CREE - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Cree Second Quarter Fiscal 2018 Earnings Conference Call and webcast. [Operator Instructions] I would now like to hand the floor over to Raiford Garrabrant, Director of Investor Relations. Please go ahead, sir.

Raiford Garrabrant

Thank you, Karen, and good afternoon. Welcome to Cree’s second quarter fiscal 2018 conference call. CEO results McDevitt, of for XXXX. our report CFO, fiscal Lowe, our on the Gregg and our Mike will year Today, second quarter note the GAAP measures financial in our presenting and Please and reconciliation section is will posted of release today’s website. in a corresponding during Relations call non-GAAP the to press we that Investor results be our other about include business outlook, make forward-looking may call. the statements our forward-looking presentations during Today’s we statements and uncertainties. subject are to and numerous statements forward-looking risks Such

today SEC differ cause the in release, release noted press could Our that mention and actual the filings important materially. factors to results

During of the so to that ask hour. one within to analysts follow-up one has analyst limit question the opportunity Q&A themselves session, we each ask one time question allotted and a that our

us call. please have questions, If you additional after the contact

I’d turn to Gregg. call to over like Now, the

Gregg Lowe

Thanks, everyone. Raiford afternoon, and good

discuss update I'll more outlook. results, For an provide detail briefly strategy upon we last QX quarter. embarked which provide After and regarding today's our our QX review process on Mike I'll will that financial call, the that, after

top to the our range, at and within and Lighting upper Gross for range. were our target results, our LED. our expected margins strong of of from target revenues end QX good LED. revenues driven exceeded Wolfspeed for Wolfspeed were the moving demand our range, Now, by end and slightly below

significantly, down quarterly but it over utilization. more to end quarter. larger outlook reserve. at a range, to increased range, now the detail margins results been than reserve turn warranty for the provide primarily of gross of at next was of EPS factory the Mike and our top due on the and the have warranty lighting exclusive lower to were I'll low While would our anticipated end

Mike McDevitt

financial Thank measures I commentary with is which be results consistent you, our Cree’s on how on management will non-GAAP statements a internally. basis, providing Greg

reconciliation GAAP. other provided prepared release, financial corresponding on to should summary companies. this of to, be not results for the with are GAAP to and provided our not a accordance key may of supplement information with non-GAAP non-GAAP statements press call, be However, considered the measures A in accordance by comparable all and information Non-GAAP substitute not in mentioned a other with historical for the on is in posted along our periods non-GAAP website, GAAP metrics. information

revenue loss the a XXXX, million increased $XXX the at were end $X.XX were of X% earnings target end which our low to $X exceeding our For the million, quarter of targeted or range. loss share, second sequentially range. of upper Non-GAAP fiscal a per

earnings certain Our include for quality GAAP during and non-GAAP issues additional the products lighting quarter. for warranty cost commercial identified

costs, been and warranty share non-GAAP $X estimate. $X.XX earnings or $X.XX call additional our these above million per would first the Excluding have

exceeded a share, $X.XX GAAP which million were per $X.XX Our share. $XX or to target earnings of $X.XX loss loss per range our

Our the to were net factors Lextar the $XX of re-measuring GAAP benefit $XX results were million in value million and the a of fair investment gain tax that A our following our tax federal US we in which repatriate that to future future. by tax choose reserve potential the foreign XX% new a rate, certain for the should to withholding cash balances partially liabilities tax on deferred cash was US not after-tax higher targets. primarily on due in our offset foreign included

XX% fair acquired based of amortization revaluation on by Wolfspeed per income Lextar diluted quarter Fiscal segments compensation, revenues our no investment our share year net value non and profit as and the allowance and non-cash were $XX valuation to for targeted year our GAAP tax was increase, our reportable foreign XXXX range. of second repatriation US tax tax earnings deferred which sequentially gross and from was $XX were million the overall, or our over offset other net excluded items. revenue intangible The Our follows. and has stock tax, impact. of partially US owed - earnings non-GAAP grew liabilities, by non-GAAP above offset $X.XX million, X% therefore

