Cree, Inc. (CREE) on Q2 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. And welcome to the Cree Inc Second Quarter FY ‘21 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation there will be a question and answer session. I would now like to hand the conference to your speaker today, Tyler Gronbach, Vice President of Investor Relations. Please go ahead, sir.
Tyler Gronbach: Thank you, and good afternoon, everyone. Welcome to Cree’s second quarter fiscal 2021 conference call. Today, Cree’s CEO, Gregg Lowe; and Cree’s CFO, Neill Reynolds, will report on the results for the second quarter of fiscal year 2021.
Gregg Lowe: Thanks, Tyler, and good afternoon, everyone. Thank you for joining us today. I hope you and your families are staying healthy and safe as we begin the new year. Our team continues to do an exceptional job of building relationships with customers and winning new business. In the second quarter, we achieved revenue from continuing operations above the high end items range fueled by strong demand for our silicon carbide solutions. The momentum we’re seeing in silicon carbide reinforces our competence and our growth strategy as we execute on our long-term plan. In addition, we are making solid progress on the divestiture of our LED assets and expect the closest transaction during our fiscal third quarter. Once the divestiture of Cree’s LED is complete, we will have achieved a major milestone in our transformational journey to establish our company as a pure play global semiconductor powerhouse, well positioned to lead the industry transition from silicon to silicon carbide. Now to further amplify this transition, we are changing the name of our company to Wolfspeed. We believe this is a natural progression that builds on our strong reputation of developing silicon carbide solutions over the last 30 years while at the same time, capitalizing on the competitive positioning that the Wolfspeed brand has in the market.
Neill Reynolds: Thank you, Gregg, and good afternoon, everyone. We delivered solid results during the second quarter as demand for devices and materials continues to improve despite the ongoing uncertainty in the macroeconomic environment. Revenues from continuing operations for the second quarter of fiscal 2021 were $127 million, above the high end of our guidance, representing an increase of 10% sequentially and an increase of 5% year-over-year. Our non-GAAP net loss was $26.6 million or $0.24 per diluted share. Our second quarter non-GAAP earnings exclude $27.7 million of expense, net of tax or $0.25 per diluted share for noncash stock-based compensation, acquired intangibles amortization, accretion on our convertible notes, project transformation and transaction costs, factory optimization costs, changes in the value of Lextar our investments and other items outlined in today’s earnings release. Turning to our performance by product line. In power, momentum continues to build as our customers have a demonstrated need for our solutions. In particular, we’re pleased with our 650-volt MOSFET platform which continued to gain strong traction across a number of industry sectors. While our supply levels remain below normal due to COVID-19 safety measures, we made progress in the quarter and expect to continue to improve as we execute our capacity expansion plan.
Gregg Lowe: Thanks, Neill. We are pleased with our results for this quarter, which demonstrate the strength of our business and reinforces our confidence in our strategic priorities. Customers continue to give us feedback that the interest in and demand for silicon carbide continues to grow. The strength of our device opportunity pipeline, which currently stands at more than $10 billion, underscores the demand we’re seeing, not only for automotive power, but also in RF, industrial and Energy Solutions. The cadence at which our sales team is converting these opportunities continues to be impressive, with approximately $600 million of design-ins awarded during the previous quarter. A significant portion of these were for automotive products and the rest spread across industrial, communications, infrastructure, energy and aerospace and defense. Further, our engineering team is constantly innovating to bring new products to market.
Operator: Our first question comes from Craig Irwin with ROTH Capital Partners. Your line is now open.
Craig Irwin: So Gregg, congratulations on the success with 8-inch. It’s going to be really exciting to see production launch at 8-inch in Niagara, I always had a hunch. Can you maybe update us as far as where you stand on the technology development necessary to actually execute that in early 2022. Do you feel that the reactor technology that Cree has in hand is ready for primetime there? Do you have MOSFET production processes that you think will be more transferable than when we made the move from 4-inch to 6-inch? Are there any other potential areas of risk while we look at this potentially massive breakpoint down in cost that you will probably execute on?
