Enovix Corporation (ENVX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Enovix Corporate Update Webcast. [Operator Instructions] As a reminder, today's program will be recorded. And now I'd like to introduce your host for today's program, Monica Gould, Investor Relations for Enovix. Please go ahead.

Thank you. Earlier today, Enovix issued a press release announcing the leadership transition. The release, along with an accompanying presentation, can be found on the Investor Relations section of the company's website. Joining us today are T.J. Rodgers, Executive Chairman; Ryan Benton, Interim CEO; Michael Vyvoda, COO; Samira Naraghi, Chief Business Officer; and Jon Doan, SVP of R&D. They will provide prepared remarks, and then we will open the call for questions. Joining us for the Q&A session will also be Ed Casey, SVP of Operations; and K.H. Park, SVP of Global Manufacturing. Before we begin, please note that certain statements made today may be forward-looking and are subject to risks and uncertainties described in our SEC filings. For a discussion of these risks, please refer to the disclosures in today's press release in our filings with the Securities and Exchange Commission. All statements made on this call are as of today, August 17, 2026, and we undertake no obligation to update them, except as required by law. During the call, we may also reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the materials posted on our IR website. And with that, I will turn the call over to T.J.

Hi. I'm T.J. Rodgers, the Executive Chairman of Enovix. I rarely open with an apology, but I'd like to apologize for the British speaking AI voice and the reading of long legal disclaimers. I'll get that fixed in the future. You're going to listen to real people who are in the picture, talking English real time. I've got staff here. I decided to bring them in because I want them to tell you what they have to do since they are really the people who make this company work. Point one, we have a CEO transition. I won't spend time on it. It's water under the bridge. He-said, she-said stuff is irrelevant, really. The question is, where are we going forward? That's what I'm focusing on here. I've only had since Thursday of last week to work on that. And I was up to speed pretty much already. So there's more here. What has changed? Raj resigned last Thursday. And the statement to me was, it was to pursue a dream job. It's for you to decide about that statement. It could well be. I think he had a dream job here. He disagreed, this is America, he can work anywhere he wants. The next day, we had a Board meeting, and the Board unanimously accepted the resignation. We appointed Ryan Benton, the interim CEO. We appointed -- I got appointed, raised back up to Executive Chairman, meaning I'm going to be making decisions and weekly appearances at the company working on stuff, and I take it as my #1 job right now. And we launched a parallel CEO search. We're going to look to find the best we can outside. We are using the same firm that found Raj. We were happy with what they brought -- bringing Raj to us. We're also looking inside. Can people -- the people that are here can cut it? The question is can they cut it in the long haul? And can they have the long-term strategic vision? That's what we will wait to see. What is not changing is more important than what is changing. What is changing is a single position, an important one, of course, not minimizing it. What is not changing, strategy and product road map. We're working on three things: Smartphones, we've been talking about now for years, and getting them qualified is our #1 job. While we've been working on #1, #2 is turned into reality here in Silicon Valley. We're right downtown Silicon Valley in the Enovix cafeteria. That is important companies, household words, are going to bring Eyewear to the market. Obviously, the market is huge, 300 million Americans, and we're in the middle of that. And we've got some early wins. We'll talk about that. And last is Defense. Defense wants batteries that are made in America, or made by American companies with non-FEOC, that is, non-foreign entity threatened offshore sites. We're in the middle of that. Our batteries have also performed very well, state-of-the-art. So that business came to us, and we're working on it. So I've got our mainline and then two things that we will ramp and make money on while we're getting the mainline ramped up. Another thing that didn't change is our Q3 '26 guidance. I'll show you this for 1 minute or 2, but I'm not here to talk about guidance. Customer programs and qualification schedules haven't changed. We have teams working on our -- working on their customers, they're not changing. Their job is not changing. There's no charter or personnel changes on them. I'm actually going to be reviewing this week customer-by-customer, the strategic plans. Operating leadership, then I've given all the names, including the Malaysia and Korean groups not changing. And the balance sheet is the plum of the company. I work in other companies that would love to have this balance sheet with a decimal move of one place to the left. Okay. So my point here is I hope the CEO transition does not distract investors from the Enovix Q2 '26 event of the decade. I've worked 14 years to get cycle life on this battery to work. And we finally got it. And that's the headline. That should have been like America wins World War II. And instead, this is a distraction that's way less important than an event that really defines the company. And