Okay, why don't we just go ahead and get started? First of all, thank you for your time after after lunch session, another session. We're very fortunate to have Wolfspeed with us. We've got Elif, CTO of Wolfspeed, and Tyler. I'm sure a lot of you guys have interacted with Tyler over the last few quarters. With that, let me just get straight into it. What do you think are the key hurdles for Wolfspeed at this point for revenue growth? Or is it just I mean, is, are there things happening in the marketplace that matter, or is it just basically Mohawk Valley Fab ramping at this point in time?
It's mainly ramp related. We had a really strong demand from the market, actually, for the visibility that we have for the next 10 years. What we are working is to ramp the fab, and then that has connection for us as a vertically integrated company, all the way into the substrate. So, we have made a decision, several years ago to build the Mohawk Valley Fab on 200 mm. That is the first 200 mm fab for silicon carbide. And then what we are doing right now is to ramp our factory to make more silicon carbide substrates on 200 mm, and that's going to support the fab. So we're marching towards a plan of to get to that incremental 20%, from there, then another 20%, and all the way to 100%-
Okay.
-between the wafer factories and the fab.
Got it.
So Harsh, for those that are not super familiar with the company, today, we make 60% of the world's supply of silicon carbide, and we do that out of Durham, North Carolina. The next closest competitor makes, you know, high teens supply, and that's also a U.S.-based provider. The reason why I point that out to you all is because, you know, we've been doing this for about 35 years. We've been we were the first vertically integrated company in the industry. If you go back a couple of years ago and look at, you know, some of our rivals, they maybe mentioned silicon carbide like once or twice on their earnings call. If you look at them now, they're probably 10-12 times.
The point being is this, you know, there is a shift going on in the mid to high-powered application, and that is silicon carbide. Really, you know, as Elif points out, you know, this is something that we've been working on for several years. Like the legacy technology is 6 in wafers. Where the game is gonna be played is at 8 in, and we are ramping a fab in upstate New York on 8 in wafers. We will, you know, we're in production. We generated about $1 million worth of device revenue last quarter. That's gonna continue to ramp. We expect to be at about 20% utilization at that fab in upstate New York by the June quarter of next year, and that puts us on a really nice trajectory.
Can I put you on a little bit of a limb and ask you how that ramp... So 20% is $100 million, I think is what it translates to.
A quarter. Yep.
Per quarter.
Yep.
So you'll go from about $1 million in June of 2023 to $100 million in June of 2024, out of that, out of that fab, not necessarily revenues. But can I ask you how that ramp will look? Is it pretty linear, or is it, is it more, more cautious in the first few quarters and then scales up pretty high?
Yeah. We're ramping in Q1 and Q2. So think of it this way, we're qualifying products right now, and Elif, keep me honest here. We've qualified our largest device for customers, okay? And we've qualified our most complicated device. So we've done a couple of devices already qualified. We still have more in process. And that's why you really see the first half of fiscal 2024, you know, a nominal increase in overall revenue. And as Harsh points out, you'll see this kind of inflection point beginning in the March quarter of next year, and then, you know, where you'll see a significant step-up of revenue, and then you'll see that again in June.
As Harsh points out, at 20% utilization, that puts us on a run rate of about $100 million per quarter, but it's gonna probably take us until the December quarter of next year to get $100 million in a quarter out of Mohawk. That's just because of the start time that a wafer goes into the fab, goes through, you know, a test die and inspection, and comes out of, you know, packaging. That's kind of the way to think about the trajectory.
I'm glad you brought that up because I just wanna help me clarify this for investors. You have $100 million worth of wafers coming out, not necessarily revenues, $100 million worth of wafers coming out by June 2024, but then you have to test, package.
Mm-hmm.
What would be the lead time by the time you get through? It's about a quarter and a half to two quarters-
Exactly.
is what the lead time is. Okay.
Yep.
And your margin should inflect very nicely because this is the big one that you've been waiting for and working for. How should we think about your gross margins ramping as you go, as you go from where you are today to $1 million at Mohawk Valley to closer to $100 million out, out the door in terms of wafers?
Yeah. For the Q1 guide, the midpoint for non-GAAP gross margin is 14%. The way that we're thinking about it, if you get to 20% utilization between now and the June quarter, you're probably gonna see, you know, gross margins move to about low twenties. You see about a six to eight point improvement over the next couple of quarters, and that's really a function of just moving more volume through Mohawk Valley. You know, we kind of feel like you're on the trough or you're, you know, we've called kind of the bottom on gross margin for Q1, and then you're gonna see this stepped up improvement as we move along.
Okay. And how should I think about-- Let's say you're, it's 2024, June, you're doing $100 million out, in terms of wafers, but at some point in time, it's gonna get ramped. You know, and it'll be fully ramped. What is the profile of the first 8 in global fab, fully automated? You put a lot of work into it. What should I expect out of gross margins out of that fab when it's fully humming and fully going?