the in million, capacity The to and aftermarket, decrease basis LED revenue target. wafer X% and factory $XX for year targeted decrease. sequential due sequentially specialty $X included LED. for utilization. our $XX $XX XXXX, reconcile strong and in during to and on resulting XX% XX.X% gross Non-allocated range are identified the $XX to totaled million XXX a lower profit to million to profit fiscal and for factory sequentially profit non-GAAP gross the commercial million issues was the margin, were XX.X% expenses QX. by gross the for primarily XX% activity to a of sequentially were sequentially lighting million, to sales general The screen, achieved was certain and were sequential front year products, grew targeted and at profit was of quality higher in and up with margin, with less factory North gross XX for the line than - from were production reserves production. points due sequential end recorded over quarter, American for the costs some million, and target. end Non-GAAP was down revenue spending our to gross declines at upper little sequentially wafer XX.X% than managing our forecasted, applications. second warranty chip range. a gross our our additional higher quarter and due our While additional Wolfspeed Commercial cost margin. we variable litigation XXX to margin Lighting cases gross Gross managing a than targeted, basis margin points $XXX for flat million continued the operating revenue primarily Wolfspeed X% points LED million decrease. IP was lower which automotive down a front despite X% wafer QX constrained capacity we decrease target, margin, upper products at year products between lower primarily over delayed our was $XX video a of Gross weakness compensation in to lower year XX.X% market. end lighting XX% demand basis end that was revenue profit line Gross a as in $XXX decreased exceeded between due was Consumer

tax rate lower Our range. US due fiscal our million, X% lower of non-GAAP loss primarily for taxable target $X XXXX, tax lower of to income. rate a the the We the and was was end operating which targeted non-GAAP US at impact now new

million to created divided rate non-GAAP tax million million adjusting benefit non-GAAP yielded a for For XX% the $XXX tax our cash and a QX, when of borrowings, the credit. million date that $XXX the year $X.X rate of the a with on quarter results the $X.X the by credit ended quarter, investments million outstanding sequential $XX we lower of loss, quarter. line end tax in net line to the had pretax increase. We At of

from second $XX $XX flow million resulted operations the million, cash $X was quarter, including was During expenditures capital of and million. cash which in patents free

options exercise of million received in quarter. the stock the from $XX employee Additionally,

exceed focused Wolfspeed our business, remain priorities our on products demand in capacity these for as capital supply. expanding current current ability to Our

target primarily capital demand. a $XXX continue or forecasted million we fiscal plus expanding For customer spending being fiscal million minus. to plus support negative target cash we minus, continue of XXXX to Overall, flow or by capacity Wolfspeed’s driven XXXX, free $XX to production

capacity initial Wolfspeed with power previously, of We're several come were QX. RF over in intended forecasted came capacity and customers end mentioned we tools next external the from additional free As flow starting support online calendar for the where the target our is wafer on exited as negative exited set calendar to QX. our target XXXX. due the XXXX, substantial The years. fiscal by to to to cash the accelerating plan wafer double investments capacity by the fiscal expansion for material to with of power we plan capacity We double on our end growth XXXX. This device capacity is opportunity of device also online

gross could variability Day days of September we days end our from seven December. on outstanding the some have at Inventory declined anticipate hand capacity, utilization initial in this days Wolfspeed to production end As decreased that December. reduce at two the new days and yields from term of margins. ramp days we XX September XX factory near may our sales we to

inventory Excluding the days increased inventory effect reserves that more as warranty have to would The LED the inventory additional of days. sold, goods to lighting Wolfspeed. focused front wafer production we in cost reductions our XX decrease relates been end of

more due LED We target minus sequentially, being target holidays. segment Lighting American revenue a ramping wafer revenues to to We Year’s to revenue gross the non-GAAP impacted lower or based days. to favorable down near additional to starts XX mix. lower improvement Chinese revenue $XXX Overall, XX% capacity. despite on new utilization. due normal margins Wolfspeed to wafer Our product North or million be improvements margins targeted company plus with XX% remains a lower LED following to of New targeted lighting inventory QX due have plus seasonality in QX plus target minus. primarily sequentially and timing up reserves, more X% or capacity be the positively sequential Wolfspeed of continued target market Year, outdoor softness. New targeted gross We margin by trends. product primarily mix, lower seasonally term minus come Wolfspeed online. is or to associated warranty higher to factory and Christmas cost million, for minus plus seasonal slightly will $XXX sequentially The and margins range the cost the as due XXX XX% revenue

or to $X QX is million than be QX. We minus, $XX operating are non-GAAP plus targeting which million higher expenses

target target costs, are operating $X offset and We which by to million to delayed costs, targeted costs. includes related be a net $X target non-GAAP X% $X.XX and spend million diluted loss variable QX partially non-GAAP loss IP per non-GAAP income $X or of to $X expense be operating a a to incremental share. trade $X.XX between legal to rate income. Wolfspeed tax sales we profit the QX million show effective QX of loss lower Our to million income R&D We

excludes and compensation target items. non-cash amortization, Our stock intangible based non-GAAP acquired other EPS

and the a Our on now QX environment. overall factors several targets back competitive I’ll factory including turn mix, execution that to discussion demand, are Greg. vary, product could based

