Enovix Corporation (ENVX) Earnings Call Transcript & Summary

This podcast may contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are based on current expectations and may differ materially from actual future events or results due to a variety of factors. For a discussion of factors that could affect our business, please refer to our filings with the Securities and Exchange Commission. All of our statements are made as of today based on information currently available to us. We can give no assurance that these statements will prove to be correct, and we do not intend and undertake no duty to update these statements, except as required by law. Welcome to the Journey To Scale Podcast for Tuesday, March 19, 2024. I'm Kristin Atkins, Vice President of Marketing and Communications. Today, we're going to catch up with our President and CEO, Dr. Raj Talluri, to hear about his travels to Mobile World Congress and the later. Welcome, Raj.

Thank you, Kristin. Really exciting to be back here to talking to all of you. Yes, I've been on the road for a bit. I went to Mobile World Congress with Samira, and Samira I met almost all the mobile customers that launched in the mobile phone market. Really, really exciting. Mobile World Congress is really back full blast. Many, many really new phones launched there, new wearable devices, a lot of excitement on AR/VR headsets. And AI was everywhere. I mean I think I posted a little bit on Twitter when I was there, that there were -- On-Device AI was really the key thing that I've noticed a lot there. And because what's happening is people are frightening because of privacy or because of the cost involved, they like to really use the devices they have already paid for it to do this. And that is really creating a lot of buzz. And one thing that it was doing was customers are really worried about their ability to have a phone or their IoT device or a wearable device, go for a whole day without charging because the amount of demand these applications are making on battery is tremendous. I got an opportunity to meet all the mobile phone customers and very exciting meetings. And they were all super excited to get samples from us on EX1M. And as you -- as our audience knows, that's a product that we are in the middle of getting to a point where we can sample our customers. And they are super excited by it, and they want to test them as soon as we give them samples, and they expect to put them in the products next year. EX1M, I wanted to say a little bit. It's a great product that we are super excited about because it's a product that has -- keeps our energy density advantage but also increases the cycle life much higher because what I mean by the number of cycles that it can go, the battery can be charged and discharged. And our previous products were going up to 500 cycles. This one is up to 1,000 cycles is what we have been working on. And because of the tremendous work done by an R&D team in a short span of time, we were able to get to that metric. And that's really exciting for our customers. And cycle life has become even more important now than ever before because, as I mentioned, due to all these AI applications, people are having to charge their phones and laptops more times than they did before because apps are really consuming a lot of the battery. That's there a lot of excitement around that at the show.

Yes. And you also mentioned that you're seeing phones being advertised as AI smartphones.

Yes, absolutely. I mean if we actually look at some of the smartphones, you can see almost everything from Galaxy AI from Samsung to Vivo and Oppo and almost every customer has an AI-based smartphone. And in fact, one of the brochures, actually, if you look at these phones, they talk about how many large language models are running on device on the phone. It's actually pretty amazing to see that as being a selling point in many of these devices. And actually, one other questions that -- one of the points that, I guess, I've been making since I joined this company was that last year when I joined, I went on a road trip to visit all the customers in Asia and on the April time frame, that's when I really realized that people wanted much longer cycle life on these batteries and they want the ability to do fast charging. That's where we quickly realized that we really need to do this because with AI coming up, everybody wanted to charge -- felt like they had to charge the phone multiple times, which meant that if you charge your phone every day, you're looking at 365. And if you want to keep your phone for like 2 to 3 years, you're quickly getting up to that 800 to 1,000 cycle range. That's when we started this effort on ES1M right away last year, and we are super excited that now we are pretty close to getting it out and sampling to our customers.

That is exciting. So AI phone need AI batteries.

Exactly.

Okay. Great. So anything else you want to touch on Mobile World Congress. We spoke to Samira last week. She told us all about Robot Dogs and AR/VR headsets. Was there anything else you wanted to add?