Gregg Lowe: Well, thanks for the question, Craig. A couple of things that I would note. One is, I’ve been pretty extensively involved in the updates we’ve been having on 200-millimeter over the last couple of years and have been very engaged with the team. Our team has made numerous breakthroughs and continuous progress on it. And we felt collectively as a team that we were ready to go with Mohawk Valley at 200 millimeter. Now Craig, we’re going to be ramping that in early ‘22. So we are 11 months away. So you can bet the team did a pretty thorough review of where we’re at on the reactors, where we’re at on the technology, where we’re at with the quality of crystals and so forth, and we’ve got it sums up, and we’re moving forward. So we feel real good about that. Obviously, some of the incremental CapEx spending is actually associated with building more 200-millimeter crystal growers. So that’s obviously in the plan as well. And then finally, on silicon carbide on the material side of it, we build our own crystal growers at and all of our wafer diameter size. So we feel real good about where we’re at on 200-millimeter. As it relates to MOSFET, recall that part of the deal with New York when we built this fab was a pilot line in New York. And that was actually at the SUNY, Albany site. We, a while ago, converted that pilot line 2, 200-millimeter to begin running prototype pilot line type activities at 200 millimeter. We feel real good about that -- where we’re at in terms of that process as well. And so we feel real good about that. Now that doesn’t mean there’s 0 risk. But what I would tell you, Craig, is that it’s now a complete and total focus on 1 thing, and that’s ramping 200-millimeter versus ramping 150 and then converting to 200 and having customers go through those cycles, et cetera. So the feedback that we’ll be getting from customers, obviously, from this announcement, we’re anticipating to be very positive because it’s a significant savings for them in terms of the amount of work they would need to do to qualify this factory. So great question, Craig. We’ve spent an enormous amount of energy on this, and we’re feeling really good about this move.
Craig Irwin: Excellent. Excellent. Then my follow-up question. It’s been actually more than a year since I’ve seen the lead semi cap engineers of your major customers and maybe we can call them competitors on the chip side. And as far as I understand, even today, none of them have had the major budgets released necessary to do 8-inch that they were all waiting for the availability of wafers. Do you anticipate that you could have commercial sales of 8-inch wafers, make a material contribution in ‘22, I mean, external commercial sales rather than internal consumption?
Gregg Lowe: I think for ‘22, no. I think the focus is really going to be on ramping that up inside of our factory and getting all of that moving. And we’ve got quite a number of long-term agreements that we have with a variety of different semiconductor players. We’ve announced many of those. I think we’ve said previously that something like three quarters of our materials business is subject to these long-term agreements. We’ve expanded and extended one of them a while ago with ST. And then more recently, we’ve expanded and extended another one of these as well. So I would say is the materials customers are really in a variety of different stages in terms of where they’re at from an R&D perspective, where they’re at from a ramp perspective. And so I think at this point, they’re sort of absorbing the ramp at 150.
Craig Irwin: Well, congratulations, that’s a big announcement.
Gregg Lowe: Thank you, Craig.
Operator: Our next question comes from Jed Dorsheimer with Canaccord Genuity. Your line is open.
Jed Dorsheimer: And I’ll echo Craig’s, congratulations. It’s big news on the 200 millimeter. I guess first question, Gregg. Just with respect to yields and kind of thinking of the business in two separate components between crystal and then Mohawk. It seems pretty straightforward in terms of area benefit, particularly up in Mohawk and what yields could do there. On the crystal side, that was always -- it seemed like that was a greater risk in terms of MPD for that wafer. Clearly, you’ve seen something that’s caused you to kind of go with this. Should we assume then, from a cost perspective, there’s kind of a faster ramp back on the margin side in terms of long-term targets?
Gregg Lowe: No, I wouldn’t do that. I’ll let Neil go through a little bit more detail on that. We feel very good about where we’re at in terms of the quality of the crystal quality and the materials and so forth. We’ve got a little work to do on getting the cost down on 200-millimeter, but we feel like at this point, it’s the right move for us. But I’ll let Neil maybe elaborate a little bit more on that.
Neill Reynolds: Yes, Jed. So if you think about it, there’s -- if you look at the long-term model, we laid out a plan for $1.5 billion of revenue in 2024 with 50% gross margin as our target. I think the time line that we’ve talked about previously in terms of both the revenue transition and the margin transition are going to be kind of the same. And the reason for that is kind of exactly what Gregg said. So I think in the earlier periods, you can think about the 200 being a little bit have a higher cost that’s going to offset some of the diameter benefits you would see. And interestingly, there’s a lot of puts and takes in there, but you end up kind of back to where we were before. So over time, we’ll end up with a model out in ‘24, $1.5 billion of revenue, 50% gross margin, the 25% OpEx and a 25% EBIT, but we’ll get there a little bit differently. And then secondly, what I’ll say is when we get out to ‘24, we’ll, in our view, much better position. We’ll run the 200 for a couple -- several more years in advance of what we expect to be a steeper ramp out beyond 2024. On top of that, as Gregg said, removes that 1 qualification cycle for the automotive customers, which I think is going to be well received by the customer base.