Gregg Lowe

power, joined many company world months around And very employees. at excited Since partners we're ago, things carbide says to doing excitement going I've There Thanks, gallium away time there to forward. that where from our products, businesses of each customers, more come as for meeting are very we and I've prospects RF, for Mike. as with me a are upside but Demand well opportunities there our remains strong. same few the improve, Wolfspeed meaningful even been well, silicon and the from today. which our is I stand the nitride about

sets is Daimler elimination of with Ford, introductions We're million X billion to substantial Our electric for strong to silicon our release the in well the bands position capitalize performance technology the RF large and China and nearly BMW, XXXX, at electric coming of gallium the announced meaningful of to of services, us commercial new Volkswagen, over spectrum the prevalent opportunity silicon sell platform and the will for of versus deployment, the positions for of electric carbide gasoline are the vehicle. gigahertz, XX announced coming number extremely satisfy scale a more Likewise, the In complete silicon investments heart that vehicle so, have decade. investments the have Norway a nitride have coming the those allocated on electric being electric between transistors. stage months primary nearly and in and in demand giving in additional timelines for early level in years. recent a radio in announced about industry’s gigahertz made roads new LDMOS auto or Collectively, vehicles, traditional stage business diesel needed transition have over XG vehicles. standard world, our past decade. across opportunity announcements XXXX. become X.X that EVs cars. times the technology XG this to transistors significant leadership Toyota, as they the France, on trials GM, $XX the target six GAN us in over the able better the vehicles and carbide X seen UK the

for types leadership believe in have We applications and will of marketplace. accelerate distinct a position the in these its advantages GAN the adoption

in of revenue with is encouraging stable levels LED terms pricing. Turning to operating trends and the products, of design at gross base and margin, fairly business activity

LED leadership, and to only as our demanding differentiated power provide are that but our technology architectural We not for more value highly high our technical lighting. focusing energy also on such ability spaces applications solutions

years. was years design Our on that wins few off nice over automotive than Based could $XXX and to a existing traction. million $X grow seeing the kicked a initiative, to LED the to market in business less in and San'an, from LEDs to is opportunities address which LED ago, design sales pipeline, is Cree internal annual million this CapEx, Venture, JV for mid within differentiated focus more allows the on three us developing markets. power with our five with allowing low OpEx, while specialized us next larger development resources no our

more development been product behind dedicating fixing resources and capabilities customers. business, now improving problems OSQ-HO of we've our have sales testing to significant in new lighting generating new creating We approach and and products. to products. an been lights, place, had With supporting is KBL We're thorough the several that warranty and of have of C-Lite and great like returns quality higher to able launched are lines amount these and been our close has High engineering reliability us. to area year new great momentum. more stack getting product recently our resources issues and a that our development flow in We've new refocus processes We've For them Bay, are processes the that robust. about past

are margin All of products these accretive.

the the technology number ago. Our year our XX% always commercial reps the Customers increased rise, we've a on liked is in innovation. more our channel than selling of and by products from presence have and

positive growth this products, we process, moving on improvements the expansion in for traction the With a the vector the development re-establishing the of are a new position and into channel, business. of

we a and areas that front, review. review quarter returns a completion with growth the announced We nearing both significant company's revenue us goal shareholders. we of for are this progress determining therefore that on and in better of last would drive implementing the opportunities Finally, strategic businesses, which of gave the were best our for profitability, made and

position before through, few accordingly. to have. good we’ll turn it of to like in operator We I back a be believe to have more and any questions to direction update out end you With a things this over to the but the roll I'd we'll work may quarter, our that, take you

Operator

Thank the line first question from Shah with Instructions] Bank. Vishal comes you. for Our [Operator Deutsche of today

Vishal Shah

more Thanks profile Greg, for range. taking to wanted my About question. Wolfspeed. above just year in ago, in that better margin - now understand and XX%, you're in your the a year XX% were XX% a than margins the business

it Wolfspeed, two you. do between Are how goes, or of it’s profile the as that and then at in we OpEx versus So the your percent term is products, ramp as Wolfspeed sales businesses? of far range be is OpEx the spending as the you is you lighting? in looking gross intensity margin you should more as R&D far concern? the longer as Thank think And

