted in the investor relations section of our website, along with a historical summary of other key metrics.
Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially, including risks related to the impact of the COVID-19 pandemic. During the Q&A session, we would ask that you limit yourself to one question and one follow-up so that we can accommodate as many questions as possible during today's call. If you have any additional questions, please feel free to contact us after the call. Now I'd like to turn the call over to Gregg.
Thanks, Tyler, and good afternoon, everyone. Thank you for joining us today, and I hope you and your families are safe and healthy. I'm pleased to report that during the second quarter, we continued to execute and drive our business, delivering strong revenue and non-GAAP diluted earnings per share at the high end of our guidance. Now last November, we held an Investor Day at the New York Stock Exchange, where we outlined how the team is focused on driving the industry transition from silicon to silicon carbide by expanding our leading market position with innovative new solutions, building additional capacity in New York and North Carolina to support what we see as a steepening demand for silicon carbide solutions, growing our opportunity pipeline and converting to design-ins at a very robust pace.
Finally, building out our bench of semiconductor leadership expertise to help us optimize operations and achieve our long-term growth objectives. Our strong results this quarter clearly demonstrate the progress we're making and the momentum we are building to support the multi-decade growth opportunity ahead of us. I'll now turn it over to Neill, who will provide an overview of our financial results for the second quarter and an outlook for the third quarter of fiscal 2022. Neill?
Thank you, Gregg, and good afternoon, everyone. We delivered solid results during the second quarter as we continued to see strong demand for our silicon carbide solutions. Revenue for the second quarter of fiscal 2022 was $173.1 million, at the high end of our guidance range, representing an increase of 11% sequentially and 36% year-over-year. Our non-GAAP net loss was $18.6 million or $0.16 per diluted share, also at the top end of our range. Our second quarter non-GAAP earnings exclude $78.1 million of expense net of tax or $0.67 per diluted share for non-cash stock-based compensation, acquired intangibles amortization, accretion on our convertible notes, project transformation, and transaction costs, factory optimization startup costs, loss on debt extinguishment, and other items outlined in today's earnings release.
Looking at second quarter performance, we delivered our sixth consecutive quarter of sequential growth. We continued to see strong demand for our power device solutions, resulting in revenue growth of approximately 37% over the prior quarter and growth of more than 100% over the prior year, as we saw significant growth in both direct and distribution channel customers. On the RF device front, we continued to see solid demand from a 5G and aerospace and defense perspective, which increased over the prior year but was relatively flat over the prior quarter as we continued to increase capacity. From a materials perspective, demand for our 150 mm silicon carbide substrates remains very strong. This resulted in year-over-year growth of roughly flat versus prior quarter as we continued to increase capacity and better match supply with demand.
Second quarter non-GAAP gross margin was 35.4% compared to 33.5% last quarter. The 190 basis point improvement was driven by improved output, costs, and yields from our Durham fab and Malaysia subcontractor, and lower depreciation expense resulting from the previously announced change in useful lives of certain assets, partially offset by the higher device product revenue mix at lower profitability. As Gregg mentioned earlier, adding to our management team with proven semiconductor leadership is a critical factor to our future success. The Durham fab team, now led by Missy Stigall, has made solid progress in a relatively short amount of time, already contributing to positive results. In addition, we recently added Joe Roybal, who has more than 20 years of semiconductor manufacturing experience to lead our global back-end operations, including oversight of our subcontractor in Malaysia.
Looking ahead, we expect continued operational improvements in our Durham fab, and our Malaysia subcontractor will have a positive impact on gross margin and capacity for the remainder of the year. Looking at our consolidated results, non-GAAP operating expenses for Q2 were $86.6 million, and our non-GAAP tax rate was 27%. The increase in our operating expenses was largely due to R&D, including investment in our 200 mm efforts and hiring to support our sales and marketing activities. For the second quarter, day sales outstanding was 48 days, and inventory days on hand was 154 days. Cash generated from operations was -$32 million, and capital expenditures were $144 million, resulting in free cash flow of -$176 million.
We currently have approximately $700 million of cash and liquidity on hand to support our current plans. Additionally, in December, we completed the redemption of our 2023 notes, leaving us with convertible debt with a face value of $575 million. We believe this transaction better positions us to capitalize on increasing demand by strengthening the balance sheet, increasing optionality, and preserving cash during our peak investment period. We will continue to be opportunistic from a capital market standpoint to ensure we have the flexibility to invest as we see fit to capitalize on a market-leading position and support continued growth. During the quarter, we incurred startup costs primarily related to Mohawk Valley, totaling approximately $11 million.
As we've discussed previously, we expect a total of $80 million of startup costs in fiscal 2022, with the majority of these costs incurred in the second half of the fiscal year as we qualify and ramp the fab. We have provided a non-GAAP adjustment for the startup costs as well as a reconciliation table in our earnings release. We are continuing to experience a much steeper demand curve from our customers for silicon carbide products than we had initially anticipated. This has led to supply constraints where some customer orders will not be fulfilled this fiscal year, and channel inventory levels will remain low until we ramp production in our Mohawk Valley fab.
