Infineon Technologies AG (IFX) Earnings Call Transcript & Summary

Welcome to Infineon's IPC Division Business Update Call. Today's call will be hosted by Alexander Groschke, Senior Manager, Investor Relations of Infineon Technologies. As a reminder, today's call is being recorded. This conference call may contain forward-looking statements based on current expectations or beliefs as well as a number of assumptions about future events. We caution you that statements that are not historical facts are subject to factors and uncertainties, many of which are outside Infineon's control, that could cause actual results to differ materially from those described or implied in such statements. Listeners are cautioned that Infineon's actual results could differ materially from the results anticipated or projected in any of these statements, and they should not put undue reliance on them. For a detailed discussion of important factors that could cause actual results to differ materially from statements made on this conference call, please refer to our quarterly and annual reports available on our website. At this time, I would like to turn the call over to Infineon. Please go, ahead.

Yes. Thank you very much. Welcome, everyone, ladies and gentlemen, to our IPC update call. It is replacing our physical presentation at [ Petum ]. Well, today's call will start with the presentation given by Dr. Peter Wawer, Division President, Industrial Power Control; and Dr. Peter Friedrichs, Senior Director, Silicon Carbide Technology. A live slideshow is available on our website at infineon.com/slides. After the presentation, we will be happy to take your questions. A recording of this conference call, including the aforementioned slides, are -- will be available at infineon.com/investor. Peter, over to you.