Yes. The exciting thing about Mobile World Congress, Kristin, is that we were able to meet all the cellphone customers. Many, many interesting brand new smartphones being launched there with AI being in the center stage of many of these products. On-Device AI is becoming a really, really big thing. And these same customers actually also launch IoT devices like wearables and they also launch AR/VR headsets. So it's really exciting to see that the batteries that we are making, the same customers can consider them for both mobile and IoT and wearables and also some of them make tablets and notebooks. So is it kind of validates our thesis that when we are able to make batteries that meet the requirements of the mobile phone, we now can sell them into all these other markets also.

I see. So as the smartphone battery requirements are the toughest. Is that what you're saying?

Yes. The smartphones being the largest part of the market. The requirements are actually pretty tough because people really want things like fast charge. People want close to 1,000 cycles of cycle life and people want higher energy density because of all the AI applications. So once we're able to make the battery that meets all these requirements, which is what EX1M is targeted at, it will flow into all the other IoT and the laptop and also the AR/VR headsets. And the other thing I found from the customers, Kristin, that they're super excited by is, in working with us, is after EX1M, we have EX2M next coming right after that. And typically, customers refresh their products once a year. So we feel like EX1M is something that our customers will launch next year. And EX2M is something that they launch the year after because the cycle time to actually qualify a new supplier is long. As you know, it takes 9 to 12 months in this space to get into one. But once we are in, the EX1M to EX2M qualification, I expect could be much shorter because they're already familiar with us. They're already familiar with the 100% Active Silicon Battery and so on. So that's other reason customers are very interested in working with us is to get us to production first on our first product, and they can quickly move the next product the year after.

Yes. That's great. Yes, Samira touched on the shorter cycle time with customers once we've qualified. So can -- so it goes EX1M and then EX2M...

Yes. I mean, look, we are already now thinking about EX3M and what that would be like. We'll continue to improve our energy density and we'll continue to improve the fast-charge capabilities and continue to increase the cycle life. There's a lot of new materials coming into the market. And because of our unique architecture, which is our key differentiation, we are able to take advantage of all the new material advances that people are making, and we have a very compelling road map going out further and further into the years as we keep increasing this energy density and cycle-life and fast-charge capabilities. And that's very exciting to our customers because they really will be a roadmap that delivers value year-on-year.

Exactly. Great. Okay. So that's Mobile World Congress. Let's -- and then you got on a plane and you hit it to Fab2 in Malaysia, can you tell us what you saw there?

Yes. I flew this way and I flew back the other way. I did my around the world trip. It was a little rough, going through so many times zones. So it was super exciting to visit our Fab2 in Malaysia. It's really come up to speed really, really quickly in 100 days, we were able to build like a phenomenal factory. It's really amazing how fast the team there was able to execute. I got to see many, many of our Gen2 machines there, and they are out there churning away and working really in tandem. We expect them to complete FAT and SAT soon and produce batteries. And I tell you that country -- just see this amazed me to go there and hang around in sort of vibrant city and our factory is just on the Mainland, just off of the Island of Penang. And it's really truly amazing. Words really cannot describe how quickly it has come up. In 100 days, we went from just a bare like a shell to a fully built-out factory with a huge clean room, epoxy floors and Zone 4 machines, Zone 4 equipment all installed and very few parts of the world can you execute at that speed. The country knows manufacturing. There are people who know how to do this. And there's a huge amount of support from the government. I got to meet the Chief Minister of Penang, and he was super excited that we were there. We were building battery know-how to Malaysia and spent a lot of time with us. And we talked about all the ways the government could help us scale even more there. And that part was very exciting. And we were able to hire over 100 people in such a short span of time, from Material Science Engineers to Manufacturing Engineers to -- and I spent a lot of time in roundtables with the team, spent a lot of time talking about the strategy. And super excited and FAT is going well. And as you know, FAT is a very, very stringent process. So we actually don't want to cut any corners. We want to make sure that the machines that we had accept from our suppliers are performing at the level we want them to perform before we have them coming to our site and then SAT is another rigorous procedure. We're working on Agility Line first, and I saw that pieces of it in operation. Super excited to see it. And most of the customers I met in Mobile World Congress actually were asking me when I would be able to host the opening of the factory, so they could all come and visit. And we are actually working on that now for some time in a later part of the summer.

Yes. We're all looking forward to that. Well, speaking of Fab2 can you talk a little bit about timing of samples?

Yes, absolutely. So what we want to do is on EX1M, which is what we're all focused on right now as the key product for all our customers. We are actually going to get these samples and then we're going to test them rigorously. The good news of the strong customer relationship I have and I've built with these customers over many, many years, they've given us a very clear documentation and requirements on how they would actually test the batteries when they get them. For example, if you put a battery in a phone, they would drop the phone 50 times, 100 times and make sure that nothing happens to battery. They would put it to a different kind of crush test. And some phones operate in very cold conditions because you sell a phone in Iceland or something. So you'll have to make sure the battery operates at that temperature. Some phones charge very fast. In a few minutes, they'd like to get up to 20%, 30% capacity. So we have all those tests. So our plan is to, as soon as the samples come out, we will test them to those specifications. And when we test them to those specifications, when we give it to our customers, it cuts a cycle time on their side. Of course, they would test it themselves, too. But knowing that we have tested to exactly how they would test, it will make sure that there's no kind of [indiscernible] when they're testing it because we've already done all those tests. And that also cuts the cycle time on how long it takes for them to get to production after we give them. And we are on target to get them these tested samples in 2Q this year.

That's great. You have certainly evolved the company into a customer-focused organization. So we're going to ship them EX1M samples first and then move to EX2M. Can you talk a little bit about that and the progress there?

Yes. So the way this is going to work, Kristin, we are going to send them the EX1M samples from that we make here in Fremont for us, which they're going to test and then we were going to send them the samples from Malaysia, from our factory, which they will test. And what happens is when they test this, once they meet the exact requirements that they've given to us in terms of cycle life, in terms of fast charge, in terms of energy density and so on, we get from them the specifications of the exact dimensions, the XYZ dimensions of the battery that they need, that will go to production in their phones or in their IoT devices next year. And we will then make those samples of that particular size from our Agility Line and also from our HVM Lines, because those lines, as our viewers might know, are universal lines, which means we can change the shape of the battery to what our customers actually want. And once we make those particular shares for them, they will then put them into their products, like the phone or IoT device, and they will test them. And then when they're ready, they place the orders and you go to manufacturing. By end of this year, we also expect to give them EX2M samples, which will take them again go to the same process. They will test them, they will load at them. But those will go to production '26. So EX1M is what will go to production '25 and extort production in '26 is what we're expecting now.

Okay. And you have large customer demand for EX1M, is that right?

Yes. I mean talking about demand, let me kind of maybe talk a little bit about the size of the market and the excitement around this. If you look at smartphones, as we saw at Mobile World Congress, I think this year, maybe north of 1,200 million smartphones will be shipped. And each of the customers we're talking to probably make around somewhere between 100 million to 200 million smartphones based on -- a year based on the customer and laptops are probably 200 million, 250 million units a year. And they take like 3 batteries sometimes and maybe 4 batteries sometimes. So you can see that market is also very big in terms of number of units per year. And wearables again, multiple hundred millions of units market. For us, the TAM is very large because the customers we're talking to are considering our batteries for all of these applications. So even if we get to 5%, 10% market share of this market at $8 to $10 a battery, for example, in smartphones, it's a huge multibillion dollar business. So it's very exciting to see the market opportunity and the TAM. And these requirements that we're meeting with the EX1M address all of those. So that's why it's -- we expect it to ship quite well next year.

Well, thank you, Raj. That was a great overview of your travel to Mobile Work Congress and Asia. We really appreciate you bringing us all up to speed.

Yes. Thank you, Kristin. Really it's my pleasure to communicate this and be on this podcast. Thank you for all the questions.

That concludes this episode of our Journey to Scale Podcast. Thank you all for tuning in. Be sure to subscribe for alerts. We'll be releasing new episodes as we reach new milestones and scale up to high-volume manufacturing. Until then, thank you, and have a great day.