We are confident that we will be able to meet this demand once Mohawk Valley is up and running, but in the meantime, we continue to accelerate CapEx capacity investments, improve output in our Durham facilities. We are anticipating net capital expenditures of approximately $475 million this year, stepping down in the back half of 2022 as we receive more reimbursements for the Mohawk Valley construction. At Mohawk Valley, we have more than 60 tools in place, are currently testing equipment, and we expect to begin running wafers later this quarter. While we are encouraged with our progress to date, it's important to remember we don't expect to realize any meaningful revenue from the facility until the second half of fiscal 2023.
In the third quarter of fiscal 2022, we are targeting revenue in the range of $185 million-$195 million. We expect revenue to be driven by growth across all areas of the business, led by power and improved output from RF and materials. Our Q3 non-GAAP gross margin is expected to be in the range of 35%-37%. As a reminder, the key to our gross margin transition from the mid-30s% to 50% in 2024 is largely based on three elements, including optimizing Durham, transitioning from 150 mm to 200 mm wafers, and driving revenue through Mohawk Valley. We are on track with all three elements and anticipate modest continued improvement in gross margin over time. We're targeting non-GAAP operating expenses of $88 million-$89 million for the third quarter.
We anticipate operating expenses will continue to slowly increase over time as we continue to invest in R&D and sales and marketing resources, but expect that it'll become a smaller percentage of revenue as we enter the middle of the decade. That being said, we are also continuing to identify areas across the business to reduce costs and improve productivity as we scale our global operation to better support our customers. For example, we will be opening a global capability center in Belfast, Northern Ireland, in partnership with the Northern Ireland government. This facility will operate as a shared services hub for Wolfspeed's IT organization, helping drive critical IT innovation and expansion of global digital capabilities. We target Q3 non-GAAP operating loss to be between $23 million-$18 million, and non-operating net loss to be approximately $1 million.
We expect our non-GAAP tax amount to be a benefit of approximately $4 million. We're targeting Q3 non-GAAP net loss to be between $20 million-$15 million, or a loss of $0.16-$0.12 per diluted share. Our non-GAAP EPS target excludes acquired intangibles amortization, non-cash stock-based compensation, project transformation and transaction costs, factory optimization, restructuring, and startup costs, and other items. Our Q3 targets are based on several factors that could vary greatly, including the situation with COVID-19, overall demand, product mix, factory productivity, and the competitive environment. With that, I will now turn the discussion back to Gregg.
Thanks, Neill. We are continuing our journey to transition the industry from silicon to silicon carbide, and I'm very excited for what's to come as we begin to ramp the Mohawk Valley fab. Our power business continues to see increasingly robust demand from the automotive markets. We're also encouraged by rising demand across a number of industrial and energy customers. Our device opportunity pipeline continues to grow and is now well above $20 billion, underscoring the enormous demand we're seeing across all end markets. The pipeline also reflects more than 8,700 projects, and our team continues to identify new opportunities at a rapid pace. More importantly, the sales team continues to convert design-ins at a high rate across a wide range of applications.
This includes things like personal watercraft and snowmobiles, defense applications, trains, EV charging, a plasma generator, and an electric vertical takeoff and landing aircraft. As a result, we secured a record $1.6 billion of design-ins last quarter, which is an amazing accomplishment from the hard work of our sales team, product groups, and our channel partners. Our design-in total for the first half of fiscal 2021 is $2.1 billion, a 70% increase from the same period a year ago and well above our original plan for the first half of this year. At this pace, we're on a trajectory to significantly exceed our design-in totals from fiscal 2021.
This positive momentum is a direct result of customers adopting silicon carbide at a faster rate than we originally anticipated and is creating a stronger tailwind for our long-term revenue outlook than we showed at our Investor Day back in November. To support our rapid growth, it's critical that we continue to invest in people. We have attracted senior talent from a variety of exceptional companies and have demonstrated a tremendous ability to bring in people from the outside with substantial amounts of automotive experience or semiconductor wafer fab experience. The opportunity to join Wolfspeed as we drive the industry transition to silicon carbide is exciting, and we're taking advantage of this excitement to attract some of the industry's finest leaders and innovators. Earlier, Neill highlighted the impact that Missy Stigall is having on our Durham operations and that Joe Roybal has joined Wolfspeed to oversee our back-end operations.
Joe's 20 years of global semiconductor operations and leadership experience is already making a big impact here at Wolfspeed. As we focus on executing across our business, our strategy is further supported by developments in the broader market. In early December, the Biden administration released an ambitious federal strategy to build 500,000 charging stations for electric vehicles across the country. The $1 trillion infrastructure law authorizes a nationwide network of charging stations and sets aside $5 billion for states to build them. We are continuing to see automakers make big commitments to ramp their electric vehicle efforts. For example, GM made several announcements at CES regarding new EVs, including the Silverado and the Equinox, and that they have thousands of orders for its BrightDrop electric work vans.
In addition, Toyota announced it would make 3.5 million EVs a year by 2030, citing the November climate summit in Glasgow, Scotland, and the Biden administration's executive order aiming to increase EV sales. There is tremendous momentum in the marketplace, and we are well-positioned to create a global semiconductor powerhouse here at Wolfspeed focused on silicon carbide. Wolfspeed is a pure play for silicon carbide, the game-changing technology that is beginning to transform the semiconductor industry. We have invested heavily not only in our products, but in expanding our capacity and the talent needed to run it. The expected return on these investments is compelling, and we will continue to invest in both capacity and talent to ensure we meet the steepening demand from our customers.