Thanks a lot, Alexander, for the kind introduction. Welcome, ladies and gentlemen, on the phone; this time, digital. No surprise. Hope all you are well, and we would guide you through the slides, giving you an update on where we stand on IPC business. As Alex pointed out, I have my colleague, Mr. Friedrichs with me, who is a renowned expert in the area of silicon carbide, since we want to take the opportunity and give you an update where we stand on silicon carbide. We have prepared a small agenda. There will be ample of time for Q&A afterwards. And after the IPC Division business update, we will spend, of course, also some slides and words from IPC perspective on the Cypress acquisition, and then step into some details on where we stand on silicon carbide. With that, a brief overview what is about the impact of the coronavirus on our business. And I think the upper left-hand side shares some good news. While initially, of course, also our manufacturing sites were affected in certain areas, we are back to full production. So regarding the demand of IPC, our in-house production can fulfill the demand what we need. Of course, due to the interruptions, we faced intermediate problems, while we are still also seeing the chance to catch up what we missed as opportunities in the last roughly 2 months. Raw material is available. And here and there, we have some issues regarding subcon supply, but that is regarding IPC revenue, a minor topic, not a big ticket. Of course, distribution and logistics is challenging all around the globe, while stock levels are okay. I will comment a little bit later regarding our financials a little bit. Logistics is challenging, and to get the products at the right time to our customers, to the right place gives us definitely additional efforts and challenges but so far, the team and the forwarders are managing this nicely. As on Infineon level, of course, also the share on IPC level regarding CapEx is being reduced slightly. Nevertheless, we believe in the mid- to long-term projection. And we also believe in catch-up after coronavirus, I don't want to say, is defeated, but is better under control, where we see definitely -- for example, in Germany, first signs of significant improvements now coming. Good message is also that besides the restrictions and challenges, we do not see any significant delays regarding R&D projects. Also related to the topic on manufacturing, which I mentioned, we kept utmost priority on the topic of R&D. Simply, since we know to stay competitive or even become more competitive looking forward, time to market is most crucial and we put a special emphasis on the IGBT and silicon carbide development projects. And on the customer demand, the picture is a little bit mixed. We have those fast-reacting areas, like photovoltaics and home appliances, where we could observe a significant downswing, but we also expect quite a quick rebound. I will comment on this a little bit more in detail. And then we have the more infrastructure, stable businesses in the area of traction and wind, which are looking rather stable. As we all know, drives was already in a downswing, downtrend before corona, and so the expected recovery in the area of drives is, from our perspective, postponed. I will come to the market view in a second. First, have a look into the numbers. Of course, we published quarter 2 results, fiscal quarter 2 results. On the left-hand side, you see the longer-term perspective on our segment results. We expect, in contrast to the usual seasonality, which we, by the way, also didn't see last fiscal year, we also expect this fiscal year, second half being somewhat in the range of first half and that would mean stable revenue, no decline, but also no increase. That is what we are shooting for. I mean, if you ask me, will it be plus or minus, I don't know. To be honest, from today's perspective, we still see okay book-to-bill, hovering around 1. And what is very encouraging from my perspective is also that the inventories in the distribution chain improved significantly by 2 weeks in the last quarter. So all in all, we expect our revenues for the remainder of the fiscal year in the similar range as for the first half. If you look into the segment results, for now we see a slight decline, and we expect also that this will remain since we, of course, prepared before corona our manufacturing for growth. And hence, since we now do not grow year-on-year, we have to digest a certain amount of idle also for IPC, but I consider this manageable from today's perspective, but will slightly impact segment result. So with that, jumping to a little bit more detailed view on the main applications that we serve, maybe starting with the outlook for the second half of '20. So as I already stated, industrial drive was expected to come back in the second half of '20 after going down already in -- during the course of calendar year '19. But there, we expect the push out that this recovery of the market is being postponed looking forward. We also saw quite some disruptions in the supply chain of PV simply -- which led to simple lockdowns regarding the installation of new power plants. But we already now see that, especially out of China, the demand is coming back. And so the picture for solar, looking forward, looks encouraging as well, even for second half of 2020. Wind was already very, very good, in very good shape regarding demand situation, running, all in all, not only semiconductor supply chain but the overall supply chain for wind was running on the edge. And so we still see here -- we expect also continued good business for second half of '20. And what I already also mentioned is that home appliance, being the sector very much impacted by consumer spending and, of course, having also a big share in China, significantly went down. So there, we still see also overstocking on the side of our customers and that will -- coming back of this business will be delayed definitely by the coronavirus, and so we are not too optimistic for the second half of 2020. Still stable and solid, the area of traction. We expect that this will continue looking forward. Infrastructure investments, rather being now also increased by governments to helping us coming out of the current crisis. And that basically relates or translates then to the market outlook for fiscal '21, where we definitely expect an improvement in all areas. So arrows are green, up, strong up or not so strong, it depends. Also here in the area of industrial drives, we are a little bit cautious. It might become better than expected but also here, it's very highly correlated to the GDP, so it will depend on how we will see the development of economies in next year's, based on the coronavirus issue. So assuming rather a little bit more conservative approach in this area. With that, I would again highlight very much our dedication and our footprint regarding CO2 savings. While we, as a company, thanks to the products we provide, have a net benefit in CO2 savings in the area of 56 million tons of CO2 equivalent, it was already announced at our annual grand meeting that this is not enough from our perspective, that we have to do more. And therefore, we decided also to become carbon-neutral as a company. And here, for example, perfluorinated compounds are coming out of manufacturing, most impacting the CO2 balance, things we already addressed in the past, but we will address more stringently even in the future. And as you can see, the WSC, World Semiconductor Council, target was already significantly undershot by Infineon. So we want to reduce the emissions by 2025 by 70% and then finally becoming true CO2-neutral end of the now-starting decade. I think it's worth to mention because we all know that this will be the long-term heritage from our generation and the following generations to our planet and we feel very much responsible to bring this in the right direction, so to say. And I'm very happy that we contribute, from IPC specifically, in the area of renewable energies, of course, to achieve this kind of target. And with that, I would like to spend some words and some further slides on the acquisition of Cypress. That definitely creates a lot of opportunities for Infineon. While you might be aware that the revenue and the organization of Cypress is distributed to Infineon in a way which does not affect directly IPC's revenue and business ownership, it nevertheless impacts us significantly and creates also additional opportunities for IPC that we want to capture and capitalize