CREE - Earnings call transcript Q4 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Cree Fourth Quarter Fiscal Year 2019 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference maybe recorded.

I will now like to introduce your host for today's conference, Mr. of President Vice Gronbach, Investor Relations. Tyler may you begin. Sir,

Tyler Gronbach

will everyone. Thank call. fourth Cree's quarter and of Neill Today, the XXXX. results afternoon, you, good Welcome Reynolds CFO, quarter Cree CEO, fiscal Lowe to on fourth Gregg the for Daniel, Cree and report fiscal year XXXX conference

with consistent not be results measures management as Cree's comparable posted internally. A Non-GAAP Please for key will financial reconciliation financial in information other section of the supplement during how our presenting along GAAP statements GAAP. note most provided that may a today's should the in companies. with comparable Investor with results not GAAP in to a non-GAAP Non-GAAP accordance other directly Relations accordance to are non-GAAP of and be be website, historical summary to we call, measures and which is by considered metrics. our not results and prepared with release substitute is in information press

discussion statements Today's statements Such about call. and outlook numerous the during other business forward-looking may our make subject and we uncertainties. forward-looking to risks forward-looking are includes statements

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

possible we as the during follow-up, one question today's so you During and session, would questions limit call. Q&A one as accommodate that that ask yourself many to we can

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

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

Gregg Lowe

target We non-GAAP earnings per top Thanks, our end the delivered solid with range. good QX, share Tyler a and afternoon, updated performance everyone. at in of

continues partially confront while the the concerns. quarterly trade due our and a top very Our LED end of revenue environment, posted the at Wolfspeed tariff continued to tough range, to business business

And XXXX perhaps challenging, And while quarter. execution, our beyond. QX in of present headwinds financial is our results with current and and the very the fourth expect some I'm additional we them in issues environment macroeconomic geopolitical impacted to operating pleased

our and And while engagement on bumpiness, seen technologies carbide silicon as mid- near-term more there as as is potential customer ever and and I've bullish we may are GaN be some it. today of strong the long-term interest

I'll for and Neill quarter. to some financial outlook the over turn more to results next on color it provide

Neill Reynolds

Gregg. you, Thank

fourth midpoint year For year, diluted in margin better per The net our XXX Wolfspeed due to quarter fiscal business. XX.X earnings decreased continuing $X.XX XXXX, revenue or of the non-GAAP of target updated income but over non-GAAP gross operations from range our continuing exceeded per X% the million, expected from operations share million of than share.

from Our of million from earnings per today's operations fourth non-GAAP non-cash share convertible on factory costs, $X.XX XX.X in other notes, restructuring optimization compensation, transaction-related items costs, quarter earnings outlined accretion and continuing intangibles excludes of tax acquired net stock-based amortization, release. diluted expense or

margin in and due was basis of industrial applications. profit non-GAAP an increase end better XXXX year fourth products for automotive sequentially XX% XXX down reportable was gross our grew the high for our revenue our follows. the segments million, X% gross and and XX.X%, impact over to was Wolfspeed quarter at were sequentially. quarterly which but softness to at as revenue than target range of Huawei points power Wolfspeed year XXX

the margin gross overall our points reconcile million are totaled X of costs XX.X% primarily with global margin continued was during Unallocated company. in a XXXX to fiscal LED basis operations or uncertainties. XXX sequentially, XX.X%, to profit XX.X target our our million quarter included non-GAAP trade costs gross to products the to revenue from for total utilization. million for in the and was continuing declined due lower line due factory gross quarter XXX but down at LED

million. million, from slightly for of expenses operations operating XX were QX our continuing Non-GAAP XX above target

operations continuing midpoint in at at from of line income our million; our was non-GAAP was targets operating X.X XX%. tax with non-GAAP target at rate our the Our

operations and invest capacity of growth quarter, were business. we million fourth million, resulting in the continue from During capital XX was expand cash for in X as our to free negative to expenditures XX Wolfspeed cash flow million,

We ended with sale convertible credit, X.XX cash our our face investments, million. and of zero with a the business, Lighting quarter proceeds which the line from billion of include short-term on the in XXX value and of balance debt

future priorities on remain expanding focused business growth. capital and fuel allocation Wolfspeed capacity our Our to

of For XXXX, for approximately targeting investments million, fiscal capital million. fiscal investments XXXX, we of XXX reported we XXX capital are

days For operations the for inventory at XXX days in quarter, day XX and outstanding came days. continuing operations was hand continuing on from sales

representing fiscal of For was targets. net to billion, per operations $X.XX in fiscal income XX.X Non-GAAP line excluded which or our from million when compared net tax, increase XX% Non-GAAP share, continuing XXXX, a XXX.X adjustments, with revenue was diluted diluted $X.XX was million share. X.X per of XXXX. earnings or

reportable million were reduction margin, XXX products over is basis over and year flat revenue were product business. year follows. for segments a mix by within shifts revenue XX% the declined Fiscal point XXX million XX.X% year and Wolfspeed X% gross to gross profit was XX% profit gross XXX was which XXXX over LED our for gross over margin, improvement to offset efforts year million XXX due for to which year year. non-GAAP as grew was and a revenue XXX year million year gross profit cost which

in the LED concerns improvement half focus and conditions margin trade technology. reductions, The where markets with decrease first due continued XXXX believe The China. market cost of customers was and value the utilization our target to was overall on a we of and result year, direct our fiscal softer year factory tariff in in revenue higher

for improvement fiscal and XXX XXXX. a profit XXXX XXX of our basis margin totaled XX.X%, to included non-GAAP XX fiscal gross point costs million to company or Unallocated reconcile are from gross million representing