Mike McDevitt

Vishal, this is Mike.

your question for answer you. me Let

So last is XX% you keep might Wolfspeed back have year, we - for when the business turned GM, were the in to depreciation. holding you mind go one thing sale, above we for stopped margins we off if

improvement get an utilized ramp rate you is how depending the - initial year So actually fully production It - what back will release I a I bit not margins that added yields we're from that way. the say, the turning XX.X% we if look much linear think little depreciation year now, year year actually to a if you out, with press over would on. The standpoint, at on turn it's came as as go all in. going won't our we capacity on capacity, lighter, that. be new over be

that the near term the would course term XX% margins into improve have we'd expect able time up we'll So longer some get over to be range. over but variability, we the and of that them

bit we're that OpEx, profile, the say our as mix as we've as R&D as development, device new heavier of into - models. build well fact development, part we're as would - a millimeter overall XXX of those little and a working substrate we On should sales factoring is I the on percentage Wolfspeed

Vishal Shah

Thank you.

Operator

Thank Irwin of ROTH next line the And from Craig with you. our comes Capital. question

Craig Irwin

for and evening thanks my Good taking questions.

actually about I key a look China. businesses term So lighting components. want to there try and given Cree you long as in advocating underperformers, investors. out assets the products first Racine facility you them you also components, that outline people these things long with are people term dispose of common ask over thing in retain see is wanted of do Can have for point And you should long discussion term A specifically to as that lot see points and LED there term? the of value people that closure longer of can maybe the the would we value at manufacturing different that

Gregg Lowe

We’ve and we're strategic complete obviously with quite not that yet. through review been going the

with this complete rolling all that and out you. as we'll of quarter this be to will that We be well quarter

a What a we're was capability? into that. get for we're consolidating, that those making growing will in Were ready of market? quarter. that we be we're but think think could don't good roll to so leader point out, I pretty we where etc.? progress that. and markets? each that ask ourselves bit And be on of now questions. unique right they And a markets, more the clear were I you'll shrinking, at this to cared several really analyze basically the insight we value What the review focus But product of the differentiation markets had little or proposition dynamics was So What that that? about business

would being that two month able little that out. we're a you on if So to what or is, off say of bit, roll just within hold a I

Craig Irwin

Thank then And discussion of Great. sapphire up, these about lot follow there’s as you. days. a a

a fixtures a components percentage it Can your around right Cree’s us LED the sapphire final What and handshakes business. if couple then of substrate could over time had the that’s on was maybe guess fixtures last or being is business comment components and final LED agreement maybe for the and as negotiated a in number you this last And was LED give mix So with mix relationship with material inked. either lighting your of place the were I you years? taking where lighting the color or the just of has San’an Lextar. years how year and chips used changed of

Mike McDevitt

So break Craig, from We way this carbide dollars now get where at and our silicon R&D provide sapphire can is where out paid and is the don't for this versus look but where Mike. think standpoint. we our about is we're spending value mix, that we investment dollars it

And So light it applications that. somebody where can in will if specialty then the moving model tend to overall more CapEx as more type is we we of can forward, it. we’ll pie and thinking be business do leverage else’s source of do a those LED

agnostic that stuff can value it, make and we’ll our development for good get the dollars do manufacturing and margin. spend areas So to will be we're we we do how our where and that

Operator

you. Thank

Lee Our of from next the question Sachs. comes with Brian line Goldman

Brian Lee

on given taking your the familiar with Hey the the Maybe guys. first, appreciate for autos market background. opportunity. Wolfspeed, you’re Obviously around super Thanks one it's questions. commentary Greg

has competitive versus to maybe to the a historically Cree up cycles think others bit EV of what's and in respect seem with and how is from where a the years device really And help have for to then similar like going for respect silicon been a you Just just context players had today. power various power and focus how with content perspective? wondering, company and application traditional I changing market here auto that after positioned us lot semis be throughout that's more can clearly carbide stacks the opportunities. the Cree Infineon landscape specifically,

us historically kind up have competitive landscape the application see stacked if you level where new can wondering yourself of in and spectrum. you you on just where and set this So guys