We're winning business at a very good pace, and I remain excited about the opportunities ahead, and I'm confident in our strategy and our path forward. With that, we'll turn it back over to the operator, and we can begin our Q&A session.
Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad now. Please ensure your devices are muted locally, and we ask that you limit yourself to one question and one follow-up. Our first question today comes from Gary Mobley of Wells Fargo. Gary, your line is open.
Hey, guys. Thanks for taking my question. Congratulations on the progress being made. I wanted to ask really about what has changed since the Investor Day a little over two months ago, and specifically with respect to the $2 billion increase in the pipeline and what seems to be a pretty good design and figure for the quarter. I'm curious specifically on that design and metric, how diverse the, you know, the revenue pipeline or the revenue build, you know, was there?
Well, the pipeline increase is thousands of different customers, so it's quite diverse. In fact, I think we said 8,700. Quite diverse there. Basically, the design-in number that we just nailed for this past quarter and, you know, the fact that the first half of this year is 70% up from where we were, you know, just a year ago, is what's really creating those tailwinds that we talked about. Really, if you go back to the Investor Day, we were projecting $2.1 billion of total revenue at the company level and roughly $1.4 billion of device revenue. It's that device revenue where we're seeing the momentum.
What I would say is there's three things that are really kind of driving all of this. The adoption rate of electric vehicles is well ahead of plan, and many people are seeing that. The adoption of silicon carbide inside both EVs and the industrial markets is well above any expectation we had. Finally, our win rate in this business is actually ahead of our plan as well. I think we combine these three things, and maybe I would describe it even slightly differently. It's not really just tailwinds, but really pretty significant upward pressure on those 26 numbers. It's you know, obviously a good thing. We've got pretty substantial growth in the opportunity pipeline.
As I mentioned in the prepared remarks, you know, our team is doing a fantastic job of winning in this market. Overall market size, you know, is definitely heading in the right direction.
Appreciate that color, Gregg. The follow-up I wanted to ask about sort of the trajectory of the revenue before Mohawk Valley ramps in the second half of fiscal year 2023, if I'm paraphrasing that correctly. You know, you're growing your revenue, are expected to grow double-digit percent for the second consecutive quarter. I'm wondering just based on the manufacturing efficiencies you're getting out of Durham, North Carolina, and additional capacity that's being brought on there, can you continue to make those same, you know, double-digit percent sequential revenue strides? As well, you know, how should we think about the margin gains to be gained from just more efficiencies out of Durham?
Thanks, Gary. This is Neill. So, you know, look, as Gregg said, overall, we're seeing, you know, very strong demand across the business. As you kind of indicate, you know, our revenue here in the shorter- term is really more of a function of supply than it is demand. You know, we still, even with taking the, you know, the revenue numbers up, we're still gonna have north of $100 million of unfulfilled demand this year. So as you kind of point out, our revenue is gonna be just a function of the, you know, how well we can drive, you know, productivity through kind of the current footprint that we have.
With that, you know, if you look at just at the last quarter, you know, the power devices grew 37% quarter-over-quarter, and we're up over 100% year-over-year. I think you can think of this kind of growth and capacity that we're seeing now really as a direct result of the new operations leadership just, you know, making an impact. You know, since we converted the Durham fab over to primarily a power, you know, device factory, you know, we just saw, you know, record output in that factory. We're also seeing some benefits from the output in Malaysia, and we're continuing to see that, you know, kind of pay off. As you look forward into 3Q, I'd say it's gonna be a lot of the same as 2Q.
We're gonna see, you know, more productivity, more power device kind of ramp up as we work into 3Q. Even if you look at the midpoint guide in 3Q, I think the power device revenue will be up somewhere around 100% again, you know, year-over-year as you move into 3Q. I think the team's making a lot of progress in terms of what we could do in the fab, and I think that we're kind of well in line to kind of meet the trajectory in terms of revenue growth until Mohawk Valley kind of, you know, fully comes online.
The next question in the queue today comes from Jed Dorsheimer of Canaccord Genuity. Your line is open.
Hey, thanks for taking my questions and great job and nice to see that $2.1 billion design-in number. So, Gregg, I guess first question, you know, with that level, I'm guessing you're sort of bumping up, you know, against capacity, you know, limitations as you look out. So I'm just wondering how do you assuage concerns with potential customers that you'll have that capacity? And does this change at all the phased ramp of Mohawk Valley? When we were in there, I think it was like a 20% or 25% phase over a period of time. Are you able to pull that forward at all? I do have a follow-up.
Yeah. Thanks, Jed. You know, what I would tell you is, we are, as you know, we are building the world's largest silicon carbide wafer fab, the world's first and only 200 mm wafer fab. It's not lost on the customers that we have an enormous amount of capacity coming online. What's also not lost on them is that we began construction two years ago, and we'll be running wafers in that factory doing initial runs in eight or nine weeks or so. We're weeks away from, you know, running product in that facility. We've had a number of customers actually visit the facility. I think they see a pretty tremendous light at the end of the tunnel in terms of, you know, as we ramp this factory.
Just as a little bit of a backdrop, you know, the design wins we win right now or even last quarter, you know, those are gonna ramp in three, four years, you know, something like that. By that time, we will be in very full and very high production out of that Mohawk Valley fab. With all the pressure right now, this upward pressure on the demand for through 2026, we're obviously thinking through, and I'll have Neill talk a little bit more about the detail, but thinking through, you know, accelerating the phased ramp of that facility.