Jed Dorsheimer: Got it. As just my follow-up. I guess going back -- thanks, Neil, going back to Gregg. You pointed out there’s a lot of benefits going right to 200, in particular, not having to ramp 150 recall. But there is sort of the how are you thinking about transitioning over sort of the existing 150 and -- because I would assume all your customers are going to want 200 in terms of that benefit. So how practically, are you thinking about sort of the pragmatic approach to this process?
Gregg Lowe: Well, Jed, recall, we’re expanding right now our wafer fab in Durham. As we move LED out, we’re ramping up the 150 in Durham so I would anticipate that we would be selling and producing out of derm than for some time. And then there is no intention to shift the Durham factory from 150 to 200. It will remain a 150-millimeter factory and really, as we begin to ramp Mohawk Valley, it will become a greater and greater percentage of the total output by 2024. It will be greater than 50% of the output and then as we ramp it beyond ‘24, it will be substantially greater than 50% of the output. And the Durham factory, while it remains at 150, will be smaller and smaller as a percentage, obviously. So the go-forward plan would be continue expanding -- expand the derm factory as we move LED out at 150, have no intention to try to move that to 200. The fab, it just -- it’s a relatively small fab and we’d be way better off from just simply expanding our capability in what is an enormously larger space in New York versus what we have here in Durham. And then finally, what I would say is, recall, this is going to be a modern factory, it’s going to be highly automated. There’s going to be a substantial increase in terms of its raw capability and so that’s why we’re putting all the emphasis on 200 in Mohawk Valley.
Operator: Our next question comes from Craig Hettenbach with Morgan Stanley. Your line is now open.
Craig Hettenbach: Gregg, maybe just to shift gears a little bit into the industrial market. And specifically, I know you’ve had a lot of momentum with the Arrow partnership. Just want to get an update on your sense of just timing because I know it takes time for kind of industrial products to get designed into ramp. How should we think about that in terms of revenue related to that partnership in the coming quarters? So first off, thanks for the question, Craig. It’s typically -- industrial is a little like earlier than an automotive type cycle. So automotive is typically a 4-year type. You get designed into when you start ramping revenue, industrial is sort of 2 to 4. It kind of depends a little bit on the industry, but it’s quite fragmented. So I think you can kind of bake in sort of that 2 to 4 type range. And then the other point that I would make on that, Craig, is if you look at the $600 million of design ins, we were awarded this past quarter, about a little over half of it was automotive. But about 1/4 of it was industrial and energy. So we feel real good about the momentum that we have in that broader space. And again, that’s one where we just don’t have the sales footprint to really go after that. Aero has been just a fantastic partner to work with. They’ve got a substantial capability there that we’ve been able to leverage. And it’s why when we introduced this newest family of 1,200 volt modules, we looked like Aero, and they’re already opted races on promoting that one as well.
Craig Hettenbach: Got it. And then just as a follow-up, as it relates to kind of the partnerships you have with a number of Tier 1 suppliers, just kind of interested in just how those are progressing and any kind of insights in terms of some of the traction that those partnerships are having from a design perspective on the automotive side.
Gregg Lowe: Well, a couple of things I would point to. I mentioned it last quarter, but I think it it’s worth repeating. Our customers, the Tier 1 customers that are giving us feedback on pretty consistent across that Tier 1 customer base along several different factors. One is that the appetite and the percentage of cars that are going to become electric or the adoption rate of electric vehicles is definitely increasing and pulling it. Most were looking at possibly by the end of this decade. So by 2030, maybe 20% of the cars would get to EV. That is now well past 30%. I’ve seen some customers thinking about a 40% adoption rate by the end of the decade. So they point to their end customer bases substantially increasing the adoption rate of electric vehicles. That’s for the number of reasons that include governmental sort of incentives, but also consumer kind of push as well. So that’s number one. Number two is the success rate and the interest rate they’re getting on their silicon carbide solutions is also increasing. And that cuts across a number of different car platforms, a number of different car types, whether it’s higher end cars or more everyday vehicles. The ability to get a greater distance per charge and/or decrease the amount of the cost of battery really cuts across all the segments of vehicles. So they’re seeing a lot of really strong interest there. So just recently, just last week, we had a presentation from one of our customers had kind of showed and layered the interest that they have from their customers on silicon carbide and it’s really encouraging for us. And that’s especially as they see the market beyond 2024.
