CREE - Earnings call transcript Q1 2020

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Operator

Ladies and gentlemen thank you for standing by, and welcome to the Cree Fiscal Year 2020 First Quarter Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. Tyler Gronbach, Vice President of Investor Relations. Please go ahead, sir.

Tyler Gronbach

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

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

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

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

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

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

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

Gregg Lowe

Thanks, Tyler, everyone. and afternoon, good

quarter, and future the that set excited grow. the as the to across of revenue, extremely ranges Cree's fiscal sectors the carbide We're results silicon met upper of gross business for the strategic of multiple and In delivered exceeded transformation on remains margin we opportunities end first adoption EPS. about our or the ahead track. we continues

technologies. strong see GaN continue in We and momentum and silicon interest carbide our growing to

earnings the macroeconomic to geopolitical term. we don't said continue related and we've previous on issues, near this change some confront and in headwinds As to we calls, to expect

this cycles various of with the managing will businesses teams' over term our and through long growing through record their However, experience period. navigate track us help

focus the exciting opportunities Cree remains compete Our front and on to singular positioning we in us. of see win for

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

Neill Reynolds

Greg. you, Thank

of year tariff revenue market decreased XX% Wolfspeed lower concerns For LED China. quarter due modestly $XXX revenue and soft the ago to fiscal with million first ongoing as to quarter. XXXX, segment and trade year-over-year revenue to amid conditions the compared increased XX%

net was negative million loss Non-GAAP per $X.X EPS or $X.XX share. of a diluted

slightly expected our than Our to were target in better with gross of margins line business, our due while per better non-GAAP the was Wolfspeed midpoint in share target. range than loss gross our margin LED

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

our with Our down line was fiscal gross follows: to year-over-year, and profit but revenue as revenue Wolfspeed quarterly sequentially $XXX targets. million non-GAAP quarter essentially were X% first XXXX flat in

earlier to China continue EV in in We to softness subsidies this see change the related year.

networks. outs to third the addition activity the in are of to trends business, Huawei, marks our In purchasing This RF some seeing month it relates automotive in as of weaker China. consecutive push we delays sales rollout and XG in

to revenue our ongoing was uncertainties. range margin a decline sequentially gross above line trade points XXX basis at LED the $XXX a million, products impacted global Huawei targets basis related customer mix with XX.X%, but our target ban margins. in of Wolfspeed sequential at was declined as to on due

mix basis XXX and exceeded by utilization. due our target lower gross margin LED was XX.X%, sequentially, customer driven to margin primarily down gross improved LED points cost factory execution.

first total the million quarter margin or for overall XX.X% totaled are costs gross - for our cost non-GAAP to XXXX of $XX for in million and gross to profit fiscal Unallocated our the reconcile included $X.X company.

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

operating target than our at the loss of less million. was non-GAAP $X midpoint Our

was non-GAAP with line targets Our XX%. in tax rate our at

the from $XX growth outflow resulting on were $X million continue our in invest and debt of credit with quarter, ended in expenditures approximately operations flow face investments, negative $XX and business. zero capacity million. expand million and of value billion quarter a During capital convertible first an We as million, with balance we the cash short-term to our cash was to cash $XX in free of for of $XXX Wolfspeed line

inventory quarter, at came days the to hand quarter. XXX improved last outstanding days days days in For and sales XX XX on from days

target to million. continue we XXXX, fiscal investments capital $XXX of approximately For

allocation expanding Wolfspeed Our focused our to anticipated business demand. on support capital capacity remain priorities in

lower revenue Turning for to $XXX segment quarter of X% sales approximately sequential we is vehicle to deal on Huawei down be to of a China. range $XXX the of XG million based in XXXX, on revenue the minus in are Wolfspeed spending outlook the X% basis, in following the network second to expected a we targeting million trends. and electric with softness as the impact continue ban, to

applied a customer, law continue government awaiting to market is shipments are expected it outlook. don't certain revenue but we in to LED see resume we be with basis, the as on comply response. our we for to still material federal to LED relates licenses from a change to sequential We any Huawei potentially flat U.S. as have and the

gross product. be short-term ramp as target inventories, sequentially non-GAAP XXX significant a by basis to We lower and factory gross approximately MOSFET points to than target XX% manage lower our event to our based at scrap down approximately XX%, QX driven yields on XXX-millimeter segment utilization following margins Cree's between the Wolfspeed we expected XX% trends; margin we

we items these in plans temporary. place and see Utilization improve MOSFET recover when reverse should XXX-millimeter volumes We the as yields. to effect have

once improve for However, volumes to one to increase improvements XXX-millimeter yields. on take margins implemented and it will are quarters MOSFET two

modestly be XX.X% sequential to to a basis. gross LED up XX.X% between targeting on are We margin

targeting invest our to align are for as at higher structure $XX on business cost non-GAAP in and to expenses approximately basis be the environment. We we our to a current growth operating continue QX slightly million LED sequential Wolfspeed

stated of in the changes have of reasons, projects, vary go including marketing spend IP operating R&D to timing variety quarter-to-quarter previously, trade can and a expenses we cases trial. from for As when around shows

to from million million between to We non-operating target continuing to to approximately target loss $X million $X be non-GAAP million. and operating QX non-GAAP between be $XX.X $XX.X income operations we

rate We expect tax to our be non-GAAP X%. effective approximately

to to share. diluted or per million to We million be $XX are a non-GAAP targeting net $X between loss between QX $X.XX loss $X.XX