Yeah. If you think about the 2024 kind of $1.5 billion, you know, billion-dollar revenue plan, you know, we've talked about leveraging, you know, roughly 50% or a little bit more of the four-wall capacity in Mohawk Valley, you know, kind of over that timeframe. The demand curve, you know, as that continues to steepen, you know, we're obviously gonna see, you know, a lot of opportunity to move that up. But we just wanna be very careful with that number. I don't think we're ready to change that right now, Jed, just as we wanna bring that factory up methodically, you know, bring it up in a way that, you know, ensures we've got the capability and quality that we all expect out of that factory.
You know, I'd say, you know, there's potential we'll be capacity constrained as we move through that period. I think if you look out beyond that into like, you know, 2026 and even beyond, we'll start to leverage that second half of the, you know, the four-wall capacity in Mohawk Valley. Now, we won't be fully utilized from a four-wall perspective in that timeframe when we laid out kind of that $2.1 billion kind of revenue target plan. But that is something that's clearly the, you know, the factory has opportunity to move above that, and we could take the volume up beyond that, you know, expand faster between 2024 and 2026. That's certainly something that we're looking at, you know, and continue to manage as we see the demand curve, you know, continue to steepen.
Got it. For my follow-up, I wanna shift gears a little bit in the non-auto related. You know, a lot of the products are optimized around 650 V and 1,200 V for auto. While a lot of the benefits in terms of reducing the impedance are applicable to other markets like solar, you know, you name the trains, et cetera, any high voltage optimization from the best of or from my knowledge hasn't necessarily been developed. For example, a solar inverter, you're not seeing a lot of off-the-shelf 2,200 V type products.
I guess my question to you, Gregg, is if I look at your eight-inch platform and being the only one on 200 mm, larger area die should be a extend your lead over the competition and quite frankly, change a lot of these markets. My question to you is, how are you, without giving away sort of what's coming from a product perspective, how are you thinking about optimization for some of these other markets, that don't get as much attention as auto?
Well, Jed, you know, there's several different vectors here. First off, we obviously have a product group that has a whole strategy and, you know, product portfolio that they currently have, new products in the pipeline, new generations of products, different flavors, you know, and so forth. There's a tremendous amount of effort going on there and a tremendous amount of R&D. We also have significant efforts as you're well aware, going on in terms of the material side of things, you know, as well. Then finally, what I would tell you has been just eye-opening to me is the adoption rate of our current portfolio across non-automotive type applications is really, really solid.
We are able to do that through the partnership we have with Arrow because they're able to take these products and get them into customers' hands. You know, they've got quite an extensive applications engineering team and help customers, you know, develop these products. You know, if you were to ask me a year ago, are we gonna win a personal watercraft or, you know, something like that, it wouldn't be on my list. You know, here we are, you know, today with those kinds of design-ins. I think the partnership with Arrow and the access to the channel that they bring or the access that their channel brings has shown all of these industrial customers that there is applicability of our current portfolio to what they would like to do.
Of course, they're getting glimpses of some of the things that Jay and his team are working on from a power, new product portfolio as well. I'm super encouraged by that. I think as I mentioned, you know, earlier, the adoption of silicon carbide in both EVs and the industrial markets is just happening at a substantially higher pace than we would have predicted. That's, you know, positive news for us.
Our next question in the queue today comes from Samik Chatterjee of JP Morgan. Please go ahead.
Yep. No, great. Thank you. Hi, Gregg. Hi, Neill. Thanks for taking the question. A couple of quick ones. Just wanted to see if you can share a bit more color about the breakdown by either application or use cases. Like, I'm just wondering, is it like you had a certain application, and you found you were able to design in with more customers in the same vertical? Or is it more about new applications really driving those acceleration design wins? If you can share some color on that.
You know, the lion's share of that is gonna be the inverters in electric vehicles. It's gonna be something around 75% of that number, which crosses a lot of different customers, a lot of OEMs, tier ones, you know, et cetera. There's pretty good diversification of that, but it is in the vertical of the electric, you know, vehicle. Outside of that, pretty good traction as well with RF and with the industrial markets. I mentioned some of those different end uses. Across that though, like I said, it's 8,700 different projects, so there's, you know, there's lots of small ones associated with that.
This, for the first half of this year, that $2.1 billion of design-in pretty heavily automotive-related and then, like I said, industrial and RF wins as well.
Okay. Got it. Just a quick follow-up, and this, maybe this is more for Neill. If you can just help me through the gross margin bridge. You did 35.4%. I believe, based on what you've discussed, the depreciation itself change there should be helping you by about 100 basis points or so. Maybe if you can correct me if I'm wrong there. I'm just trying to think about the gross margin bridge, given that you should have some organically better margins on the higher revenue as well. The puts and takes, if you can, please.
Sure, yeah. As you look at the 2 Q results, you know, we saw about 190 basis point improvement in gross margin, which is, you know, as you point out, is at the high end of the guidance range. That was driven by a couple of things. First and foremost, you know, underlying this, we're seeing a better performance and better execution, you know, in our Durham fab and as well as at our Malaysia subcontractor. I'm, you know, similar to the revenue, you know, it's really a direct result not only of the investments that we're making, but of the leadership that we've put in there.