Gregg Lowe

less a because you with that distance in is get translates think of to in I the that silicon interest gains for going the into you're space, smaller that primarily With battery the carbide, of of same efficiency the of a amounts of ton greater car, amount amount distance. and put - battery or it generating either EV per

metric you if So it's will. a pretty important

can either the load amount lighten silicon the and with the batteries carbide same of capability. You or

different a all been on announcements has it meaningful vehicles. mentioned of about I So the impact have various electric of efficiency that the made.

passed as space. that of more We have to different EVs couple in the think ways. and this space, of role play mainstream. in supplier as moving as clearly supplier “tipping a One a a traditional this play is are into point” in I the the players in material chip this many well

we're to actually think. take I of And ends both advantage so poised it from

X% I that. cars you be that to less been silicon for going the look indications XXXX, billion by predicted think billion market actually a size by is to in cars are higher of $X opportunity at it's than electric, just if the of just and than has market X% This carbide. if the $X the world, all

So it's pretty giant a opportunity.

and pretty space growing growing the I think capacity point. position we're in at connections the very of the strong business. is got We’ve and of the capability players good very, hence most this with our this

Brian Lee

Okay, fair enough.

pricing or at how you. is And be the can in spot market, point is a you still locked wafers. becoming that visibility seeing the growth to the and a tightness in tightness or both. or whether wondering area that given silicon on that's go much opportunity, as business on carbide might just Just your Obviously the contract Thank on quick a this all here follow the out contract And in of one volumes strategy, - that up based market? you you're well. is have on market comment

Gregg Lowe

so in a this automobiles look the of customers, DRAM a buy at industry, it. that. our of Certainly been don't kind They’re I've year - well times, quite not customers. know associated of kind a thing with We've our multi-year, beyond requirements they the market demand as and It’s decade month. that auto five spot met half a for there's frankly many the where talking and significant with next especially over They Yes. trends go of forth. you about as and most

you of of spot it deal. kind a definitely arrangement think I of should think market So term any longer more type than

Operator

line comes with question Coster the Paul from JPMorgan. of next Our

Paul Coster

talked is Yes, just or of a to Cree a restructuring under thanks. I'm scope remarks summarized the you of Greg, little today going it. bit in as about tomorrow? assessment back they pretty of Cree It how in the like had the where segments prepared situation. three the sure Or not strategic sounded completely of we constructive all the is your you of Are still at end, see we’ll see way. I strategic understood review complete you sort out complete businesses here? and then scope as terms

Gregg Lowe

Well, of we little work still on a bit have to that. do

then obviously of we'll next later out half taking we'll quarter this said, later out the quarter the some will will with take an decade to But most and position We’ve an over that of going the likely feel I stages form at. update to And quarter. be on that feedback and to some will in there decade. be It I and we're fine based board I everybody of And company think that. to this the will be form sort input the as got tuning we're we're them overall be. and the of it in kind the scheduled strategy. in that a pretty we've give as, analyst update roll a some good will Investor an be what describe of as to - I final roll direction where our give would when that Day certainly it sometime

Paul Coster

then route still over Okay. carbide and the there silicon quick silicon from competition Thanks. technology? on based kind on? traditional and of it for up forward now follow a so the And Is Or inverters preferred is Wolfspeed. is game

Gregg Lowe

physics the it's a and just for think basic of traction excitement silicon I and simply carbide, of we're it. seeing lot

You using to in efficiency just business. going nitride RF Like using efficiency to better silicon are get get going you're carbide. better gallium the

physics being be are continued is both capability nitride. gallium going That improvements said, have there's silicon that performance going them So improvements, of standpoint always in than there silicon, from just in just to improvements silicon. to be a carbide like and better

you moving game seen certainly little is we've point I seen, call towards it, as seeing, that it as that. And demand we're all probably might over that prospects silicon certainly customers, tipping excitement our carbide. longer the So a before, from of the a term and described we've but strong, of the

Operator

Thank Kumar you. Harsh line of with next Jaffray question the our from comes And Piper

Harsh Kumar

kind questions guys. on and openly necessarily are And Greg, us you Cree it sense of, is? job those and possibly the give RF targeting Is of Hey a of but applications? kind Wolfspeed is in give sense time the and how to talking that following Yes. quick that compound of hope you're question, not up also they Two first also other silicon what applications. capacity business double then I all .first now believe of could the you then do? technology, us hopefully the XG this know constrained around about a I are But adding a previous semiconductors double would can again. maybe guys

Gregg Lowe

Yes.