Operator: Our next question comes from Brian Lee with Goldman Sachs. Your line is open.
Brian Lee: I had a couple here. Just on the pull forward in CapEx and 200-millimeter at Mohawk Valley, I’ll echo the sentiment of others, congratulations on that. But can you maybe give us a sense of what breakthroughs you’re seeing to have made the move here to pull that forward and make Mohawk go 200 from the very get-go? And if it’s something you can give us any sense of quantification around, I would imagine it has to do with yields. That would be helpful. And then just related to that, I know you said there’s no real impact to the fiscal ‘24 targets in terms of revenue and margins, but can you talk about maybe the timing of funding from New York state, given the accelerated CapEx, sort of what we should expect on timing? And then also it sounded, Neill, like you’re leaving the window open for potentially some additional capital given the accelerated CapEx. Maybe just your thoughts around that as well.
Gregg Lowe: Yes, Brian. So let me take the first part of that, and then Neil can address the back half of it. So first off, I’ve been pretty actively involved with the 200-millimeter program basically since I’ve been at the company. And what I would say, there’s been a continuous progression of success and breakthroughs and so forth that we’ve had. So this wasn’t Tuesday last week, somebody came in with a result, and all of a sudden, we flipped it. It’s been a gradual move towards building confidence in this. And we’ve gotten to the point where our confidence is obviously quite high. We’re making this announcement today, and we’re talking about ramping it in 11 months. So we’re feeling very good about that. In terms of the quality of materials coming out, it’s exceptional at this point. And that includes the normal sort of defect density that customers really care about. Is exceptional at this point. So we feel quite good about that. There’s still work to do. Obviously, there’s always work to do in semiconductors, but we feel real good about where we’ve been. And again, I would describe it as as a consistent drumbeat of positive progress that we’ve made over the last couple of years that has just really culminated into a decision that we’ve made that said, this is the right move for us going forward. So with that, I’ll turn -- in terms of the timing with New York and so forth, I’ll let Neill address that.
Neill Reynolds: Yes. Thanks, Brian. Let me -- I think maybe the best thing to do is maybe just impact the CapEx a little bit first and then we can kind of get into the timing and the funding and those types of things. So the higher CapEx now is $550 million that we talked about is really a result of first of all, a higher completion rate in the Mohawk Valley bad that we had and anticipated in the $400 million. So this is what gives us confidence that we’re going to ramp this kind of in the first half of 2022. So there is a large chunk of this that is timing. There’s also an incremental spend on the 200-millimeter, for handling tools, for materials expansion at Durham, that sort of thing. So just have to remember, we’ll be supporting both business at 150 millimeter, while building out the 200-millimeter at the same time. So overall, while this is some timing in there, there is 200-millimeter investment that’s coming a bit earlier. So 2021 will continue to be our peak investment year. 22, you’ll still see a drop in the CapEx. I think it will be maybe at higher level than what we anticipated before. And then drop off again in the ‘23, ‘24 time frame. So the slope is more or less the same, but I’d say, with higher requirements in ‘21 and ‘22. Now from a New York standpoint, we should start seeing some of those benefits come in relatively soon, although I would say the majority of that out into next year at some point. And then from a capital markets perspective, we kind of mentioned in the script, but I think the point is we’re in a great shape from a liquidity standpoint right now. We’ve got $970 million of cash and liquidity. So we feel good about that. However, with the steepening ramp out beyond 2024, and we’re going to continue to make sure we can invest to meet that opportunity. So we’ll continue to be opportunistic as we look forward here and look at those opportunities given kind of what we’re seeing in the marketplace, particularly beyond that 2024 time frame.
Brian Lee: All right. Great. That’s super helpful. And maybe if I could just squeeze in a second 1 here, and I’ll pass it on. Just kind of shifting to the business. Wolfspeed revenue, you guys really have seen some improvement, modest improvement off the kind of June lows when you did $108 million in the quarter, you’re sort of closing in on 130-plus based on the guidance here. So -- and I think you peaked at $140 million in that segment in fiscal ‘19. So you’re not really off even that level in the current environment. So just kind of wondering, can you maybe also unpack how much of the recent improvement in top line trends is just a normalization of COVID impacts on the business going away and then maybe how much is just organic growth? And then on the organic side, is it all EVN market? Is it coming from the materials volumes picking up again? Is it RF? Maybe just any sense of the drivers and where they’re coming from?
Gregg Lowe: I think we have some audio trouble with Neill. So maybe I’ll take a crack at that as Neill is trying to get the audio back on again. Yes, I would say we’re pretty enthused about the demand that we’re seeing in the power business and the RF business, the device business really picking up pretty nicely from where we were. Obviously, if we had the factories humming the way we want it, we’d be able to -- to be able to service that even to a greater extent, but the teams are working really hard on that. But what I would say is the progress is really based on design-ins and design win activity that we’ve had and things beginning to ramp and things going from idea to real fruition in terms of turning into revenue. That we’re going to be on a trajectory for that for the next couple of years. That’s really associated with initial ramps and early production for some of these design-ins that we have. One over the last couple of years, that will really start to click in post ‘22, into ‘22 and then post ‘22 and frame. So actually, we’re feeling quite good about it, Brian. I think the -- it’s mostly new stuff coming our way versus old things returning, I would say. And I don’t know if Neill can
Tyler Gronbach: Yes, Gregg, I was just going to -- hey, Brian, it’s Tyler. The other thing I was just going to add, we saw some modest improvement in RF too, Brian. And that’s just a function of there’s -- the rollout continues throughout Asia. And around the globe. So there’s still good opportunity, but we’re in the early stages of that. So that’s -- there’s a multi growth period. And as people work from home and start to experience greater productivity by leveraging technology that creates great opportunity for 5G. So as Gregg said, and I added here just a little bit of color on what’s going on.
Operator: Our next question comes from Edward Snyder with Charter Equity Research. Your line is open.
Edward Snyder: Gregg, congratulations on 200-millimeter, brilliant idea. But historically, Wolfspeed’s device business has been kind of the premium power and module market, as we’ve discussed in the past, and your biggest customer/competitors in devices ST on addressing more diversified power markets. But once you get -- assuming once 200 millimeters up and running, get the cost down if that all shook out, that should make the New York fab the largest, if not the largest sick device power fab anywhere. And given your capacity, which, if you can, maybe help us mark-to-market on what that would be with 200 millimeter, but given your capacity, doesn’t that pull you into the same diversified power markets at some of your biggest customers are addressing? Or how should we think about that? And I have a follow-up, please.
Gregg Lowe: Yes. Thanks a lot. I appreciate the question. So first off, that fab in New York is going to be a real big benefit for us because, obviously, it’s substantially larger than what we have here in North Carolina. But equally important, it’s a modern fab, highly automated with pretty significant expansion capability. So we’re super excited about that. In terms of addressing the broader, more diversified market, our challenge on that has been really more sales footprint related than technology related. And that’s where this partnership with Aero has been a huge positive for us, and we’re very tightly coupled together with them, and it’s worked out really well for us. In terms of the factory itself, Ed, I believe it’s going to be the the world’s only 200-millimeter silicon carbide fab. It will be the world’s first 200-millimeter silicon carbide fab. And we just believe that, that’s fundamentally going to give us a really good opportunity as we ramp that fab and start cranking the production in it.
Edward Snyder: Great. And then if I follow if I could. Maybe I don’t know if Neill is on or Gregg, you could speak to it. But comments about the modest increase in orders in the material business driving growth in the next quarter and maybe out for the next couple of quarters. Kind of suggests that your mature business at least your epi business is no longer capacity limited so much as now you’re just looking to fill orders. So first of all, if we can get mark-to-market on that, are you up to capacity on epi and shipping to orders and now that you are -- and if you look at some of the plans of some of your larger customers, for example, like X Fab is almost done with their epi process and will be shifting probably increasingly to their own internal source for that. What is -- how do we look at the balance between what has been one of your fastest material growth areas, epi and what is coming in the next year or so? Is native demand for your epi wafer still far enough, large enough to offset anything that people can take internally like X Fab or help us get an idea of the balance to be good.
Gregg Lowe: Yes, maybe I’ll start and then turn it over to Neill just for a little bit more color. I guess what I would say, Ed, is typically, what’s been happening with our customer base and materials is a desire to take a certain with our customer base and materials is a desire to good.