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

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

to Our incremental do Lextar targets related inventory our and reserves of investment the Huawei GAAP include impact not of non-GAAP value or fair ban. changes any the the to

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

the turn to back discussion now Gregg. will I

Gregg Lowe

Thanks, Neil.

environment a linger, are for and being and delayed Cree, The is I on Before the few more related developments China Customers fluid the the key environment sales EV of review trade cautious near-term are business. to strategic down. operating concerns thoughts two in as of remains the quick rollout us. XG transformation

I've capacity, challenges. our face to we we some are as manufacturing bound Additionally, on mentioned increased previous occasions, significantly as

and lower our happened. on margin ramp XXX-millimeter scrap that Durham We our significant quarter, near had gross in fab This overall yields our the event a impacting in term.

issues get We and we short as have and expect to resolve of the speak the are issue, these clear to back in and a understanding target implementing improvements yield order.

quarter. progress Now, the looking at our in

our with to drive of continuing look efforts the our to are We solutions to leverage carbide as availability customers silicon increase Wolfspeed innovation.

automated York carbide critical of wafer with element fab is the our updated an Our and silicon plans for expansion of partnership strategy. state New a

headquarters corridor in establishing mega Mohawk are East the States, a materials on United wafer anchored York. a We North and the New fab silicon of region factory in our large carbide Coast of Carolina the on campus Valley a by

Wolfspeed The across been factory and for shifted materials ongoing as entire more installed have productivity to improved drove new has growers. crystal the of some expansion LED growers, time, fleet mega growers we

While into the already fab, the work begin Mohawk we at the to expect creation stages we the teams of work and site shifted the soon. are gear have the of early high on prep Valley the

weeks test wafers new In carbide after first partnership our the The at two overall allows we fab. the announced New of fact, just ran a line Sony start-up silicon our in in incentive and Albany. us prototype part York, de-risk successfully of we to package was Albany

and build small to Mohawk demand fab. Valley first is communications industrial but way support for from future a capital efficient we modern is growing a the two a expect run significant the automotive, promising infrastructure high-quality segments. very towards very This This facilities the to step

silicon Second, XXX to in have Delphi device one carbide industry most a the partnership Cree carbide for significant based XXXX.The we of beginning this endorsement strong silicon volt represents in their MOSFETs and production for with for our to Wolfspeed partnership the extremely were Technologies inverter opportunities auto pleased multi-year announced is with use area.

interest and space, a of Silicon with greater application to those electrification a to range the electric carbide-based power the efficiency, better carbide silicon automotive vehicles silicon to battery with Across strong given enabling there in for the carbide of density size. is have powertrain. silicon has the compared systems

the are benefits silicon, recognizing of levels highest of we many in these and over at significant OEMs Tier actively organizations. Xs the are conversations engaged silicon multiple carbide of and

of conversations soon. where a while Some are the are these decision final in stage we early stage, expect at some very the

the our other our carbide promise help limitations well of is end including other the innovative companies with Beyond to of silicon these the and with electric benefits next-generation markets, markets innovators. break industrial vehicles, them end their deliver applications, Across are expertise and who carry to many through running against applications. of and up silicon Cree telecom, solar, us engaging and leadership positions infrastructure, of over

Roughly $X and to convert design opportunity we robust remains hard the and billion are working pipeline wins. opportunity

XX we the lot well and months, in when it a that of customer Over meetings in the to make customers final personally decision. six believe these on a to to I'm a coming decisions mix programs comes portion involved of sourcing pipeline. regarding sizable are target

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

Operator

[Operator Instructions] comes with Lee Our Sachs. Brian question first Goldman from

is now open. line Your

Brian Lee

Are back the And kind running were MOSFET's? were you margins off to as I want are coming the quarters or before the Maybe the assuming referencing when to to then is issue. just related scrap you about or And issues? I I margins, you mix of to it at see on sort same follow-up. issues. to gross mix if recently clarify then event recover talked and yield back to related two didn't level XX% of back to one wafers there needing the that separate know of is the two XX%s to utilization from have the mid you with high referencing Huawei a then customer start

Neill Reynolds

This Brian. Neill. Sure, is Yes.

on think Let hit first, and of worth kind me margin just gross I it's that kind the the attacking of quarter-over-quarter one here. probably

So on okay. that's MOSFET, the scrap to related the XXX-millimeter

before, have like a happen we we factories talked between So as we number obviously, in case movements a kind going so of see of we and then something on and ramping about of as the the that we're technologies, here. and factories, this that's - things can ramp and number this new different

were kind we're the one the cause a just of root I about two cycle, implementing to - as so we issue think about, really as talked of through we've identified the is the quarter. where And of improvements. we quarters getting started that's we So before kind the

As that's as parts important utilization, has to well, I so that two relates to really it think the it.