on. And you might be aware that we have a vision as a company, namely connecting the real and the digital world. And for doing so, we identified some weaker spots, which we now were able -- or are able to address, and we were able to get rid of these weak spots and that is the area of connectivity, where Cypress brings a nice portfolio with it, and of course, also the area of compute and software ecosystem, where we now feel much, much better prepared looking forward, being able to offer full system solutions to the customers. And you see on the left-hand side, a variety of examples. Some of them are related to industrial IPC business. Others are related, of course, to my colleagues. And I like this example on the next slide very much, which nicely demonstrates how now the joint portfolio from IPC and Cypress enables us to address basically total solutions from a customers' perspective. And as an example, we brought here the air conditioner. So you have typically this split-unit air conditioning -- room air conditioning, where you have the indoor unit and the outdoor unit. And you can see here now in greenish, the Infineon heritage that we bring with us from our history, and then we see the bluish products being Cypress, named Cypress heritage. And as you can see in this nice graph or a nice example, we are now able to significantly increase the bill of material for our customers. And only a couple of days after official closing and then day 1, I think closing took place 16th of April, we already now see that this is also exactly in the mind of our new colleagues, where they bring with them the connectivity and the controller side; and we, on our side, power gate drivers and then power semiconductors in all shapes, as we know, discretes, IPMs and modules for high-power applications. And I'm very, very happy to see that those assumptions that we had also had the rationale for making -- striving for this deal are now already starting to kick in. These are real opportunities already at customers where we see Cypress -- ex Cypress colleagues from their side, from the controller coming in at the same customer. We come from the power side and now we combine and bundle-sell these things to the customer. And what's the advantage for the customer? The advantage for the customer is that if we offer tailor-made solution, they significantly see improvement in their time to market and, of course, reduced R&D spending. And these are besides the pure product cost additional value propositions, where the customers typically are very interested in. And so I'm quite optimistic that, based on this nice example, we work our way through also to other applications. And that I would like to address with the second and already last slide on this topic. While not in the area of major home appliance, but also in the area of industrial applications, we see increasing need for connectivity solutions: cloud-based services, reliable wireless connectivity, becoming part of automation equipment, cobots, robots, guided vehicles, et cetera, et cetera. These are things where we now see additional opportunities. Thinking also about additional services where we are then able to extract data based from semiconductors to also use them for e.g. predictive maintenance or remote diagnostics topics, where we also know from our customers that there's a high interest in this kind of solutions. With that, we are already at the point updating you on our silicon carbide activities. The next slide, you should already know. Of course, we have updated the numbers. And I will comment on these numbers together with my colleague, Peter Friedrichs, in more detail. What I'd like to draw your attention to is that based on the typical market research numbers, the market growth is seen in the range of roughly 30% compound annual growth rate and we expect now to demonstrate something like 50-plus growth rate. We were definitely not jumping the gun regarding the race to silicon carbide. But as you now can see clearly, we gain market share and that is basically due to a very fast increase in portfolio in all dimensions. So meanwhile, we will have -- we today have more than 150 different SiC products, I will show a more detailed graph in a minute, and we have also more than 100 active customers. And if you look into the footnote, we count here only customers with more than EUR 10,000 revenue. So not each and every one buying a single transistor via distribution is counted but EUR 10,000, we thought, is a substantial dimension. And so these are active customers where we are selling our volume to at the moment. And that of course, this increase in revenue relates to the increase in portfolio, right? And that is also nicely shown here in the dark green and lighter green areas. The occupied -- fully occupied fields are existing technologies, where we have usually a wider portfolio of products behind, so industrial and automotive. And industry, basically, we're now in the area of discretes, modules and IPMs, where we expect first products, and also regarding the voltage classes, we were able now to expand from 1,200 volts to lower voltage classes, 650, 600, and we now have also the first 1,700 volt product available. Of course, we continuously expand our portfolio in width, so meaning more in a given voltage class, more product variance, but we also continue to work on expanding to higher voltage classes, being also able to address our usual high-voltage IGBT and complement this high-voltage IGBT portfolio with silicon carbide products. Next time, the picture, I promise you, will look again significantly different, meaning better than today but we are also quite proud of what we have achieved in the last year. And here, you can see the number of products. And that is simply public numbers because what we do here is simply using web-based research, putting a student there and collecting this data from public available websites from our competitors. And you see here what kind of number of products we have in the different dimensions. And we separated this graph because on the lower side, regarding this orange red bars, we said, okay, these are the diodes. Diodes are existing since something like 20 years, right? Not so much differentiation via diodes possible in this market again. What I would like to highlight is here, nevertheless, that we see very nice business opportunities based on hybrid modules, where we put silicon carbide diodes in with high-performing IGBTs. That is the thing where the customers are very excited regarding cost performance opportunities, and that is the light greenish amount of products that you see in the lower side of this graph. So 9 products already existing, 17 will come in addition until end of this year, become available for our customers. And then we go to the top. There we see, on the upper side, the MOSFET -- silicon carbide MOSFET-based products. And you see here also that we expect 21 additional products become available for our customers, whereas of today, we are already in the area of 44 being available on our website. And on the right-hand side, you see the usual suspects as competitors, and we simply did the same research, website-based, where we see the 2 U.S. based companies, 1 European-based company and a Japan-based company. So no surprise who these competitors are. And I'm very confident with our roadmap. Of course, the competitors will also bring new products to the market, but here, we share what we today have and what we will have available until end of this year. With that, I'm already coming to my last slide, bringing this nice example before I hand over to Peter, giving you more insight to the details of silicon carbide. That is something where our customer, Sungrow, allowed us to share this because we, together, are very proud of enabling the world's most powerful string inverter, based on our silicon carbide solutions. That is a 250 kilowatts PV string inverter with 99 kg and power density of 1 -- roughly 1 kilowatt per liter. That is ideal suited for utility-scale PV applications. And we have here the special EasyPACK 3B, which we only recently, roughly 1 year ago plus, brought to the market. And that is kind of example where we have the latest TRENCHSTOP and CoolSiC technologies incorporated in these kind of modules, which are on a high demand on the customer side. And with that, I'm done with the business part. And I would like to hand over to Peter regarding more details on the technology advancements for silicon carbide. Peter, it's your turn.