X% is following million down be of appears based XXX reduction government's Turning the range the to to to the quarter of revenue approximately for and expected XXXX, revenue selling impacting million quarter China, Huawei incentives the to full is ban XXX outlook Chinese to sales. X% the software of on targeting in and Wolfspeed the impact trends. due first electric are as vehicle conditions a in slightly; we it segment

Huawei, will we with shipping continue to not Regarding this and at time, Federal comply are we Law. US product

have We the applied potentially customer resume certain for licenses from received have our yet government to response. shipments not to but a

tariff approximately earlier. LED X% to Gregg revenue continued down due sequentially discussed to is be and that softness market expected to concerns X%

Wolfspeed margins We XX.X%, approximately continuing XX.X% approximately is margin non-GAAP operations segment from target XX.X%. QX at based gross following the at trends. gross targeted from on down

shifts from XX.X%, ban. Huawei is margin primarily factory resulting the from volume. driven QX, lower result lower targeted approximately LED and at a mix utilization As product sales down of by

a We approach will with We align well by more are lowering believe the conditions. as utilization our better levels inventory in as situation managing factory us taking current our this proactively and the channel. both lowering conservative and market internally

We growth non-GAAP continuing approximately our are at operations in support Wolfspeed XX up to from business. targeting operating QX slightly continued expenses million to be sequentially

around when As changes of including X from continuing million go we non-GAAP income We from target previously, to be to the million operating non-operating a shows, quarter approximately operating and operations to and of non-GAAP trial. marketing cases discussed projects, between to be million we QX IP for loss target XX have X in timing to spend trade variety expenses R&D vary quarter reasons, can

QX, XX% operations rate loss to X or from We’re diluted targeting to to and share. between $X.XX between a non-GAAP for QX X a be effective non-GAAP million tax million net of per loss continuing $X.XX

$X.XX by continuing to EPS approximately target due from non-GAAP lowered impact ongoing operations is Our tariffs. of the the

amortization, stock-based related excludes non-GAAP Our operations compensation, optimization costs, non-cash and notes, EPS items. intangibles a other from continuing convertible restructuring on accretion acquired target costs, factory transaction

the any value impact of not our Lextar include Our to targets GAAP fair and changes non-GAAP do the of investment.

are the product factors factory including on targets could that based QX overall vary competitive Our and environment. mix, execution, several demand,

to back I will now turn Gregg. the discussion

Gregg Lowe

a the continue Thank announced the of for carbide pleased silicon progress on that GaN to mega of development as fabrication state evidenced factory a automated our milestones plans significantly, expand Neill. with capacity key to I'm quarter. we we the during of Cree, and and the We art, and share by transformation achieved the materials. silicon strategic facility, carbide GaN making

investment the we and and industrial expect will capital segment. demand the We infrastructure, communications in and automotive, believe growing silicon from GaN of support history technologies represents carbide the this largest

we Automotive Supply of Second, Future goal of as to were Initiative vehicles foster Tracks among Group’s electric marketplace. new selected the the carbide partner FAST delivery exclusive Volkswagen the for even collaboration or and to VWs The program accelerate FAST initiative. is key partners the greater silicon the

vehicles to Cree. has itself almost opportunity Volkswagen XX the a decade, in launch new for great by committed electric presents which next

a and the long-term which transition the close drive fourth a multi-year industry, silicon half. making have supply $XX carbide. million, to announced our wafer in supply Semiconductor, four is $XXX the announced technology past ON now semiconductor agreement demonstrate the to year power from helping We with silicon agreement we how These total to in agreements, million this

Lastly, expertise and our IDEAL more into to business. growing of us we energy pre-lighting channel closed Industries, will our which sale of the allow Wolfspeed to

semiconductor the few and for create These to long-term position powerhouse. company the developments taken of many growth the important a are just we've in last to a quarters steps several

stations. and silicon for driven electric Recent expansion estimates billion the from more by calling Canaccord carbide major than are grow a to vehicles demand for mainly by Genuity for need XXXX, to $XX charging in the

be will ultrafast along of never levels host transfer interconnectivity to vehicles, These have a that wireless XG connected possible that of broadband data before. dependent amounts can devices massive with and support of networks been

over XX refine years and every power At GaN. the solutions to carbide be day. helping core, we continue last pioneered will and the silicon that each Technologies and we have these to

Cree’s reinforces of pipeline robust opportunities prospects. Our in growth long-term confidence our

and are top few last our GaN growth tell to silicon of some the months, to plans. key they met and carbide I continue and solutions customers with prospects, how their me our future Over

and space the is Our fill at to automotive, solar, helping pipeline, mil/aero billion, covers position $X this this stands more industrial, in leadership now telecommunications, than which sectors. opportunity