first materials in is the factory. The utilization one

Wolfspeed, second in that's the a and is output the LED materials of within what's crystal we've in one that is, two capacity is, So the in the is, growth really factory, outpacing the capacity the over things; effectively growth solid factory. to on transitioned our one on productivity for there really driven going execution initiatives we've had by lot growth and materials

fleet from us down crystal so think about going and our really things utilization growth a from and from a bit cost you thing if to LED of drive put those both two help I to a driving together here. think well it So drive That's transitioning a good programs, same little that's more down. standpoint, you us and kind for productivity the cost output of both actually Wolfspeed over

of from materials So lot factory. a improvement seeing cost in standpoint, a the we're

that'll and the through going in items of though, short take see benefits through Here get that we're that we to term, us again utilization see inventory go just both as some cycle temporary. these

Brian Lee

second on focused in again, maybe for side then Obviously, on quarter. the And the growth guidance view embedded more just of near-term headwinds Wolfspeed there's the but some things here. the still

that's of you two segments? that part When you seasonality do three China four And third could about you thoughts across quarters any you subsidy running in the Thanks impact then if of think a as timing. business entertain a been see quarter you headwind EV mentioned for about think perspective? when on fiscal like lapping feel as about EV wondering the from that or Just of here. kind business guys. being the the I

Neill Reynolds

Let I'll Neill, at me, is a this that. take shot

of So XQ the networks. kind that's is spending X% is the midpoint. the roughly of moving outlook primary in down lower XQ - that to RF revenue driver Wolfspeed obviously is related at and The to XG

to or see And some related slowness the market. China to as Power you business EV weakness mentioned the continues

expect in materials to seeing outlook environment the I'd is, are we has would XQ, business to The the continue. beyond different really of things of call, going rest out difficult macro we look you say, on. that a lot as growth and So the it's

You mentioned, EV pause subsidy and have, issue, spend. maybe as the a as rollout seeing kind in XG you the of it we're

to the be - continue bandwidth We Huawei. have

concerns there. in and of and tariff just to up terms down then the continues that on And news trade be

can kind the quarters of the of we at kind for do really couple it to this kind is remains about and of that's relates same it. environment assume the the thinking point we're all Power So that RF and how business, next as of

Gregg Lowe

little from perspective And - Yes. bit just color I'll just well. add as more a my

flawless definitely been of significant midst a in it we've said But yield us and scrap this now solid well, execution the have of years Neill issue ramp nearly lower in but this execution. we two hit off, had quarter. the First unbelievable

get in a terms be. And it's So right this through we've that place hit well just yields now got the is there incentives get to - - it because are longer put have and us, favorable manufacturing changes to incentive us, two it's We really of back being then is EV going and unfortunate, aspects one on cycle to really fixes for we in it's are now, longer more changes actually up those term, cars that change, to understood. is of China, want the the in favorable the for got us where implementation them of range.

you is same silicon the primary in the a benefit carbide get of versus range. longer using And is for silicon vehicle that battery size

time. going so, be to their that think shifting we up activities these And Chinese towards are ramping development the and longer-range cars over

The cities time time wait second go of electric zero. Chinese for the Chinese registrations my basically is car for can that most and that is benefit take the wait a the China to and registering is eliminating in to time the quite long understanding going are on - EVs vehicles, so

be will us for eventually positive well. that so And a thing as

Operator

the line Dorsheimer next Genuity. Our from question comes Canaccord of with Jed

open. now line is Your

Jed Dorsheimer

you Is start the that just expect adopting issue gallium qualification the part deployment XG when and first just in there? guess rollout. the I business gallium that carriers one limiting in non-Huawei that's the a amplifiers we do nitride the or curious, capital are power for in cycle I'm not nitride of to

Gregg Lowe

a think most a of I in they we has new clearly in the Huawei of non-GaN aggressive of nitride and years. gallium understand been done development terms adoption that number haven't the type best

station base at manufacturers really And little been with are that. leaning GaN forward other pace. it they've was but just products So slower on developing bit

Jed Dorsheimer

caveat of again planning market, expect of things are the if is for that frame, is that fluid timeframe you're XXXX with so of in fiscal obviously - the looked sort And too but sort should out that we type we there? that the time that

Gregg Lowe

player is that to this market going element would there say out business XG the pick that X this out and of least I in going be at what The that's best biggest whole we another is way up who doesn't non-Huawei to played and but tell that of data that are from seem likely story players China kind have at is biggest that can in point. process market Jed, Huawei China. there. thought to for the Maybe, or is is The

So I that other of part happens means since list what seem the exactly don't at a X.X that this at and on least months when know players have picking with doesn't it's been came to point, board entity that but transition now that, happened? and

Jed Dorsheimer

Just the moving over inverter to the carbide, silicon uses module Tesla one per motor. solution

seeing that's out will equally different have So other are in that all-wheel silicon two going content do a to than on What be is on motors. shared vehicle per has if designs impact we're think where two obviously pretty think or sort carbide the that that's Tesla two it'll the we a market potentially that of because car manufacturers. of design EV or versus Do you you standardize modules you that that have drive, one? big slots