Gregg Lowe: just for a little bit more color. I guess what I get into it, there tends to be a trend of wanting more epi simply because we do epi pretty well and are pretty competitive, and the quality is actually quite high. Actually, we haven’t seen that really change much at all. So I haven’t seen much of a transition at those at all. Neill, I’ll let you give a little bit more color.
Neill Reynolds: Yes. I think we’re caught up on the -- just on the demand side, Ed. But I think as you talk about the modest materials kind of pick up I think that’s just more of a supply and demand situation. We are seeing some pretty good strength in MOSFET. We’re seeing a little bit more pickup on RF side on the device side. So I think it’s just kind of ebb and flow of how supply and demand works within the materials market. And I think over time, what we’ll see is we’ll see that come back stronger. Right now, I think a little bit more modest. And as those things balance out, we’ll manage through. But as Gregg said, I think there’s still solid understanding from a customer standpoint of the quality of the epi that we’ve got. And we expect that to continue as we go forward.
Edward Snyder: If I could maybe squeeze 1 real quick 1 in, I apologize. But can you remind us too on when LEDs will start moving out of Durham, if I remember, it’s going to be there for a little while. So before you can expand significantly the wafer crystal wafer growth facility there. When will we see LED start to move out?
Neill Reynolds: So yes, Ed, on the LED side, I think we’ve seen a big chunk of the crystal growth side already move out. We’re really focused on the fab outsourcing at this point that’s underway. And I think the -- or the real positives of the deal that we had done but smart was that we’ll continue that and that came on the same time line that we had planned previously. So there’s really no changes to the model. I think we’ve got -- I think we’ve made great progress on the postage side, and we’re working through the path side right now.
Operator: Our next question comes from Paul Coster with JPMorgan. Your line is now open.
Paul Coster: Neill, if I heard you correct, it sounds like you’re going to get to the same kind of margin structure in ‘24 with 200-millimeter, as you might have done with the hybrid model. Can you explain that a little bit? Why is it not a better outcome? Or maybe I heard you wrong.
Neill Reynolds: No, that’s right, Paul. And I think what think about is when you’re starting a new technology and you expand the diameter, there’s a period of time where that’s at higher cost. So you don’t get all -- you don’t get the full benefit of the bigger diameter. You’ve run it for a while, you improved yields, improved cycle times as you look at the factory. And then eventually, there’s kind of an intersection point. And it will take a couple of years for us to kind of work through that, ramp the fab, bring on utilization, et cetera. So I think crossover point. And right now, there’s a lot of puts and takes. We’re adding some CapEx and depreciation. We’re also adding in a new diameter. Like I said, there’s a lot of moving pieces in there, but at the end of it all, when you get out to ‘24, you end up kind of back at the same spot.
Paul Coster: Got you. And then the other question is, it sounds like judging by Gregg’s prepared remarks at beginning that 2024 is the year of ramp. So what does ‘22 and ‘23 look like? Both -- is it a kind of step function? Is it smooth and accelerating adoption? And how the margins do you think -- how do you think they’ll evolve over that 2-year period?
Neill Reynolds: I think it will be similar to what we talked about previously, Paul. So I think as you think about next year, kind of modest improvement, I think there’s still an investment here as we think about that transition. And then it’s really going to be forward.
Edward Snyder: If I could maybe squeeze 1 real quick 1 in, I out. We’re really focused on continue as we go function from a margin standpoint about how we look as you transition to Mohawk Valley. So it really isn’t until the ‘23, ‘24 time frame where you’re well north of 50% of the capacity coming out of Mohawk Valley. So the longer you’re in Durham, the lower the margins are and the more capacity they move up the Mohawk Valley, the higher the margins will be. So I think the trajectory of the business, as we’ve talked about it before, ‘21, ‘22, and that kind of inflection point ‘23 are kind of the same as what we talked about before. The key difference is the CapEx plan will be a bit different, and we’ll be much better positioned, in our view, with having on 200-millimeter for several years.
Operator: Our next question comes from Colin Rusch with Oppenheimer.
Colin Rusch: As you look at ramping the 200-millimeter, is there a particular voltage that you’re going to be focusing on? Is this all going to be 800 bolt-on assets that you’re ramping initially? Or are you going a little bit
Gregg Lowe: It will be the range of our product technology. We’ve got driver products already understood as turn to what’s going to go first. And -- but it will be the -- I don’t know if it’ll be the entire spectrum of products, but it will be the vast majority of what we do since we’re targeting, Colin, to have greater than 50% of the output coming from Mohawk Valley in that 2024 time frame.
Colin Rusch: Okay. That’s helpful. And then in terms of the equipment suppliers on the deposition side, are you working with multiple suppliers? And are there any risks around those tools get delivered on time with what you’re seeing so far with your vendor?
Gregg Lowe: So far, things have gone okay on it in that regard. So -- and recall, I’ll add back. We do have the pilot line in SUNY. So there’s been some amount of delivery there. We’re expanding the capability here in Durham. So there’s been some of that. So I don’t anticipate huge problem there. Neill, I don’t know if you have any additional color you want to add on to that.
Neill Reynolds: No, I think that’s right. And again, we’ve been working on this for quite a while. These are long in Durham. So there’s been some of that. So anticipate huge problem there. Neill, I don’t know We do have the lead time type items. So we’ve been pretty good visibility as to what’s going on. So I don’t really see any disruption there.
Operator: Our next question comes from Joseph Osha with JMP Securities.
Joseph Osha: First, just a very simple question. I think all of Wolfspeed is a pure business, do you all have any plans to disclose the materials versus RF versus power breakdown? I have a follow-up.
Neill Reynolds: Joe, yes. So I think right now, we’ve decided to go with one segment moving forward. I think that’s kind of how we run the business internally. And as you know, right now, we’re kind of a $500 million run rate type business. So we think that makes sense for the time being.
Joseph Osha: Okay. And then to follow-up on a couple of the other questions, in particular, Collin’s. You’re seeing a lot of designs out there, especially for more performance vehicle platforms at 800 volts. And but then again, you’ve got some lower performance platforms out they’re still using IGBTs at lower power levels. I’m wondering is the economics of your products improve. Could -- what’s going to happen? Do you think those platforms sort of move up to 600 or 800 volt? Or do we see you trying to drive SSD power MOSFETs into some of those lower voltage white city car platforms and whatnot?
Gregg Lowe: Yes, Joe. So a couple of things, and let me start by reiterating what I’ve been saying basically for the last three years, which is we have been on a mission to transition the high-voltage power electronics market from silicon to silicon carbide. And part of the challenge to do that is to drive the cost of the fundamental silicon carbide technology, the substrates and the epi down. And so we’ve been marching on that and driving that with an intensity, like you wouldn’t even imagine, over the last three years, we’ve made tremendous amount of progress there, and we still see further opportunity for us to continue to make pretty decent progress ahead of us. And so what we’ve been doing over the last three years is decreasing the gap between silicon and silicon carbide at that substrate level. Obviously, it never gets to be parity or anything like that. But we’ve been having some pretty good success at that. The fact that we’re moving to 200-millimeter substrates, the fact that we’re moving to a modern fab is going to give us continued opportunity there as well. So fundamentally, we’ve been on this mantra of driving the transition from silicon to silicon carbide via pretty substantial cost reductions of the fundamental technology. Now the other thing we’re seeing, and this is part of the feedback we’re getting from our customers is an the other thing we’re seeing, and this is part of the feedback we’re getting from our customers is an increased look at silicon carbide across all the auto platforms, including 400 volts. So, we’re seeing customers at 400 volts, see the advantage of silicon carbide and taking advantage of that. Obviously, the higher voltage as well. So I think it’s still to play out there, but we haven’t been just sort of sitting around on the cost side of things, we’ve been really driving it pretty hard it’s not for the faint of heart, but I think we’ve done a real good job of driving those costs down. And we still see pretty good line of sight for some pretty amazing cost reductions in the future. I think our customers have seen that, too. They see that obviously, vis-à-vis what we quote, our economics that we offer to them. So, I see it as a pretty big opportunity ahead of us, Joe.
Joseph Osha: And I just want to sneak one more quick one. And obviously, you’ve got existing obligations. But let’s imagine it’s the end of 2020. Are you going to sign any more contracts to sell their wafers? Or would you rather just become a pure epi supplier in the materials market? And that’s it for me.
Gregg Lowe: Yes. No, we work with customers. We obviously just signed an extension and expansion of a long-term agreement with a customer and that included bar and epi. And we work with customers. We all understand that they have their own strategy. Some of them want to do more epi. So they ask for a higher percentage of bar and a lower percentage of epi. Some of them don’t want to do that and as for mostly epi., some of them want to do epi and then find it difficult, so then come back and ask for higher percentages. So we’re pretty flexible there, and we don’t have a -- we don’t find ourselves to 1 particular model in that regard.