In solutions from closing, for their next silicon there a to opportunity applications. is GaN to customers and help the shift make carbide generation silicon significant

the operator section. back With that, to I'll it Q&A to turn the start

Operator

the Partners; In ask one open. please Instructions] Irwin our line interest one And your comes time, from Craig to you Roth now follow-up. we and that first with is limit [Operator Capital question yourself of question

Craig Irwin

repeat over when to months the back the like Good STMicro of orders for evening Gregg, and envelope needs are the over the like it about know, first do looks the order, ask their could on [ph] wanted you from wafer five taking next, at their to several look is outlook looks of quarter to years. know, take the we what be the ON to we recent math, or some more years. for back, somewhere know, thing XXX could next, you the be side your that of [indiscernible] close it a of if order total half know, thanks million, five And or you questions. I you needs my give four Semi, it closer

we do orders? need to from orders What potential back to that see the existing for think Or describe known power companies these to additional wafer you you how are would large community? place semiconductor well customers have additional the and investment come

Gregg Lowe

couple the linked number we've kind that so, And lot as thanks of of announce Well, have Craig, length of I that we we've is have same long-term announced the chosen question. One agreements we've not don't different them. of of supply supply say, to a a time, agreements, would a for these four you well things. other know,

things that internally. key associated you to the of is number is, us significant say well demand regard capacity. is in know, get that a agreements has we well. would sizable you of on helping it, And a upfront customers pretty curve capacity. it, guaranteed payment the companies guarantee side the this long-term couple key cost reduction One to And of of recall, a out a of What and that, as we're And teeth relatively pretty access a is a we build really driving, and to give that these in agreements. around in then a are other with advantages. know, second flip discussions with really One access capacity long-term decent is our I as couple a

I would the those in say interest very strong. dialogues continuing remains very,

more see interest to customers beginning you express, carbide. excitement silicon around know, are customers our their think more and and I

you cost we've tipping the vehicle, carbide in get. being I the especially point that way passed think I incremental of silicon surpassed a value, electric think the of using by value the

So, see know, in work continue you regard. I continued we'll think you'll worked on and this know, I And these of seeing, think deals us types being you announced. with

Craig Irwin

share maybe look over question potential of second is for product as Can us on with the both updates. My handful can silicon device and portfolio cycle Great, what about carbide we that. for quarters? as thank the GaN, update where you you the next far stand you for adjustments

Gregg Lowe

would in be tell and a clear billion I billion $X Sure, that Craig, $X I that's you a remarks mentioned you, got know, what device very the just we've about pipeline prepared to that, pipeline.

for multiple are different it's you device that dozens So know, dozens And, fact, of pipeline our these a gestation. various sizable you different, in in phases know, opportunities, opportunities are of of business.

you are, time. phase, Some would innings that in some decision say know, in quite in but also relatively are early I terms late of

have be over of that's that think platforms times customers few, XX to next to ramping are because see have make a be these because going you to maybe going coming to car you decisions and in station primarily and base know, their minus know, be, plus down lot to months, decisions or I where a going these made platforms you're the decisions are

where at, customers know, I feel real And, you a said, stages. number you know, like different in that different, I of good variety about we're of know, front. got on a you we've

it I Some quite late said the in of them as innings.

Operator

Lee question Sachs. our with from next comes And Brian Goldman

open. line now Your is

Brian Lee

on thanks subsidy. the Neill, you about that us China much I help impact, revenue you second from have Gregg, for the questions. the what's a here Huawei know the taking to you how think Had Wolfspeed’s I you is growth that what out, I how so subsidy sequentially? behind EVs you been term there implied you this visibility when to guess, here the rate on called just timing visibility in Wolfspeed. guess, exclude on then organic to, is a the this and you've in headwind. have guys, terms that the Hey, would kind first sense outlook, have of have What would trying and could being out with year, year there know of for get probably near quarter if

Gregg Lowe

Hey, Brian. Yeah.

about let you thinking idea an on So try the and me Huawei we're line. top impact give how of the

you kind the that had June the happen, their $XX the already in And some to had shipping with product and of So shipped prior updated if XX would ban. XX. of a the the But materials said, about quarter from we say on provided out, most Huawei. build that of expected million we revenue have in most stopped outlook at We We that's product and per recall, didn't to and quarter was we associated revenue would QX. -- of number shipments represent million impact. what

Okay.

As you dealing predict. through direct, hard no as business. of sold impact to we're is three well through which as to kind the through longer materials component ban of look Huawei, essentially, channels RF the our suppliers forward, We

the to guess, So supply I adjusting the with Huawei latter channels, of two kind overall is the along still ban. chain

supply So, In still Huawei I’d looking say alternate for addition, is options.

much lifted. about, three the it's kind some of supply of a supply play and would course, that about all to what kind still out. quarter. I again. The together are pointed things million happen. been was difficult just state, to chain revenue kind months hard would it's the to But and of shifting. us be adjust talked a if say, I’d of need that those steady predict time given And kind you ban take into dynamics ban to of put to would In It's So chain say of will $XX it’s how

to of exactly forward, changes to kind Huawei plan don't meantime, the the something US would this that so we on in else it's say with go one. be. of what the on terms unless government in hard So But shipping