Yes. Thank you very much, Peter. As Peter Wawer pointed out, so at the moment, we are, of course, focusing on the portfolio enlargement based on our first technology. But what I would like to give you now a few flavors what comes next, so what our next steps here beside rolling out what we already have. And the first thing, of course, is we are already in an advanced stage of a second-generation of our Trench-based MOSFET. We are very proud that the feedback from our customers always confirms that from a technical point of view, with our first generation, we are really on top there. So as an indicator here, you see the so-called turn-on losses compared between the today's available MOSFETs, where we are really on top. Turn-on losses are the real differentiating factor between sort of carbide MOSFETs today. So therefore, technically, we already achieved here a benchmark position. However, still, the usage of silicon carbide MOSFETs is a bit restricted to certain key applications, as we have seen, solar or EV-charging in the past. Therefore, with our second-generation trench-based silicon carbide MOSFET, we plan to have a technology available, which, based on technical advantages like an enhanced power handling capability and also an enhanced safe operating area, enables us to address applications, which, so far have been a little bit closed for silicon carbide. Therefore, the goal here with our second-generation is that we can significantly enlarge the market size for silicon carbide MOSFETs in total. Yes. So that's on the technology side regarding new devices. But of course, on the other hand, and especially in order to address the total cost situation, we also have to work on the substrate side. So you see on this slide basically 2 informations. On the left-hand side, this is the development of the base material costs, the raw material, 150 millimeter. So the good news is the, let's say, the very high pricing situation we have been facing 2 years ago is really gone. So we see the typical market development with price development in the right direction. However, to take the absolute numbers, still you will see that this is, by far, more than for any silicon technology. And therefore, the picture on the right side depicts a significant contribution of the raw wafers to the total manufacturing cost of a silicon carbide product is still there. Therefore, we have our strategy how to work on this contribution. And already last year, we introduced our new acquisition in Dresden, the company called Siltectra. Siltectra has developed a cold-split technology, which is an enabler for a more efficient use of silicon carbide raw material. We promised to drive this technology into an industrial scale, and we have already accomplished about 1/3 of this journey. Also what exactly we did, you should know when we stepped into this small start-up. So there was more or less a lab-based setup, a very nice proof of concept. However, there was a large gap between what we need for an industrial production. And therefore, the first steps we took here were design of new process tools. So it's a completely new technology, nothing you can buy off the shelf. So with very trustful partners, we have now been able to produce semi-automated tools, which already all are now in place in Dresden. In parallel, the clean room will be established in order to have -- boule production environment available. And over the last 1.5 years, we already have been able to integrate this split technology in the device production flow for some initial products. We plan to be productive with the wafer splitting, the so-called twinning, where we separate an existing wafer shortly before finishing into 2 parts and reuse 1 by 2022. What is new is that based on the changed market conditions in the base material environment, namely availability of boules, not just wafers, so we also plan to roll out this technology for the so-called boule splitting, where we can further increase the number of wafers compared to the traditional mechanical setups, which have been in use for many, many years so far. And in the end, and this is really forward-looking also to future wafer diameters, we are pretty sure that the combination of boule splitting and wafer splitting can, in the end, be the most effective process. Yes, to just to give you some, let's say, illustrations of what I just described verbally, also on the top, you see that today's situation, where we have to live with the fact that out of a crystal boule, which is grown with relatively large efforts, we get a certain number of wafers, but we have to accept a very high loss in the total material. So by splitting, we can improve the situation. So if we replace the sawing by splitting, we actually have no loss during the separation process, just we need to eliminate the, let's say, split traces. Therefore, we have already a larger number by this first step. And if you see at the bottom the next potential of this technology, we can now easily design wafer thickness, which is still a good compromise between manufacturability and material usage. And you see a number of 250 microns, so this is maybe not the final one, but that's where we are targeting at. So enabling also our production to handle thinner wafers and, therefore, again enabling a higher number of wafers out of a given material piece of silicon carbide. Summarizing now. We are ready to support the significant growth, which is expected in the area of silicon carbide. As you can see on the right-hand side, it was a number I already mentioned by Peter, about 30% CAGR over the next years. We have 2 ingredients in place already today, meaning a very good portfolio, based on a first-generation of Trench MOSFETs, but we have also key strategic projects in place to look into the mid- and long-term future. I described the second-generation of our CoolSiC Trench MOSFET, which we expect to come in the time frame of 2 to 3 years. We have Cold Split now established. We will roll it out for wafer splitting. And very important from a manufacturing point of view, since we still run our integrated setup in the fab in Villach, we have there a very well-developed 200-millimeter production setup available. Therefore, with the availability of larger wafer diameters, we are more or less ready also to make a smooth and smart transition from today's 150-millimeter to the larger ones. With that, I would like to thank you for your attention, and I will hand back to Alexander.