You know, what's offsetting that a bit as we grow is that the device business, you know, of a higher cost base is providing kind of a negative product mix. You saw the power device business growing, you know, extremely fast, 37% quarter-over-quarter, 100% year-over-year. As that bleeds in faster, you know, we're seeing some margin headwind as you look at that. Now, the good news is that the profitability of the device business also, you know, improved significantly versus last quarter with the better factory performance. Over time, we would expect that kind of mix impact to dissipate. Right now, as we have that kind of cost footprint differential, we'll see that kinda, you know, playing as we go.
Those are kind of the two I'd say, operational factors that are in there. From a depreciation benefit standpoint, in 2Q, I think we gave guidance last quarter about 1-2 points. It was at the higher end of that range on higher revenue. As you look out into Q3, you can think about a 0.5 to 1.5 point range. I think of it being largely behind us after that. As you look out into 3Q, you know, we should see some, you know, additional benefit, but largely the same dynamics playing out.
You know, we anticipate seeing better performance in the fab and the back end, you know, offset by some of that, some of that product mix. Even as you move out into Q4, we should see the, you know, the margins, you know, flattish maybe even moving up from 36%, you know, as you kinda get into that, you know, Q4 timeframe further out from that right now.
Our next question comes from Harsh Kumar of Piper Sandler. Your line is open.
Yeah. Hey, guys. First of all, congratulations. Strong results, good guide. Gregg, I had a question for you. You mentioned something interesting. You said that you'll start your wafers here in I think, the March quarter. I just wanted to understand mechanically the timing dynamics. You know, as you look to start in the March quarter the run of the wafers, how long does it take, do you think, for you to be qualified? The main question is the commercial, you know, first few wafers out, still looking at June, July kinda timeframe? If you can just provide some color around that, and I do have a follow-up.
Yeah. Maybe I'll hit the beginning, and Neill can give a little bit more additional color. I'll just remind everybody, you know, this wafer fab was a field of mud two years ago, and we're gonna be running wafers here pretty soon. We've done a really good job of running the pilot line in the SUNY Albany facility. Neill will give a little bit more color on how we've transitioned that. We're feeling pretty confident about what we're able to do out of the Mohawk Valley fab. We have material staged in that fab today, and as I mentioned, we'll be running that in really, I think it's eight weeks, nine weeks, something like that. You know, sometime this quarter.
Neill, maybe you can give just a little bit more color on how the process then goes from there.
Yeah, yeah. Harsh, no real change from what we've talked about. As Gregg mentioned, we'll start the qualification lot this quarter, and then we'll quickly transition from internal to customer qualifications shortly after that. I thought what might be good is that I break that down a little bit in terms of how we're thinking about that. Right now, for instance, we're testing equipment in many cases that has wafers loaded into the tools. We expect to be running those full qualification lots, as we mentioned, later this quarter. If that goes well, you know, we'll transition that, you know, right to customers very quickly. As we speak with customers, you know, there's a very strong demand to get products coming out of this factory and getting them out very quickly.
We've set up the line in a way where we've leveraged that pilot line Gregg talked about to stage inventory at various stages. When we start the line, we can actually, you know, start it very full. You know, shortly after that, we anticipate, you know, putting product in the hands of our customers, and then we'll just continue that process with more and more customers throughout the year. Right now, our anticipation is that, you know, that'll happen throughout the year. We'll see some commercial revenue, but the larger amount of revenue that'll kind of move the needle, so to speak, would happen in the second half of the fiscal year as we get into the second half of 2023.
That's kind of the plan as it works out right now.
Understood. Very helpful, guys. You touched upon my next question a little bit in one of the previous questions. I think I was wanting to understand, given the steepening of the demand curve, the timeframe to get to an acceptable utilization of the fab or even full utilization of the fab, and you mentioned something interesting. You talked about the four wall capacity, but that's different from the installed tool capacity. I wanted to understand how long would it take for you, given the demand dynamics you're seeing, to be able to get to a utilization that you consider acceptable, let's say to break even, cash break even, profitability, whatever metrics you use.
When you talk about four wall capacity, I wanna understand, there must be room, I suppose, for additional lines to go in, and that's what you're implying by four wall capacity, I suspect.
Yeah. That's right, Harsh. I think the way you wanna think about the factory though is, when you think about what's acceptable utilization, you know, in my mind, it's getting towards that first 50%. If we could bring that up, I think we're, you know, as we bring that up, and probably not even at full utilization of the first 50%, I think we're in pretty good shape in terms of the fab and in terms of the, you know, the profitability and the capability it's gonna be bringing to us. You know, given the steepening demand, I don't really see that as being, you know, really being an issue at this point, and we'll look to continue to manage towards that.
I think it's really more about your second point about how much capacity can we bring on and how quickly can we do that. Looking at it now, just as I said earlier, we just gotta be very careful with how we bring up the factory in that first kind of four-wall capacity. It's a brand new, you know, the world's first or 200 mm silicon carbide, you know, automated factory. We're in a new factory and a new technology, so we wanna be careful with that.
However, as you get from 2024 to 2026, I think there is some optionality there, and if you think about in terms of bringing the revenue up and bringing the capacity up, in terms of timelines to think about it, normally you're thinking about a year or so to bring up a new line in a fab. It might be a little bit longer than that right now just because of supply chain considerations. But I'll tell you, we've been, you know, very disciplined about how we've ordered capacity for this factory out ahead of the, you know, the COVID and the supply issues now. But we continue to monitor this very closely and make orders as we bring up the factory.