Neill Reynolds

China we're to they on China don't exactly and in number And to in what's in early to the the of of trying a of implementation know to then talked the reduction phase going consumer demand, EV, And about with subsidies. think going they're I what's I've OEMs anticipate happen happen. this, different

you I what kind to subsidies you adjust a term So if in new do. of or What of range, new longer for inverters, will, vehicles to potential, are have I would bigger a to powerful those on to that of cars increase which tends term silicon the tend subsidies remaining tell kind year, is range going say to batteries and short kind are it's have perturbation, longer trying the it's carbide. more near would

term, to to finally, it China, longer industry in really their for of So, would the EVs. be in benefit could the continues then a say, I auto try us. drive think And general, direction I

once it that's term, of that, going adjust something short positive ban, to So how this be you continues a of I do think kind we kind through momentum. get to probably the

Brian Lee

a And second like the on more I open strategic question, maybe maybe I LED it and thinking squeeze recent sounds you're thought process or maybe options high the given business can are segment alternatives, if into could level, on outline you're just thinking that strategic the here, the here, it about that LED the picture. challenges, considering to entering alternatives turn you're a you other around on if anything at about are in other know, it if there is how to segment

Gregg Lowe

that Brian. Yeah. I'll take

areas doing would So, We've we overall for and the said said what where LED kinds that be the the impact to that you where that two drive down the the matter now. redefine that silicon automotive creating for going buckets. got thanks recall or the we're The we transition carbide to the the something XXX% Wolfspeed, to company, capacity of and the a is we're on and were were forth. to the transition of a going were that technology in just impact, we business, in so for something when LED tell we LED to space better strategy an traction high It's material we now fungibility good bright capacity is some of we Wolfspeed. to is going going materials right and going and right is industry negative question. I we extent two. of fungible of is, was LED And capacity for is get creating do over that What market focus value from transition to an there and that week in

slows market the we've So that done doing transition that and already already we're LED down. as

or issue -- in transitioning And then pretty the to in gross that loadings that is impact fungibility fab the second wafer we've of the of fabrication down. Wolfspeed process taking the LED down we're as second well. significantly, is coming and got of are wafer the utilization also over so And we amount capacity, margin is and major

Now that to of months timeframe. X lot XX kind of that's more a transition longer, maybe a takes to XX

we ability light we to see on and meantime, capacity I to underutilization. Wolfspeed, the process going over of have in I that. whatever So, think outsource a where to type LED that, the we'll we we of see out more I But this we're fab move a we internal as come some from and benefit think we'll transition can see that think to

Operator

And from next our question our Harsh Kumar Piper comes question Canaccord Dorsheimer And with comes with Jaffray. from next Genuity. Jed

Harsh Kumar

you it's setup end other think mean, reasonably of think gestation the appears charging, you So earnings things built guys a in radar, subsidies supply or call strong. silicon just up? do adas, still maybe of listening demand Do inventory on that that carbide be are that couple like due to China nature, it’s to things the was that is that big from automotive, to the the I

should this vein, we of steady Wolfspeed? change, of sort same is trade doesn't the if situation about in then base think for a that revenues And

Gregg Lowe

Yeah.

say is of So couple what would things. I

is aware sentiment discussions First decline OEMs, subsidies. there some off, were China consumers of my a of that eventual the of the from the with

was So more pulled absorb, just there that they're mean, was term. if of some And to it what long buying think kind I trying perhaps you in, vehicles electric of does will. really

I'm it guess that And that's that the sense me, I from on of understanding OEMs perspective. to getting So, makes the I think kind Chinese that. from

I I over platform is will coming speeds. you're the just term think going to silicon carbide the strong think see Those in that very be demand automotive, new new will They then off a platforms car very, happen certain take to what's market. in a companies to car a general. remains going and long will to plateau decade really come at platforms And on. From introduce

all aren't they a into the achieve example, new car to those an to platforms forth. market, amount steady that markets, as Volkswagen going will market get same and probably release cars, of they hit a time, So those then come so products new some, and at ramp, volume really will will certain XX the state, products the

plateau, And increasing entrants multiple increasing we're see demands, so I So coming across companies, you'll some amount car followed the think of by followed a new demand different see decade. maybe that of series by over going forth. to and and

Harsh Kumar

Got it. Gregg. Thanks for the color,

know you second my versus your the the be wouldn't if RF just for I business one. like you color Wolfspeed? on as of kind but without and they any one Another materials RF, some giving industrial business, on qualitatively, was business, versus color curious don't chips what us out numbers mind a of may power part would, I to automotive break you