certainly We’re capability. both capability the processing about, working our as constrained tails the expanding Mike semiconductor talked and we're as the the well, capability and business wafer off doubling fab

to making we working forward, now. much need and expansions anticipate we So pretty that, both pretty those around the substantially demand we’ll beyond Based continue that. of going clock those beyond the on that see are right

of for growing. kind we’ve looks continuing expand products our seen a in consensus chips Relating of the be customers demand heard that the versus the top next pretty player we'll the actually the will estimates, participating to seems be So then gallium been in as the our of in that say to while. robust gallium base to on be a continue suggestions stations. base customer I've for a little actually in would GAN player nitride. a actually partners And supplying various There I've who XX%. for of products we're RF different different nitride chips to Based the work the a from towards frankly, quite lot decade. customers but business that top that supply were moving going with to heard I none certainly capacity base LDMOS, projections We demand generation for terms to those area. coming are I've station percentage RF, below the be customers, in

And gigahertz. of above to adoption six all LDMOS. it for versus X.X GAN they've frequency XX% back spectrum that been So goes to

just - efficiency, you of the at You out power the this point. the and can't get performance LDMOS

feel that. we about So good pretty

Harsh Kumar

follow And up, versus my chip you breakdown the then business is business, Greg, Wolfspeed? I ask versus a can your - of within business give wafer sense your what me the external your to for

Gregg Lowe

Harsh, all we up, our both device and growing are but break that businesses wafer don't nicely.

Harsh Kumar

it. Got Thanks.

Operator

Thank line you. the from Baksht KeyBanc Capital Markets. with comes of Please And our next Daniel ahead. go question

Daniel Baksht

your with be following the comment sequentially? backlog? end respect capacity Wolfspeed, your your whether you expansion Thanks. at full you capacity Could backlog, think do current stronger of on you'll to it's XXXX softer, And at with Thanks.

Gregg Lowe

the different capacity current is say we a backlog are expansion hit would in demand. to the I we of that of the what various I'll components anticipating complete our let continue the second. I Mike factories, the clearly But think the on after here growing based need

Mike McDevitt

very now. overall for right backlog, strong is backlog our Wolfspeed very, And

that of where Year’s. a New New it's kind then in but and advance of our We the week have And and lighting the business, quarter including in as think of, was basically that's on our Christmas similar we timing pretty in kind Chinese to of backlog Year. good quarter were last between range first some of LED

then. business light So

Daniel Baksht

then And great. the a question Okay, margins. lighting quick on

through compared to continue that increase to in Given year, XXXX expect XXXX you're the do fiscal halfway you fiscal now?

Gregg Lowe

So pretty job did through believe exposure this that of we the we a good the that we with sizing went quarter. items up warranty

the improvement in So if put we more this range. margins the that can back we And of for get we think guidance, at there. think upcoming you look lighting And the quarter. low a of basically from normal make some would we incremental kind into kind XXs

Operator

the of from with line Colin comes Thank Oppenheimer. you. Rusch And our next question

Colin Rusch

you any Thanks give sector? revenue wins. congrats so the booking and Can the here much, should translating and terms cadence design of those think you of into of how that wins rollout sort that in we in us some these on have about auto visibility design

Gregg Lowe

historically And now system obsolescence going agencies these goes that last of the to of various given different when five anywhere it of the quality on, two there. to earlier, production. years. of Cars is a that impact that. timelines per The electric clearly on what that of fuel is a five is quality drive government talked typically air two had is of from let - and second. when the automotive and a would over a improve citizens much on oddity huge see GAAP haven't is we've between information type Depending what to say typically vehicles. government the as acceptance can a to design the thing cities based for I'll into seeing big more for we're design on terms an improve vehicles years. I life setting I on you Mike what it's have wins is with for deal. opposed the The streets, to a normal of need right the standpoint as their their a fossil about to from certainly growth The be win wins se. on in design you talk Well, we that there's for But that

talk years. China electric of over seeing about a You’re next terms vehicles increase couple of in the XXx

So miles it charge, combination everything The multi cities up hundreds the reality nicely. aligned per a a citizens, really reality. electric is I acceptance real to silicon for for demand agencies standpoint, their good carbide the the technology, is from their by a being have ability to significantly lines real, of than better clean customer make based run it's pretty here, us. I think and proven get vehicles up the and is silicon The efficient that of makes of think things just driven moons government a for more lot and is current trying