Yes. Thank you very much. Operator, please open the floor for the Q&A.

[Operator Instructions] And we'll take our first question. [Operator Instructions]

I assume that was me. It's David from UBS. I've got a few questions. I'll ask a couple of them and then go back in the queue. One of the early comments you made around distributor inventory, where you said an improvement in 2 weeks, can I just be clear that you mean a reduction in inventory? And then also, how do you see that progressing through this quarter, or I guess, so far in the quarter?

I'm not sure that I completely got the question. So you were asking on the inventories. So we, definitely, out of the very tight markets that we had to -- where we had struggled to fulfill the demand during the course of 2019, we saw, especially in the area of industrial drives then the cool down and our inventory situation, also the situation at our distributors was going up. And basically, that was now in the last 2 to 3 months. And the last quarter basically downward corrected, and we're on target regarding inventories. And we see rather even now, in the current quarter, a trend to even lower inventories also on the distributor side.

Okay. That's great. And the data point that you gave in terms of silicon carbide design wins, the cumulative EUR 1.8 billion. If I read the slide right, that was still as of sort of September '19. Can you possibly give us an update on how that has progressed? Or has there been some slowdown in design activity in the last couple of months, given the challenges everyone is operating under?

Yes. Yes. Correct. That was the number still valid from September last year. And we so far achieved all our design win targets in the area of silicon carbide but also in the area of IGBT business until today. So we are very positive also regarding the projected revenue growth that we also achieve the design win targets being needed to sustain this growth looking forward. So it looks quite positive. And since our go-to-market teams continued, even under these very difficult circumstances, to support the customers on the digital way as best as possible, so to say, we so far do not see any slowdown regarding these targets. So that's definitely, from today's perspective, very positive outlook. Of course, I hope that this continues also in the second half of the year. .

And 1 last quick question for me just on the substrate side. Obviously, you're working hard on the Siltectra technology, but just from a raw material supply standpoint, there's some of your competitors that claim to have already signed up an awful lot of the available supply for the next couple of years. So how confident are you that you have the agreements in place and commitments from suppliers to kind of get that capacity? And do you see the market moving towards more of a merchant-type model where, I guess, a couple of the suppliers are still very enhanced today or compete with enhanced products today?