Gregg Lowe

on couple different so a of Yeah, maybe factors that. just

by Whereas of just electric terms type that that of power business. which really the talked to market be silicon people -- of seen power RF XG, by and is primarily is by is going train reports the carbide fueled for we've things. estimate power a couple I is to anywhere X be dollar the would XX to billion car. be to about billion electrification is size And, and of the primarily, off, in But growth different primarily in driven most what a market billion be XXXX that growth platform from of the a lot the for going opportunity. first So, engine the opportunity biggest the from car

silicon carbide I carbide of think period time, So going over be silicon is bigger on versus power a in opportunity, longer to GAM. the

growth opportunities, bigger power nice but the probably upside. both So

that the of is materials. all Underpinning

years believe that the market of in is, or so. sell -- the both device two all going will channel near the I designers, because that But than business space, the be our that, And being see forth, device long is earlier. faster. From mentioned we that's from in and plan, we the to our materials range a just power RF next likely more and over so ours, we're have. device And time materials to into is, certainly of Neill slightly our of growing a assets, the over the so growth that's engineers, say supply period simply the materials customers’ businesses, terms bigger lot perspective, into over more aspect and with as would which the perspective. street to And four selling our we feet on what material the five applications, agreements term

we've with So, of think the industry companies long we growth We're it's that. four from have the conversion term I excited I And that we'll silicon the the think all agreements coming in a decade. real about silicon excited nice carbide. about partnership with. announced to We're see

Operator

from Jed Genuity. with question our And Canaccord next Dorsheimer comes

Jed Dorsheimer

on greatest that challenges one for that. pull model associated leverage able on over device the quick, to I of you be supply this to of and Wolfspeed, actually because with my would moving the into between is that supply [indiscernible] LED wafer side, chain particularly real auditing auto the So, process business the question much and on guess first how is -- are

if just wondering that, Gregg. was you address could I So

Neill Reynolds

Neill. it’s Jed, So,

what the side, on Was you you said I their device said? So you think that dropped bit.

Jed Dorsheimer

Yeah.

the side accelerate are auditing for So the more business? how specifically, to much from LED for of wondering, on benefit I'm to you the is able the business, process that learning intense. much device curve Wolfspeed other of And the

Neill Reynolds

of couple a things so that. on Yeah,

we as relate about back you to business second. When capacity opportunity would we some have pieces then business just here of will first So of wafer of kind there, Gregg that, of LED in had expansion, me those and the that outsource and try pieces, for our Wolfspeed said of to and we as would that it alluded outsource Wolfspeed. the more plans talk in you a is capacity about free about, think I'll what kind the and kind originally, we let up and talked the LED fab. And, it

the kind But is things the you two Two side. there. certainly, there One is it, of building as going and of has expansion is, One side device the we're once going have remember, we capacity, pieces there. kind current of the that. we the on second capacity more kind build the investing quality more we got that, capacity expansion, the in will quality as mentioned free that of and capability north to we're we're one forward. are that factory out fab announced of automotive to in we've -- out of automotive the moving kind And of we're learnings up convert

sure, the to as LED going it learnings we expansion, have we the pieces build set up to move the and have, move but leverage as from we capacity that forward business capability. we'll to out we're fab So and quality the

Gregg Lowe

bringing second very, add in very, Jed, some the automotive into very people to successful, thing been that also we've then very is positions. And I experience key that would

have an a supplier. into over and joined name automotive that's bring year a as so. she experience very number organization that focused years come of as of well going person quality working regarded on have of and at kind gallium for spent and of Cree ago new tier a of I nitride. knowledge and XX And run we're carbide quality at of internally going a to automotive, about about plus a class world has decades really The X or talking world semiconductor we augment automotive experience of example, this the think can silicon other company organization that to semiconductor experience requirements has that great fab. large number two of class, we a us a folks a benefit to The So specific company automotive is over that our automotive head be also years at that on building manufacturing years XX semiconductor fab highly plus

Jed Dorsheimer

just the week, question certainly that the side was, vehicle at national And conference follow-up the ask side compelling compelling a that charge. it. on to we particularly around more infrastructure seems our and outs carbide as than a use to infrastructure build the fast value on Got trying the spend was of -- that, story is the just or there be the But you I first the grid auto -- in as side. associated that of around with silicon also last charging proposition from heard

wondering to if you you see the and infrastructure on update sort what be well. as how and might the side that opportunity I articulate So are was able plans of

Gregg Lowe

that, carbide, as Jed that so see And timeframe. voltage, the about. the of the and and charging you been mileage and better to be are for of are different We've that minutes as need is carbide. forth. you rapid great associated got got the build customers going train. in grid sort part developing and type we've And it -- pipeline to talking We of charging number with to that aspect customers important out a do add it of significant capability silicon we've that's rapid And point is properly out, electrification opportunity, voltage we're the five higher and that to silicon billion of a the really technologies a the power high amount of $X charging

help higher going voltages of with fuel inverter, associated just is to bus more and silicon inside carbide. to the rapid higher the demand for that voltages So, we this charging rapid they've think charging trend continue

excited pretty about well. that we're So as

Operator

Paul from our Morgan. And comes Coster next JP question with

Paul Coster

of or of really, contracts this you see based if some other of of slump sort with economics check pay forfeit of you large that of I has up of one pay demand, or any quick a Gregg. deals regardless the sort customer temporary there's just the sort consumption. have want to to time to the in the sort elements take or It's to those

Gregg Lowe

but volume associated generally details, that into -- deals was have to have take to with don’t it. committed. commitment are Yeah, the of want lot a get a that of I they pretty strong element kind

that sort on will. symmetric, there's And some and capability upside there's Now, of downside. if some you that's

be really kind and they And of would to demand us. to customers, that supply supply capacity certain so, a are that these to a our we guarantee to would able guarantee deals meant

kind So that does both that. kind it of element, we're into Paul. And have equally of committed