I think we've left ourselves some flexibility in terms of how we can manage this from a timing standpoint.
The next question today comes from Craig Irwin of ROTH Capital Partners. Your line is open.
Hi, good evening, and thank you for taking my questions. I guess this does touch on questions that have been asked before. If you keep putting up bookings like you have this quarter design ins, you're gonna need a second facility pretty quickly. Can you maybe talk a little bit about what the considerations would be about you know plans for future capital investment? You know, would you be more likely to expand at an existing site, maybe in North Carolina or New York? Would you potentially consider other locations for expansion over the next couple of years?
Craig, this is Neill. First of all, thanks for the question, and I think, look, we're talking about a steepening demand curve here and, you know, clearly, you know, at the levels of what we're talking about, that's certainly something we're considering. If you go even out beyond, if we're gonna bring up, you know, capacity in Mohawk Valley faster, you gotta think about looking out beyond 2026, which we do, you know, regularly. We believe, you know, that the demand for silicon carbide will continue out into the well into the second half of the decade, and I think the entire industry is gonna require capacity, you know, out in that timeframe. For us, that would mean, yes, we would need a second fab in addition to Mohawk Valley, and that's something that we are continuing to evaluate.
You know, from a geography standpoint, you know, I think those things are things that we just, you know, continue to think about and evaluate over time, but we would be open to, you know, looking at various, you know, options there as it relates to, ensuring that we're, you know, close to our customers and working with them on ensuring assured supply and those types of things. These are things that we're just, you know, evaluating and monitoring, but certainly wanna have the best options to create the best opportunity for serving our customers.
Okay. The next question I guess is a clarification, right? You talked about having the tools in place for production at Mohawk Valley. There's not a lot of epi reactors out there with eight-inch capacity for silicon carbide deposition. Can you maybe talk about, you know, broadly, is this something similar to what you did years ago in the LED industry? Or are these potentially commercially sourced units? Would you expect this to maybe be a competitive advantage for you over the next number of years?
Similarly to what it was in the early days of LEDs, but, you know, given that, you already have a huge advantage in wafers and, you know, reactors would be an exciting addition to the technology moat.
Well, Epi is part of one of the key advantages we have. We're pretty good at it. What we're focused on now is really building, you know, the entire supply chain for 200 mm, and that's a lot of heavy lifting. That's including, you know, the furnaces to grow the crystals. We've got a really good jump there. The Epi reactors, you know, and working through that whole supply chain. I'd say, Craig, we're pretty focused on getting all of those bits and pieces nailed down because the steepening demand curve is gonna require, you know, a pretty sizable uptick in terms of how we have that entire supply chain going.
I think it's really that combination that's gonna give us a pretty unique advantage. You know, as one of my customers said, they really like the fact that we're on 200 mm because obviously there's a good cost advantage on that. They really loved it because the output per unit of time is substantially higher because it basically takes the same amount of time to run a 200 mm wafer than it does a 150 mm wafer. What that translates to them is if they see demand for their product take off, and you're hearing about, you know, electric vehicles selling out. I think I heard one of them sold out in something like 25 minutes. You know, they put it on, they put it online, and it sold out in 25 minutes.
They see that this supply chain that we're building out at 200 mm is gonna be able to react a lot stronger and a lot faster because it'll be roughly 70% more output for the same amount of time in the wafer fab. A lot of those things are gonna be a good competitive advantage, and you know, we're working really hard to keep it that way.
The next question in the queue comes from Karl Ackerman of Cowen and Company. Your line is open.
Yes, thank you. Two questions for me as well, please. Neill or Gregg, I guess of the automotive design-ins that you won this quarter, is there a way to distinguish the number of designs where you are the primary supplier rather than secondary, that may augur well for seeing those POs turn into design wins? As you address that question, may you also discuss whether there is a growing mix of 800 V inverter designs, in these automotive design wins? I have a follow-up.
Yeah, I can't give you the exact number, but I would say the vast majority of the things that are design-ins for us, we're the primary source. I don't know exactly what that means, but in fact, you know, I would say off the top of my head, I couldn't name too many that where we weren't the primary source. It's gonna be the vast majority of that is gonna be we're the primary source. I feel very, very good about that. Then, excuse me, in terms of 800 V, I think we're seeing two things happen. One is, we're seeing a broader adoption of 800 V as people are seeing the advantages of 800 V, both from a charging time. Hang on one sec. Thank you. Sorry about that.
A charging time perspective, as well as efficiency at the inverter level. We're seeing a broader adoption of 800 V, but we're also seeing. Excuse me.
Let me just jump in here, Karl. We are seeing a pretty-
Sure.
Broad adoption at the 800 V level. You know, I think a lot of customers are telling us they're seeing you know, a transition from 400, maybe some 400 transitions from some of the earlier models that they've maybe designed in previously, but anything really new that's coming online is predominantly you know, 800 V.
Understood. I appreciate that. For my follow-up, does inventory moderate over the next quarter or two as presumably 150 mm wafer sales, you know, improve as your customers service this step function higher in silicon carbide demand? How should we think about that? Thank you.
Thanks, Karl. In terms of inventory levels, you know, I would see the days of inventory coming down, but the growth rates are pretty high. I would expect, you know, total working capital, including inventory, to increase, you know, as time goes on, just naturally to service a bigger business. I think we'll get more efficient as we execute that. I think, by the way, what we'll see there is, you know, the better execution in the fab that we talked about earlier, that we're seeing improved cycle times and yields and all those things. You know, they'll drop the WIP in the factories and we should see some better efficiency.