Yes, you're right. There has been a couple of announcements of long-term agreements from our competitors. I would like to stress here again, so we had our long-term agreement, the first one, already in place longer time before, and it has also a certain reach. Therefore, at least for the short term, we are still covered here. But of course, in parallel, we are in advanced negotiations with further suppliers. I think, in the next, let's say, 6 months, you will also hear more from that from our side. It's just a matter of negotiation to finalize here the agreements, but there are no real concerns on our side that supply will be limited.

We will now take our next question. [Operator Instructions]

It's Adithya Metuku from Bank of America. So I have a lot of questions as well, but I'll ask 3 and then get back in the queue. So firstly, just looking at Slide 17, you talked about the lowest turn-on losses. I just wondered if you could talk a bit about how your products are doing when it comes to qualification at your customers. One of your competitors has recently been talking about how your products failed qualification whilst theirs succeeded. So any color you can provide there around what exactly is going on? Secondly, you -- on Slide 16, you talked about how your product will be able to handle 20% to 30% more power compared to your first-generation MOSFET. Now again, how important is power density to customers as of today? What are your customers saying? And is this really going to provide a big edge in a year or 2 when it comes to design wins? And finally, just on the wafer supply. Obviously, your slide shows wafer cost is more than 50% of the total cost. So what is your ability -- can you talk a bit about your ability to be competitive, given you don't have an in-house supply here?

I hope I got it correctly. So the first question was about the qualification of our parts at our customers or what we are going to do?

So my understanding from talking to your main competitor in silicon carbide today is that your products have failed qualification at 1 or 2 customers. Now obviously, you talk about how your product, your silicon carbide MOSFET, has the lowest turn-on losses. And as you said, that is the main differentiator. But I just wanted to understand if there is any truth to you failing qualification at customers? And if so, what drove it? Any color around that would be really helpful.

Well, it's difficult for me to comment on such a statement because I'm not aware of a failed qualification at our customers in a literal sense. So of course, you always fight for socket, where technical and commercial aspects have a certain impact. But I'm not aware of a failed qualification.

Well, possibly, it could just be a competitor bashing. I just wanted to hear your thoughts.

Yes. I think I would also like to reemphasize this topic. I think we took our time regarding go-to-market with the silicon carbide devices because we were very much aware of certain reliability aspects that we are -- that our customers are used and expect based on the experiences with silicon-based products, IGBTs and MOSFETs. And we were very much aware that no customer will accept any compromise in that area. So we took our time and studied the behavior of silicon carbide devices, including extensive reliability studies, where we, by the way, also published quite some interesting findings with the help of research institutes. And not only that our R&D on performance is better than those of competition regarding the example of turn-on losses as shown, these are, of course, measured data. Also, on the reliability side, we are very convinced that our Trench-based concept has certain advantages regarding reliability. And that is basically now nicely also translating to your question regarding power density. And I mean, that is always now the question of the application and the benefit from the customers and the systems perspective. Typically, the increase in power density is being used to reduce the cost. And at first hand, it doesn't matter if this is achieved by silicon-based solution, next-generation IGBT or silicon carbide-based solution, because the typical view of the customer looks at it is, are you able to make a form size jump, where basically you can generate the same power output from a smaller module, meaning for example, if you have now the Easy on, because you alluded to Page 16, having the Easy 3B solution today, maybe with the Gen 2, we go to the Easy 2B, right, getting the same power out of a smaller form factor and that then directly translates to a cost improvement to the customer side. That is one straightforward approach but silicon carbide is, of course, not as straightforward. Here, the thing is that, especially in those areas where the application is able to digest higher switching frequencies, the customer has the ability to further increase power density because he can increase the frequency without increasing the switching losses. And that is very important to understand as the main difference because silicon carbide products are much more expensive today, also for comparable power compared to IGBTs. But if you are able, from an application perspective, to leverage the higher frequency to reduce the system cost, meaning reducing passive components, like capacitors, inductors, and then shrinking the form factor of the inverter, then you're in the game. And then you have the key differentiator, which translate to system costs improvements on the customer and on the customers' customer side. And that is exactly where we have to find together with our customers the sweet spot in certain areas, for example, PV because PV is a good example, right? PV is as an application capable of increasing switching frequency. And now depending on the use case, depending on the design of the product, the customer might be attracted by a full silicon carbide solution, based on a silicon carbide MOSFET, or he might decide for a cost performance-optimized approach, where he uses inside the module IGBTs plus silicon carbide diodes. And that depends really from customer to customer from use case to use case. I hope that, a little bit lengthy explanation, answered your question.