Paul Coster

obvious All risk is that follow-on there's channel? all question right, is, building that some any at there inventory the so up in

Gregg Lowe

XXX mismatch silicon But, is millimeters I of constrained, don't see capability, in capability Huawei, situation, even supply today, the our our RF is it business risk that. say with right capacity kind even especially demand I constraint. now. situation capacity of always would carbide is our in there's despite capacity And in our power a epi every constraint. line

back. come thing, that the we’ll and areas And So of away, others think with where areas goes to have expand up it'll those see going pockets generation go that away, and their we've constraints. we as And constraint capacity, the next I see remained if see we're areas customers up. pop constraint the then ramp capacity

leap of years, So I then through five a least all catch we behind. the think this off years the have of takes of have, and very five demand going the and to we're frogging it we're ramping over capability, up again, we're at and continue going a the next supply sudden next sort we as where to

Operator

And Rusch comes our next Colin Oppenheimer. question with from

Colin Rusch

EV how that down turns we you things how on and in we're the you some and that? a some a which triggers contractual up is and seeing point the about should at things side, of or regarding twists slow we would think the the about in that speed given guys the of on guys for there should cadence Just think CapEx, triggers slows customer of of the if of, I down, terms terms mean, purchasing,

Gregg Lowe

of let $XXX for it in in CapEx Yeah, million so prepared me guess overall say first so I all, remarks, spend roughly Neill we're XXXX. going to said the in

think that such going we There's kind to As extend is silicon those But longer the continue of, to near yeah, with continue things, Wolfspeed that. would to the about through But forward the things on. to to move longer is expansion business modulations. the and opportunity it and go always in we're as relates modulate going carbide always mean, around. to can our that capacity opportunity space the a continue investment view manage I things that. term term, I as with in term continue In we're

need to that opportunity. -- get is the to now on focus view we for really be Our we right ready

kind I as you right a we're a term so a as would And the In easier to of bit grower. little invest again manage take fab, it add it's capacity expansion business, modulation, that something as long if yes, view at in yeah, you that's by to And our a over materials think relates harder line our now by we look at going to Wolfspeed. manage line. bit obviously we that capacity the but could little is

Colin Rusch

pipeline And as where some can an and [indiscernible] in little other talk of obviously, you of you those terms you then the high power about just bit up these the some target around how opportunities. within the validation of opportunity each of of designs, applications a of targeting you're the but the kind charging, of important train, break terms dynamics in competitive is voltage

Gregg Lowe

And looking most Well, a a silicon them of voltages, basically different trends. electric enables the an customers is and silicon part we're take to start vehicle. carbide. stronger smaller couple to basically car their seeing really advantage which to enables carbide the our battery products, it's a moving as then of have to [indiscernible] manufacturers expensive the at One battery,

debate and I equation. now silicon whether play to think pretty been to really that think the the it's inverter around it's not, And think course going play clear of comfortable has that different -- conversations a is the going I and carbide I with is companies now that -- of I straightforward of or manufacturers. that is world role. role dozens a feel car very, in we’re silicon with is debate over associated So, and And carbide OEMs very pretty right a

going And significant to play a pretty I role. it's think

as all design mentioned, different dozens pipeline. customers got, got on of So that. in design in we've we're our working I We've our of with opportunities that working we’re

late of phases, of Some early innings. them more in some are in are them the

because And to be, plus decisions those we're line And make the minus hoping come going couple going I or mentioned, think And so, timeframe, those to car next, they're as down, the really months to across see the over platform I type is going to of possible. to XX -- have six get are we're a soon of as those is going a to to certain as have goal going a to timeframe. decisions. lot to launch in

Operator

Osborne Jeff Company. Cowen and question next from our And comes with

Jeff Osborne

of my on Couple questions end.

and the materials, being the down didn't XXX margins issue see differentials goes between in you points do with, biggest know, in of headed Wolfspeed if rank where then at just the pieces and broadly complexion is guys of think, I three? could there. was with to what are better and I the want RF, wonderful last understand what billion a are so the guidance specific, I But job the X about help an X You you, term order the least margin are explaining you wondering kind pipeline quarter. basis and terrific value particular, as highlighted mix it seeing to you between power long being can things is and don't if billion what us today, get

Neill Reynolds

Neill. is This Yeah.

a take me shot that. at Let

the Wolfspeed are the related gross ban. the the So, Huawei in margin predominant to driver of changes

So, increase saw we of in XQ, an XXX basis points.

of getting gross products XX%. kind really went shipping lower and the and was in ban the basis stopped Huawei the Wolfspeed effect, over we of XQ XXX up margin margin when into So, point main the that driver improvement