Yeah, I mean, the target gross margin that we talked about is in the low 50s%, you know. And that—and if you think about that, you know, at full capacity, Mohawk Valley, Mohawk Valley will do about $2 billion annually in revenues. And there's about, you know, a flow through of, you know, about 60%, so it should throw off about $1.2 billion in cash. So like... And that's probably, I, I'd say that's our expectation, but Harsh knows this. This is the first 200 mm silicon carbide fab built. So, you know, that's kind of the target of what we're getting to, which is kind of what you would see in traditional semis, but there's possibly opportunity just because of the level of automation. Do you want to speak a little bit to that?
Right. So when currently we compare our processes to our existing fab in Durham, and that's an old fab that we've been building and working, you know, through our history. That's also a very manual fab. So you literally take the cassette from. We've been. We kept upgrading the tools in a working condition, but you still have the humans taking the cassette from one tool to carrying to another. So with that, on a daily basis, that we have thousands of steps that the human touches to a certain wafer every day. When we look at our yields in the. So silicon carbide is a very demanding, difficult technology. It's in the maturity curve. For us, it will be that we feel really comfortable understanding material behaviors for almost 40 years.
But then the material is also very hard, but at the same time, it's brittle. So when you combine that, the human interaction and the manual handling, one of the highest yield issues that we see in the Durham fab is actually from breakage and then from that impact. So our initial testing that as we qualified the New York fab is it's fully automated; we see much better yield compared to Durham fab, just because of the handling aspects of it. This is really great news for us because when you think about the material going from 150 mm-200 mm diameter, with the brittle behavior of the material, that you expect higher breakage. So we do actually see a much better line yield in the fab.
From there, yes, that we have our, you know, the anticipations in terms of the gross margin, but we're constantly keep working in an upside as well. So we will see that in time.
So you guys have, like, very ambitious plans. You've got this, this fab at Mohawk Valley, which is now about to get going. You've got a fab in Saarland. Am I pronouncing this correct?
Yes, correct.
Germany, which is going to be even bigger than this one, I think $2.3 billion or $2.6 billion fab. Then you've got a wafer expansion, which is about $1 billion, if I'm not mistaken.
$1.5 billion, yeah.
$1.5 billion. So you've got a lot of CapEx going on, and that takes money, right? So in terms of funding, how do you guys feel about where you are, and is your funding, quote-unquote, talking to Elon Musk, "Is your funding secured?
Yeah, I would say this: in Harsh knows that last October, we talked about a capital plan of about $6.5 billion between now and the end of 2027. In the last 10 months, we've raised $5 billion, okay? We've done that in three ways. We did a convert deal that was headlined by BorgWarner, major Tier 1. They bought $500 million of the convert deal because they wanted to have, think of it as a little skin in the game, and there's an underlying. That got them by buying into the convert. They also got a capacity corridor for several years, which will generate a lot of device revenue for us. The next thing that we did, we did a deal with Apollo for $1.25 billion.
You know, that was an opportunity for them to break into semis, and it was also a way for us to kind of secure this $1 billion of capital that we wanted to raise between now and the end of this calendar year. But then the third thing that happened was fairly unique, and that was the Renesas deal. So basically, we cut a deal for a 10-year wafer supply agreement, which had a $2 billion upfront customer reservation deposit. So a way to think about how that works is we drew the first $1 billion this year and put that on the balance sheet. Next year, we will draw that second $1 billion, but that's like a, it's a 10-year term loan at about 6%.
Once again, that bought them the opportunity to get a capacity corridor or a wafer supply agreement underneath that, so that's probably worth several billion, to boot. So $5 billion in capital, we're fit for purpose on cash right now. There's still probably a little bit more to be raised, but you- the way you gotta think about that is, you know, we have U.S. Chips Act funding that's still pending. We have European Chips Act funding that's still pending. There's possibly some other customer deals or customer financing deals that could be done there. I think, you know, the heavy lift on the cap raise has kind of been done, and now we're gonna just be opportunistic to optimize the cap structure over time and maybe look to raise that, that last stub amount that we've talked about.
Okay. So you've got a lot of things. I mean, you talked about the Saarland fab, this fab, you've got the wafer stuff going on. If I put it all together and try to arrive at when you guys might become profitable on a non-GAAP basis, what would that look like, Tyler and Elif?
Well, I'd say this: I think. Think about operating cash flow sometime in fiscal 2025, and then think about free cash flow generation in fiscal 2027. We've talked about $200 million in fiscal 2027 for free cash flow generation.
Okay. So getting there. A lot of people were confused when—So for lack of a better word, MVF was delayed by a couple of months, call it. And a lot of people got confused thinking that you might be having technical issues, or there's some other things going on that weren't very obvious. Could you help us, like, demystify a little bit about—
You mean, like challenges purchasing the material?
Yeah, challenges that you ran into that you-
You got the resident expert here.
Yeah. So, you know, to the expert on that, I'll let you talk.
We actually looked back into this analysis a lot internally as well. I'm gonna take a little bit step back that, you know, when we decided to start building the Mohawk Valley Fab, it was right at the beginning of the pandemic. We still made a decision. We didn't, you know, blink, and then we kept building the fab. Our intention and the plan actually was that the Durham fab would migrate there into that fab in time to create more capacity or space for making the substrate. We are facing such high demand from the market, and then we also chose to continue to support our customers from the existing Durham fab. That actually pushed us to create, you know, the different solutions.
What we end up doing is that we have this additional building in the existing campus that will be called Building 10. We outfitted that building to turn into the crystal growth factory. But then it came, of course, that the process itself is extremely challenging, that you need to heat it up to 2,500 degrees. I keep repeating this because I want you to imagine what it means, that from the infrastructure perspective, from the reactors and the equipment perspective, it's not an easy job that you go to a shop and then you bring in tools that you need to be really like the special infrastructure, power supplies, and then the cooling infrastructure and all that. So that came with a lot of permits for us.
So we went through all those, you know, the challenges. But then once we actually qualified and make the ready building ready, we're actually demonstrating a really nice and steep increase with the 200 mm volume. So the rest is going to be, as it move that material through our internal supply chain and then start feeding the fab. On the fab side, we're still being cautious that the way we bring up the fab, that we have a, you know, the first line.
Mm-hmm.
But there are some steps that we need to have the second tools. We're working very closely with our, you know, the close partner customers, that we don't wanna let them down, that we want—we don't wanna start the fab fully and then have a hiccup. So we're racing to get the tools in place and then just put everything in their places. So from the quality and the yield perspective, things are going really well for us, and then nothing, you know, no issues or delays, but then we've been dealing with the external.
Yes. And then again, that's primarily coming up, you know. We work with our external partners and suppliers to educate and bring them up because it's such a special and difficult technology to run.
Okay. Last night, when we were at dinner, we talked about China wafers. You know, you've got a very strong position in silicon carbide wafer, and we're lucky that we have you, because you're the expert in that area. Where do you see the China in this China Inc. for 6 in wafers? Do you see them? Are they good? Is there a yield problem? And, secondly, have you seen an eight-inch wafer out of China at all at this point in time, or it doesn't exist yet?
So I'll talk about the 150 part a little bit, that we see and hear and read a lot of volume out of China. So and then this goes back for me, actually, that, as I, you know, the search for the source materials, raw materials, that China has been reporting for a good, like, 10+ years that we have excess silicon carbide capacity. They report that. But then silicon carbide traditionally, especially coming out of China, is for the abrasive industries, that you make. It's the second hardest material.
They produce with the Acheson method that silicon carbide to be used in the grinding, polishing of the, you know, the abrasive industry. So seeing the market potential, those companies, they convert their, you know, the high temperature equipment to the crystal growth. But when you talk about, think about the semiconductor, the quality part of it is rather difficult to, you know, to attain. But over the years, that we see good improvement in the 150 mm diameter, but then good part of it, that is we ask for feedback from our customers and more so in the Schottky diodes, the range, but not so much on the, you know, the automotive quality and the consistency. That's on 150 mm. In the communications and the trade shows that we see demonstration of 200 mm wafers from China.
But if you think about that, for us, fully into the silicon carbide, coming with 40 years of experience, we demonstrated 200 mm back in 2016. So when you think about that, we're now in the volume ramp phase, so there's-
Eight years.
Still a gap.
Eight years later, yeah.
Mm-hmm.
Okay. So is it fair for me to walk away from this saying that 6 in wafer, the 150 mm out of China, is still tough? Is that a fair statement? In volume, because-
Yes. Mm-hmm.
Okay, so still pretty tough.
I think, I think what we will see, that we'll see a lot of volume from China.
Okay.
The yield will be a question-
Okay.
and the performance of the material will be a question.
So just like-
And then as well as the consistency.
We'll see wafers, but poor quality.
Yes.
Maybe, maybe tough yield situation.
Mm-hmm. Mm-hmm.
Okay. Um-
How do they perform in the fab, and then more so at the customer will be a key question to answer.
Give us a sense of, let's just say I fast-forward, I had a time machine, I went to 2028.
Mm-hmm.
I said, you know, who would be standing around in the silicon carbide world? Would it still be Cree, Inc.? Would it be still like guys like you and onsemi, or would there be other people in Europe and China that you see, or even Japan, that actually might have wafers, might have fabs, might have, like, product?