the event of the decade is successfully demonstrating 1,000 cycle life on our AI-class smartphone batteries. I want to just tell you to geek up for 60 seconds and tell you what this means. Okay, this is a battery, sliced in half. On this side, you have the silicon -- carbon-silicon atoms encased in a carbon coating. Then you have the separator on this side, you have lithium cobalt oxide. So the lithium comes out of here and the whole battery is when you charge it, the lithium atoms here, turn into ions, move across this barrier and go over here, and when you discharge it, the lithium atoms go back the other way, and the energy level of these two things is the energy level of battery. Think about 3.5 volts, that's it. The problem is the anode. And the problem is, this material we buy with lithium in it. This material is what we add to the battery, and we're using silicon. Silicon is used because it's more efficient. The section over here is 1/3 as big as it would have been if we use standard, which is graphite. And I'm not going to go into that. I actually downloaded nice little picture of the graphite lattice and I decided it's not the time. This is our -- this is what we've been working on for a decade. And by the way, this is what Sony worked on for more than a decade, when, back in the '90s, they invented the lithium-ion battery. What's the problem? Silicon is a crystal, literally. And therefore, it is a little bit like china or china as in material. If you break it, it will shatter. Problem here is -- I was going to say to you the problem is obvious. Now you understand what we've been working on and move on to the next slide. We started here, this was our silicon, this is a chunk of a wafer, and the lithium came in from this side and went into the silicon. And as you can see, it cracked up the silicon, caused giant fissures, because of swelling, eventually pried it apart. So this is a picture of one of our earliest batteries falling apart. It says less than 200 cycles. The answer is when I first came in here 10 years -- 14 years ago, the answer was less than 10 cycles. Silicon doesn't like lithium to be inserted into it. And we've changed from crystalline silicon to silicon oxide. It's an engineered material, so here is silicon. So you've got the atoms of silicon in there. The same thing happens. Lithium forms a stable compound with silicon. I'll leave it at that. And here, you see this layer on the outside, it's called the solid electrolyte barrier and the lithium has to get through this. And here you see it's big. And furthermore, you can see cracks here. So the same thing is happening across an entire battery here. It's happening on these little micro particles. And then here we are now, and this is 1,000 cycles. And you can see the particles of silicon have a thin SEI and they're in good shape. That took 14 years. And of course, each step, if you want a rough cut, 7 years, 7 more years and now we're there. And that happened in the second quarter. Somebody should have been standing on top of the building, putting up a sign, screaming about this event, and it didn't happen as well as it should have happened. When I came in, I was worried about, "Oh my God, are they going to quit, there is morale in the tank, et cetera?" So I talked to the leaders in the company, these people. These are -- a quickie, I cut down the resumes from pages to paragraphs. So Samira's on the end, so I might show these. Samira is on the end, then Ryan, she is the Chief Business Officer; then Ryan, CFO; and now Interim CEO. I want to go over here Michael Vyvoda is next. And then just showing you that T.J. Rodgers ran out of time, on the end is Jon Doan. Jonathan Doan. Sorry. Jonathan. Okay. So these -- this is the staff, and I'll just say it's a strong bench. And rather than go through reading you this stuff, I've asked them to introduce themselves, give the resume a short version of it, focusing on the most important things they've done in their career, and they'll tell you what they have to do going forward given where we are. Samira, go ahead and start.

All right. So I've been with Enovix for over 3.5 years. I spent over 20 years in some of the most pioneering semiconductor and technology companies, running product management and business development and business functions. I spent the early part of my career in semiconductor companies, including Qualcomm, Integrated Device Technology as well as Rambus. I then moved to AWS to drive the global go-to-market and business development for some of the fastest-growing compute platforms and led global partnerships for Meta Connectivity at Meta. That brought me to Enovix about 3.5 years ago, and I lead the commercial strategy and the commercial organization, including sales, product and marketing teams. Look, for me, the highest priority right now is a flawless execution on Honor. We got to get through the qualification. We've got to make sure this transition on CEO goes smoothly. And in fact, Raj and I are getting on a plane the day after tomorrow, and we're going to visit our first customer. On the smart eyewear, we have made a tremendous amount of progress. We have commitments that we need to deliver on, and we're well underway on that front. And the next step is to expand on our customer base, on the Smart Eyewear side. And finally, on the Drones, we've made a great deal of progress in a relatively short amount of time. We have a really healthy pipeline and my team's focus on priority is to convert that pipeline into dollars for the company as fast as we possibly can.

All right. Ryan Benton, Interim Chief Executive Officer. So I'm a 37-year operating executive, all that has been spent at technology and semiconductor companies. I think the one part of my career, which is listed here on the slide, that's the best analog for the situation, is my time has been at Exar. So I joined a Silicon Valley tech company, spent 5 years as CFO. And then ultimately, in a very similar situation. There was a CEO change, the Board tapped me on the shoulder to become the CEO of that company. I stepped in. And what I think I did well there was to get the team to come together and work as a team and improve execution, not only speed of execution, but the results. We put a lot of points on the Board and ultimately delivered a really nice return for the shareholders. What I'm focused on is doing the exact same thing. So I really find this situation really similar in the sense of the ingredients are here, the team is here, a really good team that's really focused and we have enormous opportunities in these three markets that we're focused on and make sure that we're doing a disciplined, efficient financially prudent way.

Let me do the last person in this room. Dr. Michael Vyvoda. He's actually Michael Vyvoda, PhD and he's our COO. Michael?

Thanks, T.J. Yes, I have a PhD in Chemical Engineering from UC Berkeley originally in the semiconductor area, but I've had a variety of roles. I think most relevant here is the work I did at Apple. Actually, there are two roles that are very relevant. I started when AirPods was a tiny product line and grew that into a multibillion-dollar annual business, moving supply chains, moving manufacturing sites to more financially viable locations and really increasing the profitability of AirPods and growing that into really a worldwide dominant business. Secondly, I was recently working on electrolytic magnesium manufacturing, which is very close to battery technology. It's electrolytes and so on. So very relevant there and running operations for the first company that is building a new magnesium smelter in the U.S. in the last 30 years. So a couple of examples of how my experience is very relevant building supply chains, but I'm a technologist at heart. It's why I understand the tech, and I understand the operational aspects as well. My focus going forward, the team here has built a wonderful foundation, and it is going to build on the opportunities that were discussed earlier. One is really expanding manufacturing at our Korean site. There's an enormous revenue potential there that we're going to expand manufacturing and capture that in the near term. Secondly, there's a strong business as you've heard on improving yield and improving manufacturability of our silicon anode cells. So I'm going to be continuing that and making that a real strong focus, which then leads into the third strategic thrust, which is ramping our Malaysia site based on those improvements. Those three things together are the strategic thrusts that will take us over in the next several years. We have 5 R&D groups in the company. It's justified. You might ask quite why so many? I'll give you one example. In India, we have an R&D group that works on electrolytes, which are exotic, complicated mixtures of compounds that are the liquid in the battery. You can't use water because lithium reacts with it. And that's the whole R&D site onto itself in India. So -- he has an R&D group that makes equipment. The idea is how do you make new equipment that the world has never seen before and make it function, right? That's Moore's law problem. Every 2.5 years that, that's what the semiconductor guys face. Finally, I'd like to talk about operations. Having a nice early start. K.H. Park and Ed Casey. So I -- give them your resumes and tell them what you got to do.

Yes. Hello. This is Kihong Park. I'd like to briefly introduce myself. My major is the Master of Chemical Engineering. I'm a manufacturing and operation leader with over 30 years of experience in lithium-ion battery manufacturing across Asia, Europe and North America. I joined Enovix in 2023 following the acquisition of Routejade, where I served as CEO. Since then, I have led the integration and manufacturing improvement efforts in Korea. Today, as a Senior VP and Head of Global Manufacturing, I oversee manufacturing operations in Korea and Malaysia, focusing on production scale up, operational performance and volume execution. Before joining Enovix, I had leadership roles at SolarEdge Technologies Korea and Kokam. I am now focused on applying my high-volume manufacturing experience to support Enovix's next phase of commercial growth. Thank you.

This is Ed Casey. Currently, responsible in Enovix for the development build and ramp into high-volume production. Our fast speed dicing. As you know, we currently use laser. It's quite slow. So in 2027, we'll roll out the mechanical dicing. Experience, my background is high-volume manufacturing, starting in the thousands of units and then eventually ramping into millions in a very short period of time. I've spent over 11 years in country either in Malaysia and Singapore. Most recently, prior to Enovix, I was with the company ams OSRAM. We simply were a single source to Apple for various components. And at the time I joined, we were making a few thousand, yields were low, productivity was low. And over the course of a couple of years, we ramped that into billions in extremely high yields in world-class manufacturing and also implemented automation.

So one comment on KH. We acquired this company and the idea was for them to make the anode and cathode material for us, which is the anode material is copper foil about the thickness of the aluminum foil you have in your house with silicon on it. I showed you a picture of it before. And we found out he had a very competently run factory there. And it was about that time that Western democracies realized they can't buy their stuff, their batteries from China, right? China can shut you down and they may be an adversary someday. So all of a sudden, that manufacturing facility, which is a good one that we bought, it turns out to be a revenue generator for us, that wasn't part of our plan. We always knew it would happen, but not to the level that's happening. He also has with regard to the people here today done the funniest line of any of our VPs. I was in a meeting with him, and we were talking about his facility in Korea. And he said, "I was very disappointed to find out that our factory is doing so well after I left." Another is a wisecrack about a well-running plant that didn't need the head guy in order to run. So I wanted you guys to understand who's here. And then frankly, I'll give credit to, I've been here during all this. I've been here a decade before this, but the guy that did this was Raj. And he in effect, hired a competent group that can make things happen. And that's -- by the way, tell me, give me one statement each of you guys the #1 thing you have to do.

I'll go. My #1 goal is to take fast speed dicing into manufacturing in 2027.

My mission is first for this mass production for [MAPI]. So Enovix is the first mission in this time.

And mine is simple, mine is to ramp capacity. It's to take the progress we've done in R&D, match it with manufacturability and get those factories ramped.

Given that I had exactly 2 working days from hearing about the resignation to give this presentation. I skipped Jon Doan. But Jon runs our -- Jon tell us of the groups you have and what your top priority is right now, just one and two.

Yes. We have 4 groups in R&D, one in India, one here in Fremont, one in Korea and one in Penang. Our top priority right now is how do we take the great batteries that we're making and transfer them efficiently and quickly into high volume manufacturing. So we are working closely with Michael and getting that done.