Yes, it does. And then just on the last question on not having wafers in-house. Any thoughts around that and how it affects your ability to be competitive from a cost perspective?

Yes. So of course, that's a very frequent question we are asked, too. Well, having an own wafer supply in-house does not mean that you are safe. So if you just look to 2 of our major competitors, despite the fact that they have own sources nominally in-house, they signed large contracts with Wolfspeed. So that's not a safeguard by definition, I would say. And we intensively discussed this topic over the last years. And as already explained a couple of times, we have chosen a different way. And there are always different ways how to shave the cat. So in this case, we try to eliminate more or less the contribution of the substrate to the total device by a better usage of the available material. So please keep in mind, the substrate itself has no function in the device. So the more we can, let's say, shrink the needed substrate for the final device, the less the total cost impact will be. And that's a strategy we are following in this direction.

We will now take our next question. [Operator Instructions]

This is Amit Harchandani from Citi. Two questions, if I may, before going back in the queue. The first question is with regards to the outlook you have shared for 2021, the market. I must say, I find it interesting, given that the visibility is quite low around 2020, and you have the confidence to talk a little bit about 2021. I was hoping to better understand a little bit of the confidence in the market. Is that a function of customer discussions? Is that a function of pipeline? Are you making certain assumptions around macroeconomic factors? If you could talk about some of the puts and takes around the growth in the 2021 for the market, that would be helpful. And then I have a second question.

Yes. Okay. So we tried together with consultants companies, which now make, of course, guesstimations and estimations of how the current crisis might affect our business, we tried to break this down, this kind of assessments of our main markets that I've shown on Slide 5. And that is basically being drives, the renewables, PV wind and home appliances and traction. And our assessment is that the most fastest-reacting market we address is solar because construction can be done very, very quickly and also supply chain is not so complex as, for example, in the area of wind. And the other very much consumer or most consumer-related area we address is the area of home appliances. And so while we definitely saw a significant downswing and downturn in the area of home appliance due to simply consumer reducing significantly their spending, keeping their money together, we definitely expect that, that we'll see a recovery. And we have already first signs that the situation in China starts to improve slightly. We are definitely not through, for sure not. But there's an additional aspect why I'm rather confident for fiscal year '21 and because there was also the new energy regulation scheme, which was put in place in China for the second half of this year. Thanks to the corona crisis, this energy regulation scheme, which significantly increases the amount of inverterized home appliances, now has been postponed but it will come for sure. And based on this postponement, I expect that we, simply in the combination of consumer spending coming back, plus the China regulation for more energy efficiency in home appliances, I'm quite confident that this market will recover rather quickly in the course of fiscal year '21. As stated also on the solar side, the picture is mixed. Definitely, I'm showing here for this year -- for the second half of this year, the red arrow. But also due to the flexibility that we know from the past how solar installers -- how quickly solar installers go back to business can install, and we also do not see any slowdown in general in demand for renewable energies, it's rather the contrast, right? That due to the fact that the Levelized Cost of Electricity become now competitive without governmental subsidies, we expect a very strong development for renewables, especially solar also looking forward. As said, I'm a little bit more cautious in the area of drives. Here, I don't know. Of course, drives industry depends on automation, depends of course also on the recovery from the car industries because they are big purchasers of automation equipment. But for PV and especially major home appliance, where we saw a significant downswing in this year, I'm quite optimistic out of the given reasons for next year. And there was a second question from your side, I think.

Yes. Firstly, thank you for the comprehensive answer. Secondly, with regards to adoption of silicon carbide versus IGBT, given that we have gone through the pandemic or are going through one, what kind of trends or shape do you think the adoption of silicon carbide versus IGBT will take going forward? Do you think there might be any influence on the trajectory or adoption of silicon carbide, given the difference in economics, potentially some reliance on incentives? So very curious to know how you think that might potentially be impacted because of the pandemic, if you have any thoughts there.