Gregg Lowe

We're of working variety with a have number of different customers different that architecture.

modules one them of placing wheel. Some on have each four

it's think or early market going the be standard soon. is if to tell what's anytime be to way in I there standard EV going the to too even a

would I car the of view of the engine the soul the car manufacturers; the is of the tell What is heart car. and you OEMs sort

soul of conditions of they want their performance want they what to the want they want. in sort car image so And They the of that become to the be. to driving

the going these is of So most I a with OEMs architectures Tier are discussions like. continue what look in out there, of number in, engaged would and that different to to imagine there on the be we're architectures Xs

be the I'd silicon inverter also about gone interest going for solution. it's to that to think to what But has carbide going from we're it - the the tell you in likely is -

automotive. probability pipeline - say, our working billion the pipeline silicon I I to when the And would half say, design look would of that is $X - hard being make it that versus to extremely about that of at So a just as the carbide really silicon feel decided you related solution. I is we're high. comfortable very Cree-based

Operator

the question next of from Our Craig Partners. line Irwin ROTH comes Capital with

Your line open. is now

Craig Irwin

when right. look the Gregg, big at we picture, So

for customers, can shape name where Your $X in significant the term like picture, can growth confidence we is how to VW, describe It's likely billion with And year? in together think couple bit curve a you a see Porsche. longer-term revenue to growth. some But put you pipeline, activity fairly years? we back likely the what customers difficult this easy over story of we're short little longer-term half the a the Tesla, pretty trend materialize, next is of the fiscal the like of maybe Can predict. material have us to as for Delphi a Delphi, contributions

Gregg Lowe

Yes.

So first what say, I well Delphi. would on off,

that's it type I a applications. of XXXX that in the and be for normal would kind think was automotive announcement ramp

So been a decided up. later. and It's in that That's this it's very, time I've would kind be ramp. very in XXXX to few and going industry a of normal. ramp years for long normal

And it the RF, of far another part that automotive, is that's part pipeline and automotive so, as of to about is it industrial half pipeline as applications. related is of another goes, type

years So to those. see it, and those really that bit of for in a later or you're are happening beyond. really going on the ramps automotive to But going little have in XXXX the different part

got it's of terms conflict. year, uncertain we've half where an - environment now, the of environment in a trade it's fact, right In really back this unprecedented it's

has lot anyone was think would longer last. lasted I thinking a than

the starts term, near got China, lot actually about better EV slowing a and supplier stated the uncertain. I just lumpy that it's base before for quarter now today all and concern, we in the we quarter be and But largest as in looks longer-term you to going think that I Craig quite you've got growth solid a list with got I of added - stations the subsidies you kind entity think that. it's of than an think you so it did last being the feel different list, companies and world entity got and to changing stuff, You've

Craig Irwin

question second about really My is China.

as happen in So Huawei, that's there, maybe the maybe end describe markets? far spending these progress fiscal what your you some do year? us can you these the magnitude was short look for the have the term. over the for as headwinds and at likely as throughout approximate second contribution you what think Chinese been the in it's EV for of in supposed Can we to headwind And what's you if quarter quarter to guidance we the different of be network from

Neill Reynolds

that. Craig, Neill. I'll Hey, is this take shot at a

into XQ, we Huawei going had the of So knew ban. the we effect

let put that the side me second. to So a for just

kind to of XQ beyond, and have you As similar here. a you type think of profile look even start I into

of But of We're materials customers non-Huawei the XQ seeing think there if X of the some and I kind growth G of weakness is mentioned big go spend. kind XQ, into difference in you kind I or slowness as the in earlier. a business terms the of versus RF kind the

that's I So think what's impacting us now.

you those XQ we As pieces, beyond start call. look the out difficult all of year, for factors and for those businesses to it's device just to the at about, the out get talked rest you

just again, everything factors I the much at. is right the and same based context assume be kind on that going as as what those we uncertainty have or it less year we to is at the that's as now of we're think it you and all we're back as thinking about look looking more So the about and of give, that's given half how can to

Gregg Lowe

time. the It China going really - one new week with that day Yes. and kind sign And we're a see we're worse. next will close in then we're you know, next it of to unprecedented an you actually said deal week a gets I that flash and

deter it the but and think doesn't from us all So best I mid-term. the even long-term we through managing at we're can, it,

- very, EV be the the adoption pipeline design to continuing really very nice strong rolling and think with very of the in solid. we're I win space very very, a secular

Operator

Fargo. Our next question Wells with comes Mobley Gary from

now is open. line Your

Gary Mobley

Carolina. work convert of and expenses Utica ask facility as wanted you ramp about I to cost expenses to maybe North and you even sold operating your goods different

ramp to $X.X the OpEx So issues we million know you been expenses have $X that of should million do trend up I sort be last the about? ramp production as in quarter how see that rising couple to per quarters, that full is notwithstanding, line that Utica, the we roughly of thinking over yield increasing

Neill Reynolds

question. Yes. the Thanks, Gary for

our if think OpEx. apart pull you I

to way the it. want about you think think I

to have things going have We two on.

is, LED which we a First have an business, seen environment. weaker has obviously

costs So down to and ensuring kind that we're LED got we're we're in to structure that taking kind what aligned looking related at of of OpEx we've the market.

On the opposite tick talk you in to And side, we we're rate here that. to out in now, of seen rest to same quarter-by-quarter, a as as the year. you kind Wolfspeed, type of invest of the bit right look of kind we've continue up about expect to the see going that little

Wolfspeed. Day kind Mohawk the down terms weeks, like of in again, doing. other expect lay LED of get some we in by OpEx look we're to here of But fact will been things going bit few we're the little bit a model But to to Valley that that cost gated on Investor more side. out taking a continued I on As a terms we're and the that's fab in see investment that little what

Gary Mobley

subsequently the on recently of full question, up particular the from I ask want follow-up has carbide of relationship one some materials European they qualification silicon some about carbide in company. an had company a taken your my of in and For ownership announced full investment silicon with your customers to

now, few how internal from you see just splitting versus there out with the supplier? use a looking I'm wondering, merchant a years supply sources So

Gregg Lowe

Yes, they've - ST they so pick initially the Nortel of I to then of acquisition referring and up it. I the decided acquired think you're rest decision XX% think and to then probably their to

another do The capability in confirmation world could that to it's is their and own? this through think the silicon on carbide. this silicon converting thinking is that they I ST of fact investing

semiconductor want kind power with are with them can arrangements estimate anybody semiconductor a do sort Infineon you any a Would we've a and natural of them. with We've them talk on with with we company. very partnership And long-term another be thing specifically long-term decade multi-year, very to to don't large great timeframe. type got a of these half ON agreement this one for about but of kind of got

long-term long we've the of these a want and customers of certain from CREE there is epi wafers to things. added term a agreements and folks the certain those to BARE value is materials business So and that that wafer, is what we these a a it's we've at point. with got percentage One certain very in they more arrangement there seen terms couple is starts and a want get percentage wafers so out that have on signed

are think And things as that up epi I because epi they significantly, percentage wafers, there start pretty it's the of get difficult the that to they do. to utilizing carbide, and customers more these want on goes find carbide, silicon silicon on

carbide. have to into. quality a need business you to capability grow of very silicon get kind It's high difficult very, the think to I

fact part do is these the very that think as to folks that natural. their of I supply are trying

end found companies high it most have that to think I silicon quality, cost low up difficult really, materials. with very carbide really

a got silicon advantage scale carbide of that in supplier the so and silicon substantial XX We're we've increasing we're substantially the materials. wafers doing, we're one world number materials and we've that And announced fold. in capacity what by carbide

and and getting earlier, our through takes that heard to converting the Wolfspeed cost of crystal which LED increasing crystal down. we're productivity So - our what growers, of we growers out doing you we're

as as the smaller. and delta silicon make to between we this doing driving So and what take can thing it are is cost we're carbide we silicon hard

of chasing the so cost curve that going lot And to and folks that are got we've us a be trying this enter down experience business are in. to curve capability

Operator

from Our Joe next Osha question with Securities. comes JMP

now open. Your line is

Joe Osha

need be low-cost don't and previous questions to sure do, too dominant things a you follows times question, of supplier first to two the want make you on lead one you to if is out Yes, want the your one that get far.

time? try risk I'm XX of that's So in where Or ahead get is of and to going at sort of more unless of bit you're stay at perhaps now, be a you going the months a customers but is the little even can't all have the a idea obviously avoid to out your booked underutilized periodically months it philosophically, maybe underutilized - situation being to little wondering book idea XX out? be fab to the to just out order

Neill Reynolds

Joe, obviously of we're York the the long this capacity is basically, the New and I way is about it saying Thanks we're is by demand. Neill. ahead question. think what have put fab we're here in The we to making in investment run for going a is

I think that's that not - just driving in people be our look can but done our So cycles, capacity terms of successful if think that terms we internally with of in important, output, you and fortifying customer. certainly I over have

So our latter ensuring we've it's capacity of got and towards got that the of we're ahead supply. more we've aligned demand customer and think with in terms I base ensuring

Joe Osha

you. Okay. Thank

Gregg Lowe

we're And recall planning fab ramps hits by currently XXXX, production in of it that where kind its it be to XXXX.

we've So ramped. get some a out substantially position where into being that it's before quite time we got

comfortable it's fab, a be in that team option we've York the New with of in us. terms putting made the Valley for associated the with feel and place, very, so with with we going thing to very think I great that that arrangement Mohawk incentives

that even In the of contracts. is through business our quarter news good materials, do long-term we of terms the majority is that this

needed half a sight of we've very, terms decade. very the got of to next going good is what in over So line be

to many low high that relative and very and be that very, to could what can capacity We of be end demand. about is where the the what in would able comfortable translate mid-range end we're coming be the handle what could that - could be cars into the how

is a materials more faster. nimble on to lot being ramp pivot lot in - capacity able to terms up a of ability we're Our

to is that manufacturing carbide because silicon of us faster part silicon outfit environment, Part it's would that grounds an it used clean is of a think could of room LED recall, to shift a - carbide as crystals can for environment, we've that's that carbide plant it well fab. not silicon got good as start type a operation. it's a growers room we a not we build But and it clean is about wafer building, substantially two-week over up obviously it grow take than more but a

good that. we've on flexibility really a got So kind of

Joe Osha

from then general highway to specific. the the highway And

on the you're - at Is where of I most I'm come wondering new XXX, it powertrains seeing XXX curious heard Just mentioned designs you the in point. just most this volts. design part. for EV XXX volts

Gregg Lowe

X,XXX-volt efficient I are opportunities. higher think today road are and moving - it's XXX that going some it's better a the couple system, product of simply are And folks to most enables the most it of X,XXX in XXX charging. folks are of higher seen and I've the design type even that more on a have also

Operator

Our next Coster Paul with question comes JPMorgan. from

Your line is now open.

Paul Coster

taking for question. Thanks my Yes.

mean to with OEM other - that would words, a supply think it's have provider. is supply enters is at be does chain? arrangement I it into On be you do the self when - going MOSFETs level the or to and - Huawei qualify self-sourced substrate the In Is alternative self-sourced this Is through MOSFET suppliers? it the self-sourced? it device

Gregg Lowe

of Most across chain. desire have multiple OEMs entire automotive our supply suppliers to the

little two that if bandwidth practicality wherewithal start very a start and process. they They desired two one one systems. qualify that's they and generally that the of The the got one it in parallel. there generally the that's and that they've up your qualification these decide towards with qualify that. ramped outcome. And and second do get I is then dedicated then is different think They bit don't a with because though the long

so the think has know supplier practical XX% would answer. the XX% do the I of a that don't so standpoint, - first the to of and find no a that, yes desire lot kind Yes of of a from the times business you And has second - they it's but I rest it. or of supplier

Paul Coster

here And going don't the on difficult cycle second investing but anyone's guess I different payback, is pin market very too a more then of with this over EV you're here, the multiples three it's I magnitude imagine. to the down clearly have building investments generic timing soon. together, capacity there the I to to that sort which question five-year of your you a think of risk you're and mean, comes

be on to margins do sort what of are the utilization longer can low effects you mitigate you journey anticipated? to the of proves If rates gross if - than

Gregg Lowe

for Yes. Well thanks that question.

here. So couple let different frame at of me a kind ways it of

couple terms we're and forth, weeks of So lines sort like will ramp that way a be in wafer and going from that and to because off think in that in ramp of be fab the work so ground going wafer XXXX the that the be building feel fab of the will of first incentives time. at I - shape we we wafer good fab pretty breaking we to we're literally perspective, next in will

have the entire we'll We so factory time, will second-line we'll will fill demand based the at that forth. how on on line won't and one-time at much demand based ramp ramp

So and time silicon these running it's we're we more on side of that the in we're not nimble - even carbide thing, turn we more the pretty because it's a on And time. weeks' of can then, the it's it easily. same and same machines - pretty, couple up

an manage that we cycle. and to got is exceeding that ups cycle we've there periods as some there and think through of be said, going I ability I of So periods demand be be our to going go supply to that's to that, through pretty is going that downs and think normal underutilization and being

it of a - the enough leaning we far not of a additional not often. of The percentage is, too far ahead and or would we road do into and vehicles translate the on able understanding are - get that supply thing of kind good pretty be and that we're I good pretty of say trying to our to think get understanding electric

COX But and that's what think Europe XXXX that. adoption XX emission of goes are if of fleet at you in kind a XXXX goes the it good of kilometer XX look vehicles, by COX to grams of per So is, you say will. a I that and of Europe I current per down grams in down take have COX would at to kilometer we look per and XXX the pretty understanding grams of kilometer electric you average, if standards

plug-in has gasoline forecasted kilometer hybrid of a is zero. range XX-ish grams grams typical the of be I currently of approximately a of to kilometer, believe gets engine per and sort COX COX XXX per fully vehicle in electric A

be going be the rest of grams it going So is some some to fleet and XX. and get of part of is part need to zero, their going per they to XXX to fleet kilometer, to XX the is be

the you probably be to of in Europe fast there I is just kind vehicle a in electric on unless sales. can't get So relatively the because going adoption electric and here the have think increase math vehicles you from sizable production

Operator

Kumar with from Harsh Jaffray. comes question Piper next Our

now is open. line Your

Harsh Kumar

on Question margins. Wolfspeed gross

the parts, I historically, the of know there's was think moving running in historically, worth XX of I XX, a but lot So think kind XX. high I

think to other one away then moving after to of quarters sort and your get of sort on that up is we I you temporary. can up to you the a ramp? scrap XXs arms getting that these of ultimately or in of sort of can correct two some two we think around to quarters? forward expect be are and to quarters two are or So will that things start premise going guys worth talking issue one about high of the think How one

Gregg Lowe

to Harsh, The the said, we to way we've continue is, the I - improvement so of that, think see grow. business we that it'll should of MOFSET sight So the yield think impact we'll got depend think like materials really from I on of that. to timing certainly some about line some the volume got

some So things to again of to as we a improvement year, do if those then kind - think as item if the I as of start we of stabilize, temporary still end kind of back the you things resolve. get that should see

time expect it see goes So I term. in dramatically just wouldn't on improvement. short some like the as we'll

Harsh Kumar

And range. then or incentives centered most talked main longer to business in I know so? as favoring around Greg, today of hit I Chinese about today changing you clarify. some and just to already range your business I charges? Is want this ramps your or auto your longer think XXXX Has exposure

Gregg Lowe

we've around Yes, the They changes China conversion. DC the going lot - of to is vehicles. our that's longer right towards developments in the range coming of the and because China on-board in DC and incentives in business most a of right now primarily inverter the got on active charging now

Harsh Kumar

of has is that announced of Greg, kind the sort already China? up from or folks something that been And in you're picking

Gregg Lowe

that's announced. believe on talking And about officially the if you're the incentives vehicles, longer-range I

Harsh Kumar

case from Is question I of I but under that to Huawei my then last you talk legacy think give the ban portions then size ship the suspect business. acquired on a with OEMs And zero? could business is on side? parts were a And you your I some the you're able is that revenues. non-Chinese color still know on RF about Huawei us or design also - you or is some portfolio could

Neill Reynolds

Yes. Thanks, Harsh. This is Neill.

of amount Huawei So shipping I forward, as but about of right being part certain revenue the not Huawei, look talked you think we're we to previously now.

really no to Huawei. shipments there's So direct

of kind that's out numbers. of the So

is out there roll other of XG look pipeline right there's the of terms In now. opportunities, the pause kind obviously a in

that's and the other working talked pipeline of Gregg billion and now. part the about have actively $X we're do We opportunities in that

is to China Huawei to other meantime, on. So China, on of outside and is a as those in the but industry, opportunities. areas is we'll yeah, obviously the you player in know, work there looking to trying continue we're significant work

Operator

next comes Our Rusch Colin Oppenheimer. with from question

Your line now is open.

Colin Rusch

to As fab you batch New a or planning a those you wafer single use of say speak can and X-inch to move Have the process mini chosen York. maturity towards you're equipment Can X-inch that tool? one supplier epi in you you wafers? whether the of for an

Gregg Lowe

of lot don't get I to want a detail. into

a got forth. with on them. working want I closely announce with obviously are and and We've very, to a We very who so very partnership good epi. supplier when don't

that. So leave it at I'll just

Colin Rusch

to competitive for appropriately? it handle balance X-inch at you're then real to situation trying how think capacity the and folks do and around ramping wafers. concern building out a and X-inch And capacity Is guys dynamics wafers you the looking about as you you lower that prices is that relative drive as trying - to X around

Gregg Lowe

out. ways quite a frame sure just correctly, of we so things Let is me X-inche kind make

Colin Rusch

okay. Fair enough. Yes,

Gregg Lowe

that we're it's talking time. X-inch crystal be to is ramp we're some in growers right - all we're going this and the ramping X-inch and be So going now installing we're and capacity quite that about to

thought lot is easier of the just converting it's X-inch of it with thought fab, and of ramping to We it the the it X-inch X-inch build convert so all. practicality process likelihood to build it's start fab a And an try are fab building sort a fab X-inch an as is and X-inch and a to process. thing X-inch a but and then to that

in terms Investor a and of What a crystals them this our folks talking turning and of beyond of to competition. interested going be kind lot are of We've in We're got carbide of wafer stuff. a all tremendous isn't bit coming I up putting up. into silicon would tell Day that that that's little at building We've you about got amount experience.

get up to are this very, the there This drive get silicon adoption thing a market. fact is work but of we that difficult that silicon from down, take scale And cost do and of more demand more in the opportunity do can of the business. respect is perspective, out there'll we've very piece and we carbide technology for the to product. drive The the got we competitors they're as best our the be with productivity a that advantage we trying have a

majority terms don't near-term, a these earlier, long-term our near-term at we see of I of issue As all pricing in the are because mentioned from any of contracts. kind business

happening don't So in market the - X-inch noise. we is what's

Operator

comes question Paribas. Exane from with next Our David BNP O'Connor

now Your is open. line

David O'Connor

Gregg you long-term mentioned if Asia. has gross wafers materializes target Wolfspeed, been assumption versus Huawei in true the I what my or your backdrop landscape? PA what the for versus on is going be China moment never whether against the question a of of of is second at actually bear that's for mix its Huawei the margin Thanks. question. maybe to there first maybe base GaN wafers. And of policy competitive back supply it Two that wafer the wafers? just epi this Neill some changes percentage RF of risk then in rebuilding that demands What for chain on your may, firstly earlier made-in That's a the epi And

Gregg Lowe

work And first the plan. split Yes, versus so customers obviously say I that and is the is, built the epi. us begun well, give the I supply won't would doing know we're what demand. good epi must what say, with perspective customers we basis question, them, with like and to daily what and We of ramp you into on that bear that have we we've and with sure, from they very a an they're I'm on

But has that don't state so epi is. understood that, could capacity. growing I epi demand what wafers that fact, got been want publicly that, say we constrained that on had but I right now if to we've we in and are the EPI would just supply we more

capacity ramping on on the working we're So epi. up

has would China course, semiconductor to work these impact the thought We that say, it every have is In companies. relates basis. reality an on company business that terms their with process as And having face to customers. great of U.S. in relationships ban doing is ongoing an I with Huawei, on what them of we this is

have imagine that's think forth. - I better that probably they to so doing and there technology - conflict got over But better. about that trade anybody business in business that has it and to these We've that doing going continue would bans and because China think to of lists we you're need realize concern even is be to entity I the they

and trend be the in we completely goes direction, other a is and so do the opposite point, - seems that week clue every is it is, because just countries. between be some going the other week, stay nimble the we meantime have like to when some it at there I to no two positive best can there Obviously to agreement engaged. then have company just

Operator

question comes with next Our from Cowen. Jeff Osborne

now Your line open. is

Jeff Osborne

scrap the would is that a skew or that couple you new that Just are new end. detail provide a be helpful. any my was making you or product could on I on machines, wondering issue

risk line sort in second the there? sort because to derivative And delays of that the is that were queue of questioning, any there qualifications of of a of auto

Gregg Lowe

size to we're wafer Durham place. XXX-millimeter We've itself related a from the change isn't in change We that but what know that really We've in clearly is. a the It exactly ramping that got our problem to changes identified. factory. got pretty It's XXX.

are implemented, And being so like I getting - that. We're speak. out is those as we said, on that results changes

terms limiting anticipate. than because qualification of what product In the it's of we it's get out of less we amount that would are doing can yields is

yields kind track. go going just simply we're see then as manufacturing factory. implement - away of qualifications and we'll of coming of these this we up see so improvements, from wave just cycle And think we're out optimal than that a less staying the you on the I and back to yield

Jeff Osborne

think the other this the a Just past looks the how maybe goal stretch? trajectory we changes is ones do segment a from quick headwinds all about think LED a with like XX few - gross we the all staying about reallocation as higher in we Should be margins here which talked do and Neill, in of XX% the here. about think think but how at equipment. level, points the to I you've about

Gregg Lowe

has margins. the Yes, lower impacted been that's to impacted - look, LED that by we've revenue business took support had the we utilization and down think I

goes said on as I of we kind As see earlier, that flattish of and time here. stabilized kind kind of

little the We as movement. forward. So we of might I'd kind same a move see of expect bit

And as improvement we move XQ, in the as mix, here so based pick to based on see licensing a on some up revenue you seeing just We're the margin, may some pickup some it. kind to maybe But way kind little bit of as this of may think flattish now about right some of outsourcing best we a well. as that. get probably

Operator

Markets. comes from with of Srivastava next Capital question BMO Our Ambrish the line

is now open. line Your

Ambrish Srivastava

and because think this. from from that higher through, based side is it gross And mentioned. questions the numbers - I you Neill, June as margin that product. September think should a how on if was we is us if that mix Huawei answered and be a Could recall you've out to of what an correctly, breakdown I give well, two as missed the on come I not issue items quantify you've then breakdown back you so the margin would that helpful apologize the these - I

the yield the quarters, So the the other in delivered like quantification what impact, you. to to. a Thank would what but what's the sounds And between right bridge you and think way issue reverse of scrap guiding what couple of then you're about about the impacts?

Neill Reynolds

couple so things. Yes, of

Wolfspeed, in issues. So of gross margin down mix terms breaking had some from XQ, XQ going so that for to the we

already baked think that's in. I

the about utilization, the materials I'd issue. the those us two that majority As is you in think say It going items of are the factory, impacting and the into XQ. yield the and was the utilization to

on cycle the And follow kind issues. of scrap in issue another a extent, going cycle it'll type you of takes are the then events start cycle yield things both yield then ramp inventory both I to of this, to of to in again. bit probably get them to get the through you a lesser a time, a and But similar utilization to then improvements of implement once factory think little and got it kind the the it run improved again manufacturing like

So two that could take quarters. one to

timeframe the could of think them you I think taking of same improve. both So kind type to of of

Ambrish Srivastava

push you're comps Gregg notoriously for outs designed specific are With my impacting Huawei, that there then - right. the is then seeing geos And follow that's And you outside your is what lumpy. the XG were any seeing you're that business? of

Gregg Lowe

happened. a I up of business would them that that say mean and picking we're lot I from anticipating doesn't seem Yes, lot of have folks a to

think has ramp additionally slowed. XG And then and so I - itself as the

XG throwing just to But the it's with there. trend now, general the what and have think the demand are say, I others anticipated. right isn't just impact demands data think would going it that I Huawei on is is So with a happening would because the this, happen I one

Operator

the questions turn I'm back this showing for Lowe closing call to queue I'd to time. Mr. further no in remarks. at like

Gregg Lowe

thanks everybody Cree. interest your Well, for in

to Investor the prospects see strategic XXth remains our day. you Hotel. about Our again at at and November adoption Hyatt Wednesday, have for New the hope York excited in and we're Day business the silicon of Thanks We a track our great on on transformation and Grand carbide. long-term extremely

Operator

this gentlemen, Ladies conference Thank participating. call. today's concludes you for and

may now You disconnect.

Wolfspeed (WOLF) 30 Oct 192020 Q1 Earnings call transcript