XXX swing we're is you back kind the points. to of seeing And margin As the effect. XQ, moving down almost basis opposite

in you're component our or kind are shipping said for RF looking customers. in kind of are I that, to either earlier different and not customers channels So, as materials of alternative reacting ways or

two the these the of kind lot kind ban, new to variability as developing. seeing a of of and we're channels are order patterns in adjust So, mix

really the starting will chain how settle to of to of talked to say, overall in before understand about as kind So change not of the variability is mix, does think of temporary type gross situation. the Huawei of getting this this supply phenomenon. Wolfspeed in we view the kind to about as the XX% margin, kind low kind see react our -- to is we just It on kind mid I a level. and

of adjust variability. short in Our that our programs deal with just continue in term cost we'll to mix the are kind gross variability of meantime, and And just the the ban, some track. the on to margin customers then as causing

Jeff Osborne

billion a highlighted in head whole, on curious up? qualification to sort of up your the having historical but staff fabs there's that pipeline, sick or enough? more grade auto then Got which the wins the certainly my fall do auto on a up touched of which follow gap maybe of today, that pocket the if and sounds in and fabs new the of the was it. you need company of making great, right auto Is just the a just process hit question you're business as with and people running in bunch and you X experience XX win if I these today to open fab, years in XXXX/XXXX And of window the time, as quoting expertise? second before, you I experience one plus wasn’t of and and the a be business was the these and unfortunately, where can't would just

Gregg Lowe

the our are made would think decisions the XXXX. go XXXX that intend open are that right discussions being if factory automotive for new today will, that we that production I are be related in that period, decisions now. in in you made pipelines into to for being are to through are cars sort going XXXX gestation type the for of normal timeframe, recall win up And design kind of today that

factory be see with it with of open was So up were there's be as that. on XXXX. I I actually engaging timing fits that that that nicer. design would wins. the issue -- no the it nicely today, I’d customers with in timing pretty that think obviously to if don't us -- an impediment opening of But these

had capacity or they I've question years our here. that capacity. has ability in year been that sustain answered think major half And that been has our the and almost the and Their initially ramp around real XXx And a two the the question I've in to capacity we manufacturing that well is think compared this ‘XX were when I our expansion increasing we I to basically by where of capacity that, see allow to began customers fiscal that about based silicon to real be they carbide a based see capacity system, if money them as they their commitment will this behind agree the get know system their that to kind that, and of products. a customers or we're inverter ramp certain and they as excited move there car some products platform putting this platform capacity that real that from going to feel is silicon good

Operator

question next our Osha Joseph And comes JMP from with Securities.

Joseph Osha

in apologize a for audio. I'm car. the bad I

Gregg Lowe

We can problem. fine, hear No just you Joe.

Joseph Osha

customers oh, silicon And and again. side any now, gosh, from question competitive disengagement that not a would on communications say, market all understanding disengage this I'd we its how because course broadly you're the trying we're maybe to I seeing of like guess not that Huawei ask you be completely if if like. quo they're much anything think Chinese our a could any from either. this automotive Cree telling of of heavily business feel going don't to the of on broader pressure also of flip into the looks year turn from Chinese competitively to not you your face or Chinese now, OEMs, ever I'm you really would carbide happens you're whoever, status much if or ever subsidized return African head guess what and like I just, what market understand anti sort is Seems I this questions China OEMs them. that have to to built any and selling

Gregg Lowe

well. of the think Joe, China, semiconductor say because great is certainly a is a is question. would substantial internally it's I the has that portion growth market what to substantial as that semiconductor any same question that's and in And one a there company we well. are percentage as of I And addressing ask

we matter wouldn't back. nobody would well, So it never obviously, I to be say, came think -- if fair just China

growing it. percentage a Of course, big market, percentage would matter. of of the It's it and semiconductor a

impact. So would an certainly it it's -- have

a I about is standpoint – What think a replicate. technology position really there's would competitive say several there's to this question technology, difficult from is, times we've mentioned no I as that.

a that has It's is knowhow in tens measured hundreds technology of requirements and industry people. industry people versus of knowhow the of thousands

the day best of all worry it's, life, worry about competitors, walks thing US of every international them. can we about the quickly we single So cost And, we different competitors of they're increase scale capacity do while is as that product, from have. based competitors just or as that whether our quality we the run our decrease the to can the and product we and increase

So that's what a we attack on basis. daily

amount to in interest tremendous entire From part ton I carbide. an the automotive growth as world a perspective, there. going have like China the And there's of We'd including of specifically, of after. across for of we're globe, ton interest I'd opportunity think say outside what a a us of got we've silicon

that we've But So trading outside good hopeful well. largest will a lot think, a figure I of the of we're solution. that as two economies opportunity very world's got out

Joseph Osha

on, would exposure a as that you care inside to that $X just about pipeline talk follow discussed? maybe Okay. And China billion you've

Gregg Lowe

that have don't I out. broken

there, what But, say less feel that specifically, we’ve amount you follow a it. be substantial I not Just opportunity comfortable from it's to as Joe, some not half. portion We've would it's pretty high do going clearly dramatic have but up But as I a over don't number that. of outside saying got opportunity but anticipate. that. a than like gut I'd I'm perspective, say of let's well it's or But a half just lot on can got

Operator

And question from BMO. with next Srivastava our comes Ambrish

Unidentified Analyst

question. This the is Thanks [indiscernible] for for taking in calling Ambrish.

before But question well gross the in and relates as assuming a own. quarter, mentioned So guess, It in in looks bit. will margin guess your my reducing inventory you to And do as as take like I return remains demand up feel what a ramping And it is, maybe your you you think to for well their as inventory to depressed target is mid-XXs little high-XXs expect prepared remarks, as as do margin Or well, guess long you kicked lowering gross up guys take it to there get or think how your run had to you the factory -- them? I I utilization it utilization? you comfortable channel somewhat muted, do can rate? through days? remain

Neill Reynolds

because at if think dynamics. to very let business bit so you and unpack the look the a that LED Wolfspeed Yeah, gross the me, and little inventory business margin, important had both it's the different I

impacted top and has LED market as situation, you the obviously standpoint, by a the business tariffs the On China suggest. been muted side, line that's the from

favorably you term, is to down medium think doing inventory, And the declines we're we're the we're conservative kind taking us I our of talked for about there. down that's any we're set us that. going any as taking And either should up to position kind and our, what So of utilization, upside go approach demand manage in kind taking our happen. of event,

kind in a kind in managing see outside this way We any we at of this near view don't to to on of Our and term, we're quarter, ourselves kind it's point, of that. LED, of of recovery the difficult kind just handle call. think

utilization Wolfspeed really the impact. On side, it’s not

the also we're carrying inventory, have pockets ban, the some little Gregg areas of kind the elevated we business. supply of earlier. side, with additional effect about the of the some up bit little Huawei of On of demand different obviously, in inventory. We're Wolfspeed talked matching those and of a bit

we kind burn Wolfspeed, and start those to themselves we’d expect growth to off. that things resolve As get at of to again

Our XX goal would be to to get days. closer down

to we days of handle that's forward. want be, how to have but both going hand, we've the think where businesses current on on manage somewhere got a I So on inventory that we

Operator

question Bank. Sidney from next Deutsche our with Ho And comes

Sidney Ho

My first the Huawei side. of some inventory to ban on one infrastructure a taking has the especially is, been there that concerns prior lot building has been effect,

you when think get First, back you you quickly? the license in approved, monitor do do million you and have that mechanism other words, $XX can any pretty that do rate to In even any two, run visibility that? to get about you have place

Gregg Lowe

through think number Huawei just to, back, let at the about the one interaction I that the relates kind would we so Yeah, side, them me I way to earlier. sell Huawei on point. mentioned of have We say, of as ban, part channels, is, limited think as it this of step I with to a it

or really hard variability they're to are not it. we building and say managing What for in in mix or it's So, order we they're not some certainly whether terms and pattern. some of are changes seeing channels how there's inventory in the and is the us though that selling the through, the

starts play changed we’re kind in of as Wolfspeed kind kind that So, its the out, of business. what way seeing to of that's

back. it As some ban snapped was we before the I move that’s lifted, think take forward, let's say, could time

if to the ban So, the very have of lifted. is to us supply chain again. It’s to would likely be difficult suppliers. much And, how say for pointed certainly, Huawei would readjust looking alternative that

in visibility time. of would mean us the what that kind So to difficult of this at terms to is call

Sidney Ho

a the should here. relative the meaningful range shorter or Clearly, longer for carbide think my to the And One been the questions near up even a the secondly, also on and And EV negative given impact is, how quite of vehicles. two the of curious lead and Thanks. is follow side. on term -- term about has the question adoption on of guys final sales I'm we Wolfspeed, vehicles? China's the slowdown subsidy but wafer China have time probably why device limited, headwind, the silicon phase there

Gregg Lowe

is, don't couple take would of a answer a been then what think I'll guess there's I that that how I things know have crack exactly and happening. I I guess lead time say perspective, at been it. I to a from

going the tariffs. the the think trying to of the to what are I consumer OEMs response figure to is out be lowering

ahead they've of of And building in so quarters figure was of consumers forth. in. previous baked from on incentives and inventories cars so attempting with trying much They're their up several out to demand pulling electric get those to cautious the vehicles terms also how been

I OEM I and trying out say would a perspective. figure of think, from adjust it then time So an it's to

their in as we manufacturers, silicon it silicon a number good carbide technology auto a well. And sell we from obviously of then carbide future applications. of And cars, as potential in to different Chinese a do see the

Operator

Gregg I call this gentlemen, turn any and our now the over for remarks. like Ladies question-and-answer you. to would Lowe closing back session. Thank concludes to

Gregg Lowe

the the in short Thanks for everybody term, long we softness a LED And mid continue and lot, remain for issues term and bullish sector the your operator and address the our we macroeconomic interest business. while in thanks outlook on the and to geopolitical very in Cree.

fiscal have in Our opportunity a pipeline for you advantages hope at competitive to you robust believe GaN carbide the Grand We XX, see to our you at we is XXXX and that and technologies speaking all offer look day. very on our traditional nice versus and to Hyatt silicon New November results October forward first Hotel. York Investor quarter Day the at Thank of Wednesday, call our and end silicon.

Operator

you This any day. you does have gentlemen, today's participating wonderful for disconnect. and today's in thank Everyone, Ladies program may conference. conclude a all

Wolfspeed (WOLF) 20 Aug 192019 Q4 Earnings call transcript