Colin Rusch

could then charging a going term. especially over with you're side Obviously, on the voltage working focused near want give the to the you just well? rollout moving of serious of about Great. wattage cadence talk higher us applications. times think number how you're as bit And critical, charging, higher a are that you charging about the But customers if charging are the about many get that detail And infrastructure? towards and could doing we shorter the more opportunities to on as if be over have road sense of on you

Raiford Garrabrant

right, are Suffice with, we anything Hey, working of of and of world. Sure. of we're say, lot on, Certainly it's that we're an activity a and charging hard to design lot announced in you're specific that's the with working design But at a that faster our to carbide to terms we who customers something Raiford. designed silicon and is something respect working get into around working we're a with Colin, infrastructure. application products wins. good interest lot there's there's around that haven’t

Operator

Edwin And from our the you. with & Mok question Company. comes of Thank Needham line next

Edwin Mok

Great. Thanks or into capacity, have like play compounds On that question. wafer supply seen existing from has or given supply epiwafer, silicon tight, adding competition been carbide new either for coming even or taking other this my wafer market? you coming

Gregg Lowe

obviously sure. capacity paranoid. well, and that to Well, I on doubling wafer we’re over Grove the we've the for demand you have where the the much the that that capability seen of Andy meet what into processing that I our said And would The forth. this think we’ll next say continue industry, about to the very so is supply extensively talked it fact be foreseeable and We've and growing for increasing and demand future in year. focused ability demand

to are. that met everything, with path to you the but hearing is I've aren't the forward. going always being So up need certainly there said, about I'm we're need That customers ramping continue capacity. they and alternatives, we worry what best and Not any us from them of tons

Edwin Mok

for in supply once to epiwafer customers easy kind you locked switch of got it Is or is it qualified? pretty much

Gregg Lowe

takes the street equipment you work set and silicon hard think the the buy experience. of some and up years down I go can do. Well, not to it's different - is six with There to a carbide thing vendors line. like It

can semiconductors, you normal can do do that. in what So you absolutely

lot of a how. takes this know So

lot at of in. the you use knowhow our that carbide equipment stuff build of look that If silicon take customized have a kind we to a we platform, it's all specialized

that so difficult. makes And it

long they a going testing, before many These into Christmas base vehicle So attribute context, knowhow. add of somebody year to particularly the a automotive go products that's sort at the a summer substantial that. stickiness a it's in associated would market. once is of of it that that very These winter in supply kind switch of And isn't those extensive that into times platform, in I suppliers. every that that with through there's to to get very are of market the really the sort are both swap agreements. difficult And But cycle, that of they you're sort through growth term switch platform. that it's difficult because the to has cycle, has kind driving a a vehicle automotive the market -

basically in be going I this for customer designing and for testing prototyping a So used the engaging it's term. it's you with approach win, up going to in type a and - to decade. for forth. when you're in when ramp where on finish platform, a would designs you're what a through decade. you process. process good There’s about to There's and there start time, industry is long I you partnership long I've so a And they're been really say there's of a winter process. when then the There’s process, full that, There’s from production. the go the a

Edwin Mok

Great.

option LED, Just the on on mentioned. you the other LED that quick follow up

more mentioned you you have that that the than million. you was have in less around XXX think the you that come? you just think still require is it is just three as $XXX won a design to I’m large lot lot a can we needs work - number trying do is and or do years, where in the that wins wins grow that? I’m a to five I stand revenue or more as that million something already that much curious, million to books is that understand already on

Gregg Lowe

started Well, ago. we this couple prefaced saying, recall, by activity this I of years a actually

in on automotive applications. light type capability three of developing mainstream the ago think focus the LED a where the and years I high was high daytime running team quality it put decided be capability, could headlight to reliably that

wins with do the years engaged already customers to have began credit so team, we've the And Design have we effort that wins. already ago. - of and been they several design

think this ramping year. I as products, of We some are those as early

number not still there's years ago. work but not it's We do, So - this starting to from we're started a zero. of

subtract fits with talking normal to years go very and about the so so ramp that three of now, nicely you five automotive. what inside you And years in back was three if to I from say earlier, you

Mike McDevitt

win on last production daytime then or we summer design supplier. our first our a first And win running design one got lights tier with

turn too. of forward of a then got we working go opportunities locked kind we've on opportunity lot headlamp indicators, is in Next but as

Operator

Thank you. [Operator instructions].

comes question Capital. Williams next from the - Motz Cindy Our line of

Cindy Motz

follow just to right. little question. up for All my I Thanks bit. wanted taking a

tax like those areas? reform about could the did a industry, then getting America on you in just said weak. you you anything bit overall that So mention little any see of thanks. still little by going had but seeing a think about the And life upcoming signs bit was quarter, that customers You stimulated say forward, you maybe North Are I in there? your do two, different

Gregg Lowe

Dodge of recently shown index single ’XX. - economists growth So recoverment the the rest the are non-residential it - some of on the low through calendar the has through of lighting rest saying hey, the and digit kind construction then side business, on

over keep watch have the have that's think this that quarter weather. that. demand. a of law, encouraging We’ll have winter to Obviously you tax with seasonality we Relative with, So outdoor those sign. deal to you little bit spurred normal the

I of quantify think that business to it's current it's We positive, we’ll term early hard think will drive. the a - but is how net near much to tell. kind impact

Cindy Motz

gave a good follow you quarter as next talked guess for margin. up, I through information then just the Okay. And on some and

you let’s low and said margins, on So maybe it, a if might to I'm then XXs pressure Wolfspeed. say little with we lighting the looking if of just at be there bit get

that trying if LED that think would just up next quarter, we're that a get like right? imply at So to a XX% Is would the to looking I then would overall? that margins Am I go bit correct?

Gregg Lowe

that exiting we of my is Wolfspeed LED the production position better ramp on On of Wolfspeed be Yes. bit, we’re by some be deals a in commentary improvement both driven kind of but QX. that kind a initial as to would that expect Wolfspeed the on little lighting, some that capacity and down, new and

running And we then on see it's volume due LED, quarter should have that seasonally QX. improvement because So typically the you're in just less lower through in we this factory.

Operator

up And a you. Jaffray. follow of our is the next Kumar Piper Harsh from Thank with question line

Harsh Kumar

Hey Mike, I just housekeeping put question.

about want is rate think wanted going this the You us or year? March just quarter I next and rate. mentioned X% this the also for to June if tax you forward tax next X% understand then and modeling to year from

Mike McDevitt

Think ’XX. that quarters. a fiscal rate is March as X% tax and for of yes, the So the June

if longer range, range, grow to when little - the and that's at it'll bit. up probably would over a specific increase the ��XX, rate think US it don't I I fiscal guidance, but of over have then business And mid-teens profits go year, what the would a thinking if start accurate. we - tax looking approximates you you're be. the as directionally continue longer next

Harsh Kumar

Thanks guys. much. you so Thank

Operator

we follow of line from and you Shah with a Deutsche Thank the Bank. also up have Vishal

Vishal Shah

taking my for Thanks Hi. up. Yes. follow

the those Wolfspeed business. you case, more think do business does looking LED and of make some on together? segment, that if there’s LED think that’s do the it synergy better capital the think Thank just to or LED with returns? you. businesses more Wolfspeed between any then those invested think of returns you in that lighting carbide on LED do capacity And any has production return Greg, business? especially relative comparable you to there’s auto Just, the I two relative the opportunities, auto to sense used you there’s kind business are segment, But allocate of the you the And the segment? silicon to think understand capacity Wolfspeed kind the do that’s keep at - to Wolfspeed reason realistically, just the do

Gregg Lowe

would invested or returns I LED, both those capital. say the on of for Wolfspeed What capital relative are automotive way for we look invested the attractive return business both those, on to at

I LED that focus CapEx light the think as mentioned earlier, our running we on business, going have forward.

existing utilizing capacity. more it's about So

and other kind quarter. thing we we The that relative of kind LED And exit already of started - use past this with LED best the had to revenue and talked balance production. we've hit make still that that, years as about to able choices QX, to are in between we've Wolfspeed several

the kind balance advantage semiconductor all of of can take look make front us. it one of we we think that factory have that at we choices to as I in So opportunities and of

Operator

our concludes comments. floor the to any I'd question Cree session. that for And turn you. over closing back like and to answer Thank

Gregg Lowe

a strategic as coming for your but want of I much. in letting you quarter the that's company we've for date when we’ll and sometime it. be very our look everybody updating the got on direction this the be going to as you you for thank to Well, on soon in know quarter, Cree. interest Thank thank you our in and forward participating to call, results also updating you We

Operator

may Ladies conclude you conference. great and in for have This Everyone, a gentlemen, program today's you the disconnect. and now does day. participation your thank

Wolfspeed (WOLF) 23 Jan 182018 Q2 Earnings call transcript