I think overall, over time, we'll see, you know, working capital pick up. You know, you could see some drain on inventory, you know, between quarters, but I think we're gonna continue to need, you know, pretty significant inventory balances to service the growth and our customers as we, you know, continue to ramp up the business.
Our next question today comes from Pierre Ferragu of New Street Research. Your line is open, Pierre.
Thanks for taking the question. This is Ben Harwood standing in for Pierre. I had a question on China and the competition that you're seeing there.
Of course, on one hand, the manufacturing process for silicon carbide is extremely difficult to perfect. On the other hand, these Chinese competitors are announcing billions of dollars in investing into silicon carbide. What I wanna ask is what you're seeing from a competitive standpoint there. Are Chinese companies coming up for the bids in either the substrate or the device market? Then just secondly, related to that, what do you expect in your 2024, 2026 guidance for revenues from China? Thanks.
Yeah. Thanks for the question. I think I got my voice back as the team in the room here threw about 10 bottles of water at me. What I would say is, first off, we see, you know, this is an enormous growth that's happening in the industry right now. Whenever that happens, it attracts people who want to get into the market. It is not lost on us that there's gonna be a lot of folks who want to get into the silicon carbide business. There are some, and that includes a number of different companies in China. We pay attention to all the announcements that are happening right now and all the investments and so forth, and we don't sit back and relax about that.
We are, you know, intensively improving our own operations, lowering costs, you know, driving productivity, and all of that kind of stuff. Now, that being said, this business has some pretty substantial barriers to entry that don't bode well for the normal run of play, if you will, of how China gets into a market. First off, there's not a whole supply or even an industry that supplies silicon carbide growth furnaces in the industry. So you have to build your furnaces yourself, and to do that, you need the know-how. So typically, CapEx would be thrown at something like this from a China perspective, and there's really no CapEx to. Well, there might be a lot of CapEx to throw at, but there's nothing to buy.
You have to build your own furnaces and so forth to do that. The second thing is that, you know, sometimes they throw a lot of OpEx at it and go after, you know, hiring tons of people to go put together a plan. The supply of humans that understand, you know, in detail, how to do silicon carbide is relatively small. You know, there are lots of barriers to entry in this technology, and the typical play is just, it's just difficult, for that to happen. We don't take it lightly that, we're gonna have a lot of competition. We, you know, act very paranoid about everything, and the best thing that we can do is continue running, you know, faster than anybody else.
I think your second question there was on, like, percent of revenue and of revenue in China. The way we think about that, you know, in the shorter- term, there's a lot of industrial revenue in China, and a lot of those industrial opportunities, you know, come out of Asia. But as we've looked out into the plan over, you know, 2024 and 2026, as a lot of that automotive revenue comes on, while we do see a lot of opportunities in both automotive industrial in the region, we've judged that back a bit, excuse me, in the plan, and we have about 15% of revenue in that kind of $1.5 billion out in 2024, and roughly 10% of revenue out in 2026.
We've kind of, you know, pulled that back a little bit, although I think if you look at the pipeline, it would be, you know, a bit larger than that.
Our next question comes from Edward Snyder of Charter Equity Research. Your line is now open.
Thanks. Thank you very much. Gregg, I'd like to talk about eight-inch for a little bit. I know you're launching on that, and you guys have guided the fact that eight-inch is gonna have higher yields than six-inch. But given how much thicker those wafers have to be, eight-inch over six-inch, is the per millimeter cost of eight-inch today lower than six-inch? And if not, will you launch production with it as it is, and what kind of efforts or what kind of progress you think you can make in getting it down? Or is eight-inch just a throughput play? 'Cause you're gonna have, like you said, 70% greater capacity for the same machines. Is it just a throughput, and not that?
Yep.
Focused on cost? I have a follow-up.
Thanks. Thanks, Ed. Yeah. The cost per millimeter squared is not at the same level as 150 mm, but we obviously are attacking that, you know, pretty much daily here. We feel real good about where it is and where it can go to. You know, obviously that's something we're gonna be working on. Even with that, the throughput of the factory, as you mentioned, the yields and so forth, we're gonna see an enormous advantage. Maybe, Neill, you can kind of cover a little bit more of the detail there.
Yeah. I think, you know, simply speaking, Ed, you know, normally, you know, and when you move to 200 mm, the benefit's in the fab, not so much in the substrate. The substrate will cost more. Even while it's at a higher, you know, cost per square millimeter right now and may stay that way for some time, we'll see pretty nice benefits in the fab, you know, just from the, you know, the improved yield, the cycle times that we've talked about previously, and that more than offsets the cost per millimeter squared. In that sense, we're in a very unique position because, you know, we do have a fab to feed this into and get those cost benefits.
I think over time, it might take several years, but over time, we'll see that crossover point come, you know, that's all built in the plans. I think we'll be in good shape to continue to drive that cost out as we have done on 150 mm.
Great. I mean, your performance is excellent, your guidance is excellent. The client kind of calls into question your guidance for fiscal year 2024, because if we look at, you know, any kind of reasonable breakdown, I think you've got it before, there's about an even split between devices and materials, a little bit more one way or the other. If you put any kind of real, you know, numbers on that, it looks like North Carolina fab is already running this year. It'll run this year in fiscal 2022, close to $350 million in revenue. I think at one point you'd said that maybe the maximum capacity of that is closer to $375 million. I know with Missy there, maybe that goes up.