Right. I think you're right, that the— So we're pure play into the silicon carbide.
Yeah.
We were the first. We're gonna continue with our strategy. We have a really strong position in the history, actually, 10 trillion+ hours of field reliability on the product. It's just that it brings a huge confidence actually from the customers, so we're gonna keep building on that. And then you see a lot of the, you know, the players that you count on, ST, ROHM, Infineon.
Yeah.
They are silicon companies-
Yes.
Right? The silicon power electronics companies. And then they are all, of course, seeing the opportunity. First, they entered into the field as our customers, so we've been actually supporting all of the market with our substrate to kind of like to establish the power electronics. And then you see them, you know, trying to build their vertical integration as well, just because seeing the value of it. It's going to take time, but I think they will be around, because they're you know, the looking at their history, that I predict that they will be around.
I think it's really encouraging. We've been talking with the U.S. CHIPS office about our grant applications. But one of the things that you have to kind of think about how hard it's gonna be to repatriate silicon semiconductor operations from outside of the U.S. back into the U.S. And here you have a market leadership position in silicon carbide, where you have over 70% of the world's supply made here in the U.S. So, you know, as we sit here today, we think it's a great investment for the U.S. government to help us build our operations and build our capability. But if you just think about that, you know, that the automotive industry, they've kind of burned the boats on internal combustion engines.
They're going to electric vehicles. So you know, we've gotten—we petitioned the U.S. government. Silicon carbide is now on the U.S. geological critical mineral list, which means it's a matter of national security. So like, there are things that we are trying to do to help drive greater awareness for silicon carbide, which I think will keep, you know, certainly keep us at the top of the pyramid, so to speak, for some time.
That's great. And we have a couple of... We have two minutes more, but I wanted to ask you, give us, so you've done silicon carbide for, like, your whole life. Give us a sense of how hard it is to make wafers. I mean, we're talking about temperatures incomprehensible, 2,500 degrees centigrade.
Mm-hmm.
So, give us a sense of like, why this is so hard at a fundamental level. Why can't somebody in Europe make this, in Poland or you know, some of the countries that have experience with silicon wafers, why can't they get to this place of making silicon carbide wafers?
So thank you for that, and I can actually talk a lot about that, but I'll try to keep it short. That's because I did my Ph.D. studies on gallium nitride bulk crystal growth. So compared to that, it's such a hard technology, gallium nitride. We were modeling the silicon carbide, which is already very difficult. But specifically, silicon carbide, in my mind, it is the majority of the difficulty is coming from the temperature requirement the 2,500 degrees. So a lot of us in this room, that we don't even have a, you know, the understanding of what does that mean.
So then, the room that you're sitting in is maximum 25 degrees Celsius, so imagine that. So the silicon technology, if we compare, it's about 1,500 degrees. So think about that. It's still a 1,000 degrees difference. I'll tell you one thing, that the lava temperature is 1,700 degrees. That's very important because imagine that 2,500 degrees, that how do you even get to that temperature? That how do you, you know, the accumulate that, that, that heat body? And then, of course, that you still need to control your temperatures and then pressures, so you need your electronics to work.
But then back to the 2,500 degrees, that lava is 1,700. 2,500 is actually like halfway to the temperature of the surface of the Sun, that you can't even look at it. It's just matter is, like, glowing. It's not solid anymore. It's a kind of like this ductile environment. So we have these, you know, the, founding technology, you know, the founders in the company, so like senior scientists. What they are doing, the extreme fundamentals, they are like calculating that what's gonna come out of the run. They do all the calculations, and the run comes out, the, the crystal growth that it just doesn't work.
And so, at those temperatures, it's such high entropy that your, you know, the thermodynamics and kinetics rules, they don't apply anymore. So what we've been doing, the way... You know, the, the reason I keep pressing on this 40 years, that you rely a lot on the empirical results. You literally, you know, this starts with that, you try this one. Hmm, this didn't work. How about try that one? Okay, this didn't work either. You know, they keep doing that over and over again, but then learning from that then building, that is the empirical knowledge. So, but then doing that over the years, what we've also done, that they build on the knowledge and the data. So when the, the thermodynamics and the kinetics don't work, that we rely a lot on the statistics.
So, for statistics to work successfully, though, you need to be very, like, data rich, so that we rely on our raw data as well.
I see.
So there's like-
A lot of data.
... it's just not one thing. It's an accumulation and a lot of difficulties, challenges, and us finding the solutions to that. It's basically that. It's just a little bit too much chaos on the verge of madness, but you know, the creating something really exciting like this.
Awesome.
Mm-hmm.
Thanks, Elif.
Thank you.
Thanks, Tyler.
Thanks, Harsh. We appreciate it.
Thanks for your time, guys.
Thank you.