Okay. So I'm going to talk about them as the manager of the strong team in the future going forward. And as I answer the question, what are we doing? And to give credit to Raj, each of these moves was announced publicly months before this transition. The execution bench is not a reaction, it's part of the plan. Okay. The only guy that hasn't been introduced is me. I'm a Chemist and Physics Major from Dartmouth. I was on the Board of Trustees of Dartmouth. I came to Stanford for graduate work, got MS(EE) and PhD(EE) there. I worked in 2 Silicon Valley companies in the line, making wafers. I started Cypress Semiconductor in 1982, and I was 34 years at that job, which is a record. As you might imagine, there's kind of a turmoil out here and a lot of turnover. And I settled in. The reason I settled in was my job changed every year, and I realized that. So I didn't become obsolete, as a techy geek who couldn't run things, at that transition point when it came to getting technologies better than me in certain areas. I got them. They work for me, but I didn't do that job anymore. At the end, I worked primarily on financial relations with investors and with people that funded us and I worked on quality, about almost half my time on quality. I turned around Enphase. That was one of my projects after I left. And in Enovix, I've got 22 million shares, 21 million invested. And I've been on the Board since 2012. Okay. You've seen these people way better than me reading it to you. Status of our markets, Smartphones, Smart Eyewear, Drones and Defense. This technology is artificial intelligence technology #1. So this is the process, if you will, [indiscernible]. AI requires a lot of energy because it burns a lot of power. It requires the ability to put up power. And it requires energy density, which is a conflicting requirement all in one package. And our first-generation technology is what will make smartphones and eyewear with. And then we have the technology from Korea. We put a turbocharger on it. We put 20% silicon in the Korean technology and now for a standard technology a state-of-the-art. And they know how to make stuff, and they've got good quality and it's a well-run plant, didn't fall apart when K.H. left, and we're all happy for that. So now what I've got is our latest accomplishment. What we have to get done in 2026 and what our status will be or what we have to do by Q4 for each of our 3 technologies. I'm in the process right now of mapping all of our R&D projects under these 3 main vectors in the company. So the big news confirmed by the lead customer, the life cycles. The problem that is in the end of the journey is because we deliberately make batteries with high energy. That means they last for a long time. That means you don't run out of power at 4:00 in the afternoon. That means if you charge it, and discharge it, it takes half a day. So if you run the thing to the spec, you end up getting 2 charge/discharge cycles per day. So if you want to check to see if it works for 1,000 cycles, you get yourself a computerized system for charging and discharging. You put the new batteries into it, that have the latest experiment, whatever it is. And then you wait 500 days. So that's the tyranny of this problem. This problem happens in semiconductors. The solution in semiconductors is called burn-in. So instead of trying to operate a chip for 5 years, under normal conditions, 70 degree centigrade inside of some box. We run it at 125 degrees centigrade, and we exercise while we're running it. And that's how the 5-year cycle of does the chip -- is the chip reliable turned into a 6-week cycle of testing the part at high temperature. So what we need to do is get final cycle life tests completed. And how do you do acceleration in batteries? Well, you charge them faster. So instead of charging and discharging twice per day, you charge 7x per day, then your time to get information is short. Even though it's not good enough. And I'm going to call for R&D to move faster today. But we now have a customer who believes the battery works. We now have to agree on a test, which is being worked on jointly with us and our customer. [ Honor ], a teaching customer -- they used to be a highly valued customers in semiconductor world, where the company you're selling to knows more about something you do and they're willing to share with you. And Honor's done that for us. And then in Q4 26, we need to sample a second cell phone OEM probably in China. So this is status nearing goal, yearly goal and nearing goal, Smart Eyewear. We're now shipping our first order. And you heard before from Ed, he said I specialize in starting with thousands going to millions. And that's exactly where we are here. We got a hard order for 50,000 units, and we're shipping it now. We have to ship 19,000 of those units in this quarter we're in right now. And then, of course, they use it, what they'll do with it is, they'll make 50,000 cell phones or some fraction of that, give them out to everybody and test it, make sure our stuff works exactly right in their environment. They can't afford to spend millions of dollars and ship samples, and then have to recall them, it would be a disaster. So -- and when they look at making sure stuff works, they look at a lot of stuff. They're very thorough. And then what we're going to do for them, we have Artificial Intelligence Technology 1. We have AI2. That's my brief case. Somebody hop on over there and push a button, please. We've got a phone call coming out of my briefcase. AI2 is a more advanced version of AI1, that has 20% more energy. So instead of that, we brought it out, it's louder. My fault. Okay. So we're raising the energy density. This is when we get into these companies and they're big household names. When we get into these companies and the other guys are trying to copy us, we've taken a step before they get there. That's playbook of [Andy Grove] at Intel when Intel was king of semiconductors. Third, drones and defense, give you one piece of these numbers are all the most relevant number today. From nowhere, we've got a $183 million backlog. And that's our pipeline, and it was up 41% Q2 '26. So we're the high energy, high performance, American battery company, and we've been dealing with defense actually for years. We are -- I won't go in it, but there's a vest that soldiers wear. That's the electronic vest that means you can track individual people. It's got batteries and pockets in it, and we supplied that as an early DoD experiment. Because of this, we're going to have to increase our capacity in Korea right now, the Korean factory is a $40 million outfit, and we're in the process of upgrading it to $100 million. And it's actually pretty economical to do it. The ROI in this is very high. And today, this is a name of a program in the government, I forgot the acronym. What they want is 100% non-Chinese capacity, and we can do that. So we're just going to grow this and do whatever they ask us to do. We're going to deliver this order and be ready for the next order and actually get a second customer here. Okay. So my agenda. So I heard