Given that, we're only in fiscal 2022 now, by fiscal 2024, if it holds, you know, your $1.5 billion guidance and, you know, $1 billion of that being devices, either Mohawk doesn't ramp nearly as quick, so this isn't anywhere close to what's happening, or your guidance is very low relative to where your performance is already, especially given more devices. So maybe you could walk me through, does North Carolina flatten out? Or given the demand you're seeing now, if it keeps growing at this rate, and I know you're not gonna change guidance at this point, but isn't there a lot of upward pressure on your fiscal 2024 targets at this point? And then maybe a second question for Gregg, if I could.
The performance you're putting up now is really impressive, but most of that, and especially the upside in revenue, is industrial and RF at this point. Am I correct? Given the industrial markets are harder to get their arms around because it's so diversified, I mean, TI said last night that their industrial business was booming, it sounds like maybe this is growing faster than you anticipated. It may take up a lot of the capacity you have planned for Mohawk by the time you get it up into production.
Yeah. I'll hit the second part of that, and then Neill can go back at the first. We definitely are seeing a strong growth of our industrial business, very nice wins. The industrial business tends to ramp faster than automotive. It's not dramatically faster, but it's definitely faster. Over the next couple of years, we'll be ramping that very broad base of industrial customers that you referenced. The automotive guys that we've won, you know, that's typically a four-year from when you win to when you really start hitting, you know, the higher volume productions. You might have a little bit of, you know, introductory volumes, you know, before that. Yeah, no, I feel real good about the traction we've gotten with the industrial business.
You know, our ability to go after that is largely, you know, tied to a great relationship we have with Arrow in terms of going after it.
Yeah. In terms of the revenue outlook, Ed, you know, I think you're right. I think first of all, you know, I think our aspirations and what we can do in the Durham fab are probably higher now as we're seeing some of the performance, you know, over the last, you know, several months since, you know, we put new leadership into the factory. We also expect to see some benefit in the back end. In fact, if you look at the end of the year, we thought, you know, a good line of sight to $200 million of revenue in Q4. Now I'd say that's higher. It's probably between $200 million and $210 million, just running because we're running the Durham fab better and we're seeing Malaysia better.
As you translate that out into, you know, 2024, you talk about $1.5 billion, 1 billion in devices, you know, it certainly does put upward pressure on that. I think that's what we're seeing, not in just 2022, 2024 and even 2026, in that fashion. We are looking at all those different things. I will say in terms of the 2024 plan, you know, we just wanna be really careful in terms of how we think about bringing up capacity in Mohawk Valley, and I think that's one of the gating items we have. You know, certainly if things go better than we anticipate, you know, there'll be some opportunity there. Clearly, from a demand standpoint, that's, you know, demand's gonna be there, as you get out in that timeframe.
We'll continue to manage the capacity as best we can. We are seeing improved performance in Durham, that's correct, and I think there's certainly more capacity in Mohawk Valley than what we've got built in that timeframe. Again, we just wanna be really careful in terms of how we ramp a fab, brand new fab, you know, et cetera.
Our next question comes from Colin Rusch of Oppenheimer. Colin, your line is open.
Hey, guys. This is Brendan on for Colin. First one for me. Given the strong demand environment, can you just speak to maybe how you're adjusting your pricing strategy for silicon carbide?
Sure. I'll take that. Basically our journey in this whole business over the last four years has really been about converting the industry from silicon to silicon carbide. That's been through new technology, new product offerings, lower costs, you know, and so forth. The second thing that I would say is the business that we're winning is business that we commit to long-term pricing agreements and things like that. So there really has not been any influence at all on pricing in terms of what you might be hearing in the silicon industry. We're just keeping to our strategy of converting the industry. We obviously try to sell on value.
In terms of the supply-demand mismatch, impact on pricing, that's not an area that we're playing around with.
Our last question today comes from Brian Lee of Goldman Sachs. Please go ahead.
Hey, guys. Thanks for squeezing me in. I just had one. I know the power device mix here is growing really fast, but you've, you know, consistently kind of called it out as a margin headwind. You know, devices are growing, it sounds like, you know, per Neill's comments, another I don't have any problems. Thanks.
Thanks, Brian. I think it's pretty consistent with what we've said before. I think the big differentiator is gonna be running device products, power device products in Mohawk Valley. I think when you start changing the footprint, that dramatically. Now clearly we've seen some benefit out of Durham. I think we'll continue to see benefits out of the fab. I think the team's making really good progress. I think some of it may dissipate over time, but really the game changer is gonna be moving to Mohawk Valley, where you know, you get the automated factory, you get the 200 mm wafer, and you get you know, pretty substantial cost advantage. I think it'll take some time before you see that benefit.
As you look out over the longer- term period, you know, I don't see that from a device products versus, you know, material products type of mix, I don't see that being all that much different as you get out into kind of 2024 and 2026.
Thank you. I'll now turn back to the management team for closing remarks.
Well, thanks everybody for participating in the call today and your interest in Wolfspeed, and we look forward to updating you in our next earnings call. Thank you.
This concludes today's call. Thank you for joining. You may now disconnect your line.