Operator: Our last question comes from David O’Connor with Exane BNP Paribas.
David O’Connor: Firstly, maybe on the 200 millimeter. So Gregg, the design wins you won in 2020, just to clarify, in around $2.3 billion, will all that now be the automotive part all that now beyond 200 millimeters? And then on the MOSFET yield, the issues that you’ve had on 6-inch, are they now solved? And how should we reconcile the kind of move to 200-millimeter with the yield issues you had on 6, does that mean that they’re solves on 8-inch already? Or do you need to go through that learning cycle down the road on the 8-inch as well? And I have a follow-up on the materials side.
Gregg Lowe: Yes. Thanks a lot, David. So first off, in terms of ramping with customers, obviously, we have an existing facility in Durham. So we’re shipping product at 150 millimeters. We’ll begin production of 200-millimeter in Mohawk Valley in early next year, and then we’ll have to qualify that and work with customers. So there’s going to be a blend of -- there’s going to -- it’s initially going to be 150, and then it will be a blend of the two, and then it will move towards mostly 200 over a period of time that is the design in cycle. And again, what’s really important on that is the transition to Mohawk Valley now will be a single transition and added just simply a 200-millimeter versus a double transition of 150 in Mohawk Valley and then 200 millimeter. And then as it relates to the yield issues, I would really qualify those or characterize those yield issues. It’s really a yield as we ramp up our Durham factory with MOSFETs. It happened to be in a transition to 150-millimeter but the issues associated with that yield are really independent of the substrate and are really associated with the factory itself, it’s a relatively small factory. It’s a relatively dated factory. And there’s lack of automation and things like that. We are making progress on the yields as we talk about. And as an example, this past quarter, our team achieved and actually exceeded a little bit the yield goals that we had for the quarter, and we’ve got obviously improvement goals for this quarter as well. But I think it’s going to -- we’re going to continue grinding on that. The factories are working the best they can, but they’re relatively dated factories with not a lot of automation. As we move to Mohawk Valley, we’re actually working through some of those issues right now because we have, at our disposal, a pilot line in SUNY, Albany. And again, David, as I mentioned earlier, we’ve actually converted that pilot line to 200 millimeter. So we’re already beginning some preproduction running. We’ve had a number of learning cycles that we’ve run through there and that pilot line team was part of the overall organization that gave the go/no-go on let’s move forward with 200-millimeter out of the right out of the chute in Mohawk Valley, and we got the thumbs up there, too. So I feel like that transition will be -- nothing is easy, but that transition is going to be better because we’re going to be a highly automated factory. There is going to be very little human error intervention that we have typically out of our nonautomated factories. So hopefully, that helps with your question. And I think you had a follow-up.
David O’Connor: Yes, that’s great color. And maybe quickly on the follow-up on the material side of things. So you’ve extended a long-term agreement with one of your customers. At the same time, we see someone like Infineon struck a deal with GT advanced for silicon carbide boules. Does this change anything in the model when you look out a few years on the material side? Or how should we kind of think about those type of deals for the materials perspective going forward?
Gregg Lowe: Well, yes, a couple of things. So first off, it’s -- I think it’s pretty well-known in the industry that there is this big transition from silicon to silicon carbide. And many of our materials customers are have internal plans to try to have their own capability in terms of the materials. And that’s very -- they’ve been very transparent about that with us and with the industry at large. There are tremendous barriers to entry that we’ve talked about. And -- but I think that’s a strategy that they’re pursuing and to be honest with you, kind of makes sense from my perspective. I think they’ll find that the difficulties and the barriers are pretty challenging. We’ve got 30 years of work in this area. And we’ve got our set of battle scars, and all of those things have gone into putting us in the position that we’re in today, which is we’re now leading the industry transition to 200 millimeter. So we feel pretty good about that. So I don’t think any of these announcements change anything from that perspective to the extent that customers want to sign up with us. We’re very excited about that. The agreements that we have are not sort of how much for this year and this year only. There we don’t give a lot of detail, but can kind of think of as kind of half a decade time frame. And so these are long-term agreements that assure them of a supply of material and products and assure us a revenue stream and a scale that helps us from a learning cycle perspective.
Operator: This concludes the question-and-answer session. I would now like to turn the call back over to Gregg Lowe for closing remarks.
Gregg Lowe: Well, thanks, everybody, for your interest in Wolfspeed, and we look forward to catching up with you on our next earnings call. Thank you.
Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