about this thing last Thursday, this is Monday, and you might guess Saturday and Sunday were workdays for me. And I had to think, first of all, I'm familiar with the company for a long time, but I had to get into the details of what I need to do, and that made me think, for executive staff discussion, what is right that we need to preserve and what needs to get better. So what I like, cycle life works after 14 years, I got to say it again, that ought to be in capital letters that are bold. I like a strong executive staff, so I came in thinking, "Oh my God, how are we going to do things?" And they told me, I didn't tell them. And my conclusion is the staff can run the company with no hiccup. Meaning I do not expect any of our guidance or customer relations to change. The one that we're worried about is our Chinese cellphone companies, and we're actually -- Raj has agreed to take some time off his new job and go to China with us and personally introduce us to the people he brought to the company in the cellphone world. We're going to send 3 of our top executives from this room. And then 3 of our Board members will be on electronically. So we'll have a group of 6, telling those guys, we like and we appreciate their help, and we want their business still. Okay. What I need to fix or maintain. One, Investor Relations. I've always thought of this. I've always griped about it. And if Raj and I had one argument over and over is this. I don't like the reports. I don't think they're clear. I don't like verbal parts of it. They're not transparent. They're not what I think investors deserve. Second, because we're an R&D company, we have 1,000 employees, and we've never thought carefully about can we afford 1,000 employees, 1,000 employees earning $40,000 per employee per year. Starvation wages in any technical business is $300,000 per employee per year. Once you get to $400,000 per employee per year, it can run a manufacturing company with profit. And we need to get there. It's not in the cards on a monthly basis, but we need to install business processes to start moving the company in that direction. We've already installed one. It's a process called requisition auction and the discipline is simple. Every week, 1 or 2 people leave every company. And instead of just replacing them, those requisitions become valuable property that is -- it's called the requisition auction that are "auctioned off" to the executive staff. So you come in and say this week, we get to hire 2 people. And then the staff says, well I need this guy for this, that guy for that and you find out you want 5 people. And then the answer is no. We're going to get 2 this week, and we'll wait for the other 3 until we have other resignations, then the people that need it the most. The -- it's a very powerful process. It's been embraced actively by the company, is being used. It allows the CEO, any CEO to climb in the pilot seat and have a dashboard right in your face to choose -- to manage every single week. So that's one tool we're going to use. I won't take time, but there are several tools like that, that exist here. They've been embraced, the employees like them, and that's how we're going to do it. We lose $100 million a year. And if we didn't have the giant bank account, that wouldn't be okay. Now the argument is you have to invest $100 million a year. This is big, big leaks. You're competing against multibillion-dollar companies, and you have to have the R&D that size. Hence, 147, 158 R&D employees. And I'm an R&D guy, and I'm not exactly a cost hawk on R&D. I will be reviewing it, but I can tell you what's going to happen. It's not going to grow. It's going to become better. And as people leave those organizations, they'll be replaced by at the time, we think are an upgrade. And over time, the cost will remain constant in a declining percentage of revenue and R&D is going to get more and not less effective. That's my experience. With Chinese smartphone customers at risk. That's the trip, I already talked about. That's this week, Friday meeting in China. R&D is competent. Jon is a Stanford Ph.D., 30% of his people are PhDs. They're smart. You walk through the place, they got their nose in their computer and they're working. What's lacking is the next higher level of management which is to look at the portfolio of projects and ask, what are we doing? Why are we doing it? And should we be doing it? Right now, we have those three initiatives I talked about, and we have 20 projects. And that number needs to be less, and we need to be faster on fewer things. We also need to solve the problem I talked about before in order to determine lifetime, which is our limiting factor. Does it make or not make the lifetime? We had to first cut it -- talk -- I said about fast charging, cuts it down to -- from 500 days down to 14 weeks. It's still not good enough, by about the factor of 5. And we have to do the next step, which is to cut it down. So when we do an experiment in 4 to 5 weeks, we can say it worked or didn't work, add it to the process or start looking for the next way to solve the problem, whatever it is you're trying to work on. Maintaining active engagement. That's really here. Raj was a PhD and he did actively engage with manufacturing -- is a PhD and while he was here, he engaged with manufacturing and R&D deeply. We're talking -- this stuff is complicated. You can easily walk into a room, claim you're going to be out of there in 4 hours, and then decide to work a couple more hours so you can skip traffic. So I have to maintain that. And hours I'm going to spend here, most of those hours will be dedicated to that given the executive staff is going to need decision approvals more than decision-making from me. Okay. I wrote this. I'm going to read it. That's the only thing I'm going to read to you. I'm not big on reading things, but this is wordsmith. This is a CEO transition, not a strategy transition. Our Q3 '26 guidance stands. Our balance sheet holds $552 million in cash and the teams executing customer programs are unchanged, reporting to proven operating leaders we put in place months ago, the table here. Last quarter, we demonstrated 1,000 cycle life in our AI-class cell phone batteries, our AI1, Eyewear cell is shipping against firm customer orders and our MX-1 that's the Korean process, which is a typical battery process that we've boosted up with 20% silicon content in the anode, which we know how to do. Obviously, we do 100% now. MX-1 is building out for a defense market that is growing rapidly. The Board will run a deliberate search for a permanent CEO with no artificial deadline. That is if we don't find a hero, we're not going to act, especially if the team we've got here is working. Meanwhile, the company needs to stay focused on execution for customers, factory delivery and financially. And right now, fortunately, all of these are working real well. And then we've got this meeting where we got to talk about the downside event that we have to accommodate. So that's that. Time for questions, and we'll take any question you ask and answer to the best of our ability.