That is an interesting question. I'll try to give you some flavors on it, and then I'll pass on to Peter, maybe he has another idea on it. Out of the corona situation, out of this crisis, to be honest, I do not see any impact on how that might have effect on the adoption of these different technologies. Of course, there is a lot of debate about how this kind of crises also in history have shown usually kind of boosting of innovation, right, because governmental stimulus or other reasons like, for example, now digitalization home offices, which is definitely boosting the need for more bandwidth, more data centers, et cetera. But I think from -- at least from my perspective, and I really have to think a little bit more carefully through after this call about this question, from today's perspective, also innovation on silicon doesn't stop, right? And of course, the growth is over-proportional on the silicon carbide side, definitely, right? But as we all know, it started recently from ground zero. And even having this very overproportional growth rate in the huge amount of silicon semiconductor market, might it be MOSFETs or might it be IGBT, it will only take the share step-by-step because the market is so huge. And I think also since we pursue both, right, IGBT development and also silicon carbide, we have, for next 2 generations at least, I would say, for the next decade, we have quite some good ideas how to also bring silicon to the next level regarding cost performance. So the race is on. And the good thing is we don't care if we cannibalize ourselves, right? We just don't want to be cannibalized by competitors. And so far, I would say for each and every question, application and expectation from a customer perspective, from IPC perspective, we want to have the right answer, might it be silicon carbide or might it be IGBT, or as said, a combination of both. Don't underestimate this kind of combination, having the latest and greatest IGBTs, plus silicon carbide diodes. But not only diodes, now it becomes a little bit technical, but I would like to share this also with you. We see based on our customers and applications also needs for combining silicon IGBT plus silicon carbide MOSFETs in 1 module. And there are not so many companies in the world who can offer the latest and greatest IGBT technology, plus silicon carbide MOSFET, plus latest and greatest competitive module technologies. And out of this kind of very complex and technically very challenging mix, we simply want to derive the best solution for our customers.

We will now take our next question. [Operator Instructions]

This is Janardan Menon from Liberum. I just wanted to touch upon the competitive dynamics in the IGBT market. I mean, a few years ago, your competitors were all predominantly Japanese companies, like Mitsubishi, Fuji, Hitachi, et cetera. But now you've seen both ST and ON coming into this market much more aggressively. They seem be talking about quite a few design wins and some Chinese competition as well. How does that change the landscape, especially from a pricing point of view, are you seeing any kind of pressure coming through? And how do you see that happen, especially as some of these companies start putting up 300-millimeter fabs in the years ahead? And the second question I have is on inverterization. You talked about the push-out in China. But in general, I think in your last year's presentation, you've given us some detail on how fast and to what extent the home appliance market has been inverterized and how much is left to go. I was wondering whether you can give an update on that, both on home appliances as well as if possible, on the industrial motor pump side. And what kind of growth you would expect in terms of additional content in these kind of things? I mean, if you take an example, let's say, refrigerators, if the market is growing at 1% or 2%, what would be your kind of growth rate and because of inverterization and how long will that kind of growth continue for?

Okay. Yes. So I think what you mentioned in the beginning, first question regarding more competitive pressure. Yes -- yes and no, I would say. Definitely, we take these competitors very, very serious. And that is also the reason why we keep on pushing for R&D and innovation. And as said, we have a very nicely filled pipeline, not only on silicon carbide but also on silicon. The other thing is still that the focus regarding the application and regarding the volume, which is needed, is shifting towards automotive industry, right? And I think for the foreseeable future, talking about now the already started decade, the 20s, so to say, the question from the automotive perspective, of course, now thanks to corona, we have this big issue and this big impact on automotive industry. But the electrification and the autonomous driving, I expect to be rather accelerated. And as we all know, this is pushing for huge demand from either silicon-based IGBT solutions or silicon carbide solutions. So before the crisis times, usually the question from the industrial customer space was, will you also supply me as a reliable supplier when the automotive guys knock on your door? And that, we always very firmly, from Infineon perspective or at least from a IPC perspective, answered with the clear yes because we have an independent organization, which is my organization, luckily, is dedicated to fulfill industrial customers' demand. And so I would say competition that is good keