Infineon Technologies AG (IFNNY) Earnings Call Transcript & Summary

Hi, everyone. My name is Francois Bouvignies from UBS. And we are happy to have Peter, Head of GIP at Infineon and Adam, Head of PSS to discuss the power of AI and power of Infineon in this topic. So I will leave the floor to Adam and Peter in a second. Before that, if you want to raise a question, free to raise your hand, and then mute yourself when we tell you to speak. After the presentation, you'll have the Q&A session starting. So thank you, Adam, and Peter, and the floor is yours.

Thank you, Francois, and thank you very much for everybody dialing in and your interest in Infineon and how we are powering AI. So as we just heard, we'll be talking about the area of powering from the grid to the core. And from an Infineon perspective, this covers the two main segment application areas of AI data center as well as the power infrastructure. So of course, now with the massive AI infrastructure build-outs, this is now translating into a multiyear CapEx expansion. And recently, we talked about our AI business really from last year going up to $700 million and with this year, doubling our revenues to an ambitious $1.5 billion in FY '26. The addressable market, which we'll talk about no doubt as we walk through the presentation is at the end of the decade, $8 billion to $12 billion. Now why are we so excited about talking, about powering AI from grid to core is because we have an abundance of opportunities and addressable markets. Thanks to our system understanding, our talented organization of the technical communities and the customer intimacy, but of course, with that, the quality aspects. And what we're going to do today, Peter and I will share the material. Peter will head up the grid aspects, and then I will be further talking about going into from the grid to the rack, the core and then a brief introduction on the physical AI. So with this, we're looking forward to giving you a glimpse, but then we will ensure in the Q&A, we can answer your questions. So with this, over to you, Peter.

Yes. Thank you very much, Adam, and also welcome from my side. So why grid to core? Because we realize that the demand of electricity due to the upcoming demand from data centers leads to significantly increase in demand of electricity generation and transportation. So we are a big player into the area of semiconductors for transmission and electricity generation. And just here as a teaser, we need the electricity fast, right? The demanding customers having huge requirements with respect to additional electricity being generated. So looking into the lead times and into the available sources of electricity, this picture shall send a message with respect to cost and also lead time renewables, solar, wind, solar plus storage and gas are most likely the players, especially for the U.S. market who are very competitive and quickly available. Now looking into how the data center of the future will look like. You have the connection line, high-voltage DC grid and then you come to the data center side. And there are some very interesting architectures which now evolve and have a high additional demand for leading semiconductor solutions. First to mention is the solid-state transformer because converting high voltage to lower voltage levels required by the consuming data center side, traditional transformer as we speak, are in short supply. And there are solutions where we, together with our customers, work on replacing traditional transformers by solid-state-based solutions, and I will come to a second what this means in more detail. Then the second topic with the evolution of the data center is that data center goes DC grid. And with DC grids, you need specific protection features as, for example, circuit breakers. The traditional forms of circuit breakers do not fulfill with respect to tripping time, the advanced requirements and therefore, also the solid-state circuit breaker is a very attractive solution for our customers, which generates additional market size for Infineon and our industry. Then, later on, looking into the IT Racks, I will hand over to Adam to explain you more about the details. But before this, we do have the UPS as in the past, but is now being complemented by energy storage, battery-based energy storage systems. And let me start with the latter one at the moment. That is a market that we know pretty well, already exists today, and it's not only being used for data centers, of course, but as of today, it is being used for grid stabilization on the utility scale and of course, also in private households for buffering energy down in the basement. So Infineon offers a very comprehensive set of semiconductors ranging from power via control and connectivity to sensing solutions. And this market is expected to grow with a very solid CAGR of around 30% in the years to come. So we are engaged with all big players in those ecosystem, ESS inverter companies, system integrators and, of course, also battery OEMs. And the content, the semiconductor megawatt is estimated to be a little bit above EUR 2,000 in average. So that is available. That is now growing nicely. Now we come to a topic which is very fascinating for technical people like me, and that is replacement of the traditional transformer by a solid-state solution. So on the left-hand side, just to exemplify what we are talking about, you see the traditional transformer. Semi content for transformer is, as we speak, 0. It's a piece of metal, of course, also a metal piece of art consisting of metal, wood and oil inside and the total transformer market is estimated to be around USD 15 billion. So what is the beauty of the semiconductor solution? With semiconductor solution, we transform the passive transformer to an active device. So higher switching frequency gives the capability to significantly reduce the footprint, making it much, much smaller and lighter and most important, making it quickly available. So we provide semiconductor solutions like, for example, our EasyPACK module based on silicon carbide, which has a very high blocking voltage up to 3.3 kV, which eases the construction and realize a very compact design, and we are collaborating with quite a couple of customers. Two are mentioned at the bottom line. And what is very remarkable is the fast evolution of customer interest in the market. So beginning of the year, I was known of roughly 5 start-ups in the U.S., who was working on the topic. Now as the year comes to its end, this number of start-ups quadrupled, adding to the established incumbent players, which are working on those solutions sometime since many, many years. So the dynamic here is very high. And the most important topic, it's a real new market for us as a semiconductor provider. Second, as mentioned, with respect to the DC grid, we need to protect the devices, the electric devices behind. We know about the huge value of a GPU, the final computing core and the traditional electromechanical circuit breaker, which is shown in the picture on the left-hand side, has a reaction time in the order of milliseconds. Now seeing on the bottom, the market for industrial electromechanical circuit breakers, you see it's a multibillion market. Overall circuit breaker market is significantly higher. That is only the industrial portion. So what's now, again, the beauty of the semiconductor solution, we provide a solution which has 3 orders of magnitude faster switching time. And first, players and customers adopting our semiconductor solution. You see in the lower right corner, Siemens allowed us to share that we are in their devices, and we do believe into a market which grows a bit south of USD 1 billion until 2030 as indicated on the lower left-hand side. The interesting topic is about also semi-solutions, which are perfectly meeting the requirements of the solution. Just again, to explain a bit the circuit breaker has not the intention to switch. The circuit breaker is always on, but if it is required, it has to react pretty fast. And why I just explained to you the value proposition of semiconductors going down to reaction times 3 orders of magnitude faster compared to the electromechanical device. There's another solution besides the traditional MOSFET, which is perfectly suited for such kind of application. And that is now why we reintroduced on silicon carbide, the JFET. JFET is a very competitive device because it's perfectly suited for this kind of application. And while we speak, we are in qualification of our first 750-volt and 1,200-volt blocking voltage devices, which have an industry benchmark RDS(on), which is in the area of 1.5 or 2.3 milliohm per device. And now the beauty of us being a portfolio player is, of course, that we are not only capable of offering this device as a single switch in a discrete package as it's shown up there, but we have the ability to combine it with our module expertise. So by paralleling this device, you can drive down the resistance even to significantly lower values. So 10 devices in parallel with 1,200-volt blocking voltage and then you're at 0.23 milliohm or you can think about stacking those devices and then achieving very much higher blocking voltages. And that is a compelling value proposition for DC grids as for the AI data center, but of course, also for other applications as it's indicated by the picture in the lower right corner, for example, battery main switch disconnect for trucks, buses and even considerations for the automotive industry are very relevant. And the topic of DC grids is not only compelling for AI data centers, but of course, also for future industrial applications in the manufacturing environment. And that is now exactly the point in time where we both meet with respect to the business responsibility. We can, of course, also protect exactly those devices we are now talking about in the second half of our presentation. And here, I hand over to Adam.

Fantastic. Thank you very much, Peter. And as you can see from the grid update, there's, of course, a growing SAM service available market for Infineon. Now we're going to move into the rack. And of course, what we wanted to show is really the evolution of what is happening in the industry and more to the point, how Infineon is at the table with the lead GPU, TPU, ASIC providers in shaping the future of these data centers. So today, as we know, the racks are roughly at the power level, give or take, of 125 kilowatts. And for that, we can service around $15,000 of content for Infineon. Now moving to the North Star, as I call it, on the farthest right, you will see this hybrid microgrid really going -- playing into what Peter was alluding to, moving to an 800-volt high-voltage DC architecture. Now within Infineon, our technical teams have been working with the customer base, the ecosystem to really validate, can we possibly get to this greater than 1 megawatt per rack. And the answer to that is yes. But of course, in order for us to get there from a technical perspective, from an ecosystem, from a reliability perspective, we also understand that there needs to be a stepping stone. So in the middle, you see this 3-phase VDC power sidecar where, again, Infineon has an abundance of opportunities to really service these markets, not only in the car for the IT payload, but also in the power delivery and the backup power side. Now as you can see on the bottom, the Infineon content goes up significantly. As the power goes up, the Infineon opportunity goes up. Now what we'd like to also show is a little bit of this stepping stone, right? Talking about the 3-phase power sidecar. And here, we are seeing then this will, of course, accelerate the compute, but also accelerates the content growth. And we wanted to show you this because in the top side of this -- on the top of this graph, you can see here the server rack itself, talking about the compute blades plus the switch trays. And then as you move forward into the motherboard, then you've got the components like the intermediate bus converter, the high voltage, what we call the first stage. But then we've also got the GPU board on the second stage where Infineon also has significant share opportunities in. Then at the bottom here, we talk about the power sidecar. And again, that is full of opportunities for Infineon. And what I'd like to do now is really walk through some of those examples, and I must stress now due to time and to allow Q&A, we can't show everything today. But we wanted to give you a flavor to let you understand that there is amazing opportunities for power management, thanks to our system understanding and how we're going to be addressing these markets. So let's, first of all, talk about the PSUs. And of course, when we were here last year and the year before, we were talking about these solutions. And at the time, we were talking about the 3.3 kilowatt, 5.2 kilowatt, the 8-kilowatt designs and then the 12-kilowatt designs. Now what you see on this is an evolution up to a staggering 30-kilowatt 3-phase PFC opportunities where we are now working to get the technology evaluation boards for our end customers. And again, Peter and I, we are tied at the hip between our divisions and our technical communities to make sure that we come up with a compelling solution for our customer base. And again, you will see here, we're moving away from just the single-phase PSUs more into the 3-phase PSUs as the evolution requires as the power goes up. But again, the takeaway of this slide is also Infineon is one of the few companies in the world that really has a play within not just leading-edge silicon technology, but the silicon carbide as well as gallium nitride. And very clear speaking, these designs will need wide-bandgap materials. There's no doubt about it by us working with our ecosystem and our customers, they have told us in order to get the efficiency at the right size, which translates to density, you need wide-bandgap, meaning silicon carbide, meaning gallium nitride. So I also wanted to talk a little bit about the advancements in the architecture. And as we advance, there is now new opportunities for protection. And protection is very, very critical because, of course, it's essential to get high performance in the computing environments, but also monitoring to reduce disruptions and to, of course, maximize the server uptime. And these protection ICs effectively come in the area of the mid-voltage, for example, in the 48-volt smart eFuse families, plus at the end of the day, for the high-voltage solutions, which then service the opportunities for the architectures for 400-volt as well as 800-volt hot swap. And here, we've also got reference designs. And as you can see here, you got the SAM projections. And whether this is conservative or not, we will have to see the adoption rate, but we can see now that the 48-volt will stay for some time, but now you see the introduction of the value of the 400-volt as well as 800-volt, especially as the AI power consumption significantly increases. The next topic we want to talk about is the broad portfolio of high-voltage as well as medium-voltage intermediate bus converters. And again, these are required more and more. And this topic is a topic that Infineon has, quite frankly, been asked to address from some of our customers. We traditionally had discrete offerings at the bottom, and we see those, of course, proliferating as the content grows and the power requirement grows. But at the same time, we've also now been asked to do certain module designs because of understanding the design, but mainly on the areas to provide quality and reliability at a system level. So this topic, again, is an area that is showing significant CAGR growth, as you can see here, plus 50% on already a number that is growing. And we feel now that we've got a dedicated team focused on these IBC solutions on the high voltage as well as the mid-voltage. Now let me go now from these IBCs, and we talk about converting the high voltage DC to the GPU supply voltage. And this is another great opportunity for Infineon. There's a number of topologies out there in the industry. We have the 3-stage approach, which takes the 800-volt to the 50-volt, then you can then step down to the 12-volt or the 6-volt. And again, even in that 3-stage approach, there is a number of ways that you can do this from an architecture point of view. And again, the reason why we're showing this slide, look at the gallium nitride play. You see the GaN in this green circle where we are now seeing customers literally telling Infineon, we need GaN for this solution. And then on top of that, we have the 2-stage approach where, of course, you go from 800-volt straight down to 12-volt. We will have to see how the industry adopts and which ones of these topologies that they take. Of course, there's risk rewards on those topologies. But again, as you can see, we have a silicon solutions as well on the high-voltage, we have a GaN solution as well. And the final statement, if you look at the 3-phase approach from the 800-volt to 50-volt down to 12-volt, we've also introduced to the industry an interleave buck topology, which we believe is now starting to proliferate with a very strong pipeline, and we believe will go into production very soon. Now the magic, the second stage. This is a lot of the analysts are, of course, following very closely because this is the solutions that go very close to the GPU, TPU or the ASICs. And I didn't want to get too technical, but just at a flight height, there's three different ways that we see these markets developing. And we believe that we have got solutions for all of these ways, and I'd like to give a little bit of a glimpse and an introduction to those. First, you have the lateral, the discrete solution. And on the right-hand side, you see the XPU, which is a GPU, TPU or ASIC, whatever you may wish to call it. You then have the substrate with the motherboard. And effectively, you put down now your discrete solution down next to effectively the substrate and the GPU. That, of course, benefits on multiple areas. It's definitely the lowest cost. But of course, there are trade-offs on ultimate efficiency. Now other customers we've been working with, we've actually started to develop the backside vertical module. And these are the vertical power delivery modules that we are shipping today already in the industry. And these are the customers that recognize if you take the vertical power module and put it underneath the GPU, of course, then you simplify the motherboard from the design perspective, but you also increase the power density and of course, ultimately bringing the efficiency to the next level. Then on top of that, we don't stop there. We also recognize SiVR is going to be a trend in the industry, and we are already developing the next solutions that actually go into the substrate. Now from our portfolio perspective, we've, of course, got an abundance of modules today that are out there in the industry. And if you think about the Infineon journey, we started way back in 2011. We came up with a standard molded package. We then went into this chip embedding because we recognize the reliability and the performance of chip embedding actually provides to our end customers. And then as you can see, we then went to 1 amp per millimeter squared with our first-generation module in 2024. And if you look now already coming out in 2027, we are actually 3x that going to 3 amp per millimeter square. And these renderings that you see, they're not just renderings. These are modules actually being sampled into our customers for the next generation because those customers recognize the performance benefits of having these modules for the VRM solutions. And of course, moving forward, we very clearly state that these solutions have to be greater than 4 amp per millimeter squared. So this really gives us a wonderful window of opportunity to demonstrate our capability of understanding the systems, taking the leading-edge technologies that we have within the company and absolutely without compromise focusing on reliability and system performance as well as quality. So ultimately, we get the question, "hey, Infineon," why are you seeming to be winning from grid to core? And when I ask you, the audience, to really reflect on how many companies out there that can really understand and deliver solutions from the grid, what Peter very nicely presented to the core. And here at Infineon, we pride ourselves on this. From our system understanding, we've been in enterprise power for servers way over 20 years. So we have a lot of understanding of the systems and how these systems have to come together. We also have got this broad portfolio. And honestly, what Peter and I have shown today is just the tip of the iceberg of the opportunities that we and our engineers are working in within our labs, and it's incredibly exciting. And then, of course, customer first. We, as a company, recognize that we need to accelerate our innovation to customer value. And there is no better opportunity to prove to the industry that Infineon can accelerate our innovation to customer value than using and demonstrating this empowering AI. And then, of course, the deep DNA of Infineon, quality. We honor our quality commitments. Then, of course, that translates to what we talked about earlier. Whilst we don't give the breakdown in all the customer specifics, but as you can see here, we effectively tripled our revenue back there in FY '24 to over EUR 700 million. We are, at the moment, committing the EUR 1.5 billion for FY '26 and that SAM at the end of the decade, the EUR 8 billion to EUR 12 billion. Now let me just take two more slides here to really explain the physical AI. And there's lots of terms and edge AI. There's terms out there in the industry on how the tokens are used. But this is another really interesting area for Infineon Technologies. And here, I now, of course, take our hats off of our 2 divisions and really think about Infineon because Infineon has got an incredible play within enabling humanoids moving forward. And of course, this is some of the data analysis from Goldman Sachs on the Base case plus what they call the Blue Sky. And we have to see the adoption. But there's no doubt about it. We are seeing further adoption and a lot of money supporting these humanoids. Now from an Infineon play, just look at this slide. Look at the building blocks, the functional building blocks that Infineon can service. From the processor, from the compute as it were, from the MCUs, for the motor control ICs, making sure also for security ICs. We also got the play within functional safety, thanks to our automotive colleagues. Then on the connectivity side, of course, we've got the Wi-Fi and the Bluetooth where the new families are winning in the market. But on top of that, we've got the Ethernet due to the recent acquisition of the portion of Marvell. This now has given us a new entry and to make sure that we're working with the humanoid companies to look at how Ethernet can win in those markets. Power is given, but one of the areas that we see especially in the hands is the gallium nitride for the motor control with our microcontroller. And of course, on the storage, on the memory, many abundances on the analog and in the sensing area, of course, you've got to sense the physical world. And this is a topic that we are now really looking at focusing on for use cases with our end customers using the Infineon sensors. And here, we believe we have actually a SAM opportunity per humanoid of $450. So my last slide before we open it up here for Q&A. We, of course, we are proud of powering AI because of the full system understanding, the portfolios, the technologies, the manufacturing scalability and of course, no compromise on the quality aspects. We also have the key functional blocks in the physical AI that I highlighted. And thank goodness, Infineon, we recognize that silicon, of course, will stay, but we need also mastering of the areas of wide-bandgap in silicon carbide as well as gallium nitride. And then, of course, at the end of the day, we believe that the revenue here will be the EUR 1.5 billion just for the dedicated on the AI revenue, and we will do this with the acceleration of the customer value through low cost of ownership as well as reliability. So with that now, I will hand back to Francois, and then we will open up to Q&A.

[Operator Instructions] So let me start maybe with both of you, I will be very brief and I have one set of question for each. So that's where we get the picture. First, Adam, I mean, obviously, you talk about this AI is very interesting and this EUR 1.5 billion for '26. I was wondering is there any upside to this '26 number? And what is the driver? What would be the upside to that? Because you mentioned it's an ambitious target. So I'm just wondering, is it -- is there any room for more?

Yes. So let me -- so we stick to the EUR 1.5 billion. But I would say now having the opportunity to work in this industry for, give or take, 30 years, I've never seen anything like this before in my history of the semiconductor market. On top of that, this is more of, at this time anyway, a supply issue, not necessarily a demand issue. And if I don't mind quoting our CEO here that we've got recently a new COO, and it's a good problem for our new COO to address because, of course, this EUR 1.5 billion at the moment is also gated by supply.

And maybe a bit more longer term, I mean, you showed all this product road map and also this 400-volt, 800-volt and the content per rack increasing significantly. What's your visibility on your share here? Because obviously, you know better than me that you have a lot of competitors out there and everybody is trying to grab this very ambitious market. So do you have any visibility on that because the content is high, but we want to make sure you capture at least some more?

Yes. So obviously, tracking share is obviously problematic and difficult because there's so many variables. But traditionally, in enterprise power, we had anywhere between 30% to 40% share. And in AI, we see at least 30% to 40% going into the horizon.

And is it across all products area? Or you see significant differences depending on where you are motherboards or PSU, et cetera?

So we don't break that down because, again, the complexity and there will be variance and there could be platform changes, mix changes, award changes, ramp-up challenges. So it's very difficult. But what we are saying is ultimately at least 30% to 40% market share.

Moving on to Peter. I mean, when I look at your divisions, there is one cycle and one long-term question I have for you. One is GIP as a whole is still like 26% below the peak of '23. And if you look at PSS is above for the obvious reasons and auto is 8% below. So you seem to track a bit deeper in terms of down cycle. Maybe can you assess to why -- how can you explain this? And do you see any recovery from your perspective?

Yes. Now disregarding AI, definitely while we were enjoying, of course, the allocation and the good times heavily, now we are, of course, also -- we have to digest also the weak cycle of the market and particularly by the weakness of the European market and also China not performing as we predicted also for '25, we dropped further down than expected. The good news is that we -- there is evidence that we have now reached the bottom. The other good news is that we kept our inventory very much under control. So we do not have any over inventory issues looking forward. And so there are first signs that now the demand comes back as typically for the seasonal pattern in the fiscal year, our first fiscal quarter, meaning the last calendar quarter is typically our weakest. That will be also true this year. But looking forward into the coming quarters, I'm cautiously optimistic that worst is over and markets start to recover. And that is now very interesting because the AI opportunities come on top, right? That was the question related to my core market, my core business. And this is now an exciting additional opportunity.

And the last one for me is on -- your division is mainly power semis, if not only power today and mainly discrete, right, power. So I was wondering as you see the grid appearing, there is, of course, this fear that China is investing a lot in power discrete significantly. How do you see the Chinese competition in your market here in terms of pricing behavior, market share rewards? Do you see any impact from that?

Of course. I mean, just to be a bit precise, right, if we talk about discrete, that includes modules and modules is the lion's share of my business. And here, luckily, we see still quite a lot of areas for differentiation. And the differentiation goes in both ways in performance and, of course, also in reliability. While definitely, every competitor, also the Chinese tries to each the lunch of the other, meaning also ours, it's about price performance. And especially in demanding applications, we do excel in performance. And particularly true is it for the emerging wide-bandgap topics, while we now see also the design-in pipeline year-on-year increasing by plus 20% roughly. We see design win, especially for silicon carbide now skyrocketing for the industrial space year-on-year by 80%. So compared to the same time last year, I do have silicon carbide design win pipeline, which is filled by more than 80% on top. And that is also partly in line with the topics we just described, but that gives me high confidence that there's a future. And that, of course, also prevents us, myself, our business for being cannibalized and commoditized.

[Operator Instructions] So the next question comes from Lee Simpson.

Gentlemen, very, very interesting presentation. I really wanted to just sort of push on the supply constraint side, Adam, here. You talked about these supply constraints and it's hitting numbers potentially. And I just wondered, if we look at the whole supply chain, is -- are these supply constraints with your manufacturing? Or is it with the rack makers? And really, as the supply of parts broadens, and I'm thinking power sidecars and cooling systems, do we see an increasing risk of supply constraints in the future? And maybe as a quick follow-on related to that, you've utilized prepayments in the past, I think, with the build-out, the fit-out of Kulim. Could we do the same thing here given that you probably have to fund the supply capacity growth via these customers?

Yes. Lee, good to see you. So look, ultimately, we're not upstream from understanding how the installations of these data centers are going to be built out. Of course, contractors, for example, getting all of the energy, meaning the electricity or the power into the data centers. So that is, of course, a topic that is something that we will be part of in the enablement. But ultimately, we're not the decision-makers on that. Now coming particularly to the Infineon view on the supply, now of course, these markets are moving quickly, right? The volatility, the chunkiness of the business. When you are winning the business, it comes and it comes very quickly with very short lead times. And here, this is something that we recognize within Infineon. We are taking now measures to really support the adoption of our equipment to the leading-edge technologies for powering AI, meaning even in the areas of some of our IGBT technologies, we can switch and convert some of the fungible equipment into supporting some of the AI on the front end. That is something that we are doing. And I believe that, of course, logically makes sense and that gives us further capacity and opportunities to grow. On top of that, we're working with our ecosystem partners, especially in these power modules, for example, there's lots of components that go in, and that's something we've got dedicated groups on to support those areas there. Then to really do the follow-up question on these capacity reservation agreements. Look, at the moment, what we sensed is a lot of the data centers have been, of course, focused on areas like the GPU supply or the TPU supply or the ASIC supply. They've been looking at the optics and making sure those areas are covered. But what we're sensing now is the customer base are coming to Infineon to really understand our capacity corridors and now beginning to open up discussions about how they can secure capacity to support their ramps. So a little bit premature, but the good news is we've got customers at the table recognizing that power management is a key topic because without power, there's no AI. And ultimately, they are now looking at securing those corridors.

Then, the next question from Joshua Buchalter.

Thank you for hosting such an informative presentation. So I guess the -- I think you gave a bunch of the pieces here, but maybe you could sort of simplify it for us. You guys have talked about this EUR 8 billion to EUR 12 billion TAM by the end of the decade. Could you maybe just help us how much of that is grid, core and on the rack? I think that would be helpful for investors. And I have a follow-up.

Okay. Thank you very much for the question. Yes. So look, rule of thumb on the EUR 8 billion to EUR 12 billion, right, on the addressable market, if you look at taking the first stage versus the second stage and the second stage really is the core, right? This is where we talk about the vertical power modules or the down solutions closer to the GPU. Roughly, give or take, roughly, it's about 50% of the SAM, yes. And then the other 50% is on the first stage. And of course, as we get closer to the end of the decade, more and more of that SAM opportunities open up here with GIP as well. So roughly 50% second stage, roughly 50% first stage.

And since we don't know yet, of course, how fast the different opportunities will grow, our assumption is that inside the range you just mentioned, the EUR 8 billion to EUR 12 billion a low double-digit percentage is GIP business.

Okay. I guess that's a natural so it's one for my follow-up. Within that, should we think about silicon carbide as only playing on the grid side? Or do you see opportunities even within the rack moving forward? And then I guess same question for GaN as well.

Yes. So very clear, all the things which relate to the data center starts with the solid-state transformer, goes forward to the solid-state circuit breaker. These are all silicon carbide-based solutions in different variants, but that is silicon carbide pure play, so to say. And therefore, also to a certain extent, that explains the high CAGR in my design win funnel. While, of course, on the grid side, it's a bit more complicated, the high-voltage transmission lines, which will also need significant investments and build-out, there are typically IGBT play for the foreseeable future far beyond 2030.

And then in the rack for the PSUs, as we presented earlier from the 3.3 kilowatts, especially move up now into the 8 kilowatt, 12 kilowatt up to the 30-kilowatt 3-phase, this will have all three technologies of silicon carbide, gallium nitride and silicon. Openly, the customers have told us they have to use the wide-bandgap to get the efficiency as well as the density. The other area for GaN, where you asked where the adoption of GaN will come in, most definitely in the IPC, the intermediate bus converters on the high-voltage as well as on the mid-voltage, for example, on the interleaved design as well as, as mentioned on the PSU. So wide-bandgap will be used in powering AI in the next generations and believe it or not, even today.

Congrats on the high order book.

Next question from Jakob Bluestone.

Just on the [EUR 8 billion to EUR 12 billion], is there any way you can break down how much is GaN, how much is silicon carbide? So maybe just sort of break it into some of the different materials. And then I had a follow-up as well.

Yes. So Jakob, so I don't know if we can go back to the material. I think your question is on the intermediate bus converters, if I'm not mistaken, Jakob, right? So this is on this slide here. Is that correct?

Yes.

Yes. So we don't break it out. But if you see here, the darker green color really shows the percentage of the dominance of the technology. So where you see GaN darker, that really shows that there's more of a GaN bias within the solution. And that, of course, happens most definitely in the 2-stage approach on the high-voltage IPC. I will quote one of the engineers at the customers, no-brainer. They literally told us, no-brainer, they will use a GaN-based solution. On the mid-voltage, as we go through, of course, there is more of a mix between the silicon as well as the gallium nitride. And it really, it depends upon, ultimately, are they going to be looking for more efficiency on the GaN, but on top of that, the size as well for the density. And I can't break it out really any more than that because we have many, many solutions all coming through the pipeline, and there really is a fusion, a mixture of those solutions. Sorry, I can't be more precise.

Understood. And just a quick follow-up. From an ASP point of view, does it make a big difference, whether it's GPU, TPU, ASIC? Or is it all pretty similar from your point of view?

Yes, it's great if I like it, Jakob. So what we will say is the GPUs, of course, are growing significantly in the power. The GPU and the ASIC vendors, it's really been surprising us. They've even got more aggressive power ratings coming up. So remember, these GPUs were starting off whatever, 800 watt, 1,000 watts. They're going up to 2,000 watts and beyond. And we now, of course, are seeing some road maps well and above 4,000 watts now on these GPUs and ASICs. Now what makes -- so of course, that brings in more content. Openly, that brings in more power requirements for Infineon as well as our competitors. Now in saying that, where we see the major difference is when the industry fully adopts into the vertical power modules, then, of course, the ASP is a significant factor. And that could be anywhere between 3 or greater than 3 from an ASP perspective as we go into the module solution versus discrete down solutions.

Next question from Janardan Menon.

Just following on from that last answer. Am I correct in understanding that the GPU is already a vertical solution and therefore, gives you a higher ASP? And what is the rate of conversion of broad ASICs, GPU to vertical power in the next -- will it happen in the next couple of years? Is it going to take time? And similarly, you said 3x for vertical power. If you go to the substrate integrated one, what would be the step-up there? And is that something that's going to happen within the next 5 years? Or is that sort of beyond the next 5 years?

Okay. Yes, good. So look, I would say the majority of the industry is already shipping or working on the vertical power delivery modules, so we're working a lot with those companies. There are, of course, 1 or 2 maybe that's still on the down solution. Then, of course, the next question is, will they stay on down or will they also see the benefits as the power of the GPU increases, whether they will need to go to a different architecture. There this luxury with Infineon, we can support both, right? And we will listen to the customer, we will focus on the customer voice, and we will then support what the customer needs. Now why then are the others in the industry already on the vertical power module? Because honestly, it's again, the topics around the efficiency levels, it's about the total cost of ownership levels, it's also down to space saving and simplicity of these motherboard layout. So there's many reasons why the industry has gone that way. We are at least developing heavily on the vertical power modules, which I think should give you enough hints what I showed earlier on to the greater than 4 amp per millimeter squared, that's where we believe the industry will further adopt to. Then, on the question on SVIR (sic) [SiVR], yes, if you ask me for a 5-year window, I believe, yes. And I know certainly, Infineon will be developing and be working with customers for that type of horizon for SiVR.

And just you said that sort of Stage 2, Stage 1, roughly 50-50. I'm assuming that the competitive dynamics on both sides will be different. I mean, in Stage 2, we have sort of established competitors, what we hear about like monolithic and Renesas, and people like that. Whereas on the Stage 1 or intermediate or whatever all of that, we want to put together, NVIDIA signing agreements, left right and center with everyone they can catch on the roads. So would that Stage 1 in the HVDC be a more competitive environment over the next 5 years and therefore, is there a potential that your market share there could reduce? And similarly, as you go more to vertical power and SiVR, given that that's where Infineon's capabilities and technologies are extremely differentiated, maybe that your market share there can increase. Would that be a way of looking at it?

Yes. So look, I'd like to answer it really on -- it's, of course, a technology-led discussion, especially on the second stage, as you highlighted, yes. And there's, of course, an opportunity for the industry to really demonstrate the leadership and the capabilities there. And again, it's not just having the latest technology, you need to make sure it works at the system level because the closer that you are to the GPU, TPU, ASIC, then you've got to get it right because you've got to protect that very expensive component. Then on the first stage, yes, there's more overarching competitive landscape, but again, one thing that Peter and I are incredibly proud of, we're working for a company that is leading in multiple dimensions on figure of merits, meaning that we are really coming out with leading-edge technologies in the areas of silicon, silicon carbide, gallium nitride. And in those areas, we're not just thinking about today, look at gallium nitride. We are announced a 12-inch GaN capability within the Infineon offerings. And then on top of that, Peter, you may want to talk about silicon carbide, the opportunities for capacity.

Yes, of course. I mean we have our fab in Kulim, and we're now, as we speak, converting from 6- to 8-inch. So we have mastered the 6-inch ramp with high yields, and we have invested for Kulim only into bridge tools, meaning that we have the full capacity available once the material and the business case is there, and that is what is now the case, right? Of course, per square millimeter, 8-inch wafer being silicon carbide, I'm talking now about, right? It's being a bit more expensive. But due to productivity coming from 200-millimeter tools, we now already see a cost benefit for moving to 8-inch. I think that's not a big news. All the industry, including our competitors, do see it, but we are well prepared. The whole capacity in Kulim, we have invested is 8-inch ready, and that will give us an edge in ramp-up speed for sure, right? If there are significantly volumes required, we are able to supply and of course, down the road, cost advantage.

And my final statement here is even on the silicon, we are, of course, developing the next generations of silicon to support these markets. And on top of that, with our microcontroller families, embedded security in the microcontroller, we're also coming up now and working and offering system play within, for example, the PSUs, and there's a lot of interest there. And of course, that's the reason why on the first stage, yes, there's more competitors. But again, Infineon, we're very proud of the fact at a discrete level, including modules, we're a clear #1 in the industry, and we don't stop there.

And the next question comes from Sandeep Deshpande.

My question is regarding your exposure in this -- in the AI market. You talked about, I think, 10% or 12% of the exposure by the end of the decade will come from the GIP side. Is your competitive position in the GIP side much better than your position on the PSS side, given that many of these multiple competitors who are coming into the AI space don't really have that high-power capability that you guys have in GIP? And I have one quick follow-up.

So, I would say. I mean I do see certain areas of the market where we have a very high differentiated solutions. But since being quite a while in this industry, namely also much more than a decade, whatever kind of solutions we offer, right, there will be competitors around for no doubt. First of all, our customers hate single sources. So they will do everything to enable competition there. And of course, it's also healthy for us, while still on the topics we already mentioned, in certain areas, we face strong competition, commoditization. In other areas, we have unique technology. And here, I would say it's very similar for GIP and PSS those kind of differentiated pockets, I would call them, are available on both sides. That would be my answer -- my first answer to your question. Adam?

I mean my question now, I mean, to Adam to you on your side is that, I mean, when you look at the solution, it's not a single point solution. It's -- there are a lot of components to the solution. When Infineon is on a particular board, is it that all those parts associated with power are Infineon? Or are you sharing various -- or maybe there is one stage where some parts are Infineon and some other ones of those competitors also on that same board. How does this play out overall? And associated with that, I mean, particularly associated with PSS, is this AI part of your business accretive to your overall margin?

Yes. So I'll take the second question first. Yes, for Infineon now overall, AI will be accretive and of course, higher than the average margin for Infineon moving forward. And then second of all, some of the customers are very particular of having a supplier that, for example, with the controller as well as the power stages that there's no mixing and matching because at the end of the day, they want system performance, they want to lead with a supplier that can offer all of the technical competency at a system level. Now saying that, of course, if we stand back and look at the compute tray and look at the motherboard, it's amazing the auxiliary rails, for example, the point of load rails, for example, the protections, the eFuse, the hot swaps, the IBCs. This, of course, can really be a little bit more mix and match because those will be qualified under their own sort of conditions. But ultimately, what we're finding at the moment and very transparently that some designs and some of the orders that we're picking up now may have just been macro designs because we're the best performing and they're dropping us on the [indiscernible]. And some people call it the sort of the sprinkling and the shrubbery, but it's amazing how all of that adds up to a very healthy opportunity for Infineon as well. And that's because customers really believe in our technology, leading edge and of course, on the quality and the reliability.

And now the last question into sake of time, Sebastien Sztabowicz, please ask your question.

On NVIDIA and the 800-volt DC architecture, what kind of market share do you expect there? There are a lot of competitors in this project. Do you expect the same kind of market share you have on AI data center today, all over higher?

Yes. So we don't talk particularly about end customers because one we're not allowed to. But what I will say here is that, again, we are targeting at least a 30% to 40% share. And if you go back on the public domain information with NVIDIA, we did the collaboration announcement very early on with NVIDIA because, of course, that is a revolutionary opportunity for the industry. And we were one of those suppliers that could, of course, give them confidence that we could head towards the 800-volt DC opportunity. So to answer your question, we don't break it out by customers. But again, market share at least 30% to 40% to the end of the horizon.

And the last question is on the AI ASIC market and the acceleration of the investment for the large hyperscalers around ASIC. Do you have the same kind of exposure between hyperscalers or between hyperscalers and GPU vendors or you are overexposed to one of those kind of customers in terms of AI power semiconductor business?

Yes, it's a great question. I would say at the moment, Infineon, we are heavily engaged with the majority, if not all, of the GPU, ASIC and TPU vendors. And there's a rich opportunity there, meaning that most definitely on the EUR 1.5 billion here that is not coming disproportionately from one customer, most definitely not.

Yes. So I'm very sorry, we have now to end the call here. Thank you very much for your participation and your questions.

Thank you, a lot.

Thank you very much, everyone.