[Operator Instructions] Please note that this call is being recorded. [Operator Instructions] Your first question comes from the line of Mark Shooter with William Blair.

One for Michael. Apple is amazing at leveraging contract manufacturing. And Enovix has 2 separate facilities and separate battery manufacturing technologies, the novel architecture being in the Malaysia fab. I think a question for investors is, once you get demand for the battery technology and you see POs occur, can the Enovix architecture scale profitably? You can make the cells on the Agility line, but as you move to the high-volume line, there's been some ambitious targets like 50% gross margins. So I'd love to know what your assessment is with fresh eyes coming in and seeing the unique manufacturing process and the unique Enovix architecture? And do you think that this process can ramp with economic yields?

So the one thing that impressed me most, I was in the factory last week, this is not a tremendously complicated process here. You can build these batteries with a relatively small number of steps. You compare this with AirPods, which is obviously a much more complicated product. So I actually do feel with high volume lines that we have planned here. With the yield improvement that we're doing, with the manufacturability improvements that we have already kicked off. And with the small number of steps that we have here, I think this could be a very profitable product.

Thanks, Michael. I appreciate that. And just a follow-up for K.H. on a similar vein. It's not often we get to interact with Michael and K.H. So now that you've seen -- you've been put in charge of both architectures, right, the traditional pouch cell that's in Korea as well as the Enovix architecture in Malaysia. K.H., I'd like to know what your impression of this manufacturability of this design is and how difficult you see the transition between the two and how difficult it is to yield out for stacking the thin electrodes versus traditional pick and place or Z-fold that you use in pouch?

That's for KH. That's going to take a while to get translated. Meanwhile, Michael, you can answer that question, too, right? Manufacturability of our technology versus standard pouch technology.

Yes, I don't have any concerns about the manufacturability. The way that we stack our electrodes is a relatively simple physical process. I've seen it myself done in the factory. And I see it just as manufacturable as the technology that's out there today, the legacy.

The problem has been from an investor point of view, we, including me, have made promises like we're going to qualify this company and be shipping by such and such a time. And those in retrospect, those questions were uninformed. That is we're on the edge of what works and doesn't work and it's like determining what quarter calculus is going to finally work. You can make a mistake on that, and we have. And then the next problem then is when you hit quarter X and the investors are saying "Where the hell is the stuff you promised us to make?" Then you need a reason. And the reason it's always been the latest problem. The latest reason is laser. We have aligned what UPH is 1,150, what's the UPH? 1,350 UPH is the line design, and yet the lasers that take big sheets of electric -- cathode and anode material and cut them into the electrodes used in the battery are running at less than 100 units per hour. So the entire line is throttled down by factor of 13. And okay, so we got laser problem. So you come in and say, "Well, it didn't happen because of laser." Well, you got a PhD, you should know about lasers, and you don't. So right, we're hiring. We've hired laser guys. The problem was we were on the edge of what lasers can do and concluded about a year ago, lasers are not going to do what we need to do, and -- so right now, they can do what we need to do, but only slowly, and that's never going to get good enough. Because in order to get good enough, I need 100 of them at $1 million to $2 million each, all busily cutting away just to feed the line because the line is fast and sucks the stuff up and is gone. So as you well know, and you guys are sometimes more educated than I like, we're doing it mechanically. So you think about punches, big machine that punches out a piece of metal and there's a corridor, and that's an ancient technology and it works. We're working on micro punches now that need to be accurate and can cut this material. And we've been working on that for 6 quarters. That is our way out. They are an order -- more than an order of magnitude cheaper than lasers, and you don't need a lot of them. So that's our solution. You guys got a schedule on punches in production?

We said multiple process steps around year-end would be in production.

So we're -- we've learned about getting beat up, so we're going like this when it comes to schedule. I review that project every quarter. And I think it's going to work. But these -- when you punch out a corridor, the error in which you punch out, it's maybe 0.5 millimeter, which sounds like a small number, but on the scale of a battery. It's not a small number. It's a big error. So we're having to run punches at accuracies that they're not used to 0.1, 0.2. The stuff we're punching is one of them, is lithium cobalt oxide. It's -- think rust. Iron oxide is rust. This is cobalt, right, the same area in the periodic chart and you oxidize it, and stuff is hard, and it's abrasive, and the punches have a hard time with that. So we're working our way through that, but that is an easier problem to solve for sure than the laser problem. And I'm not using it for an excuse. I'm just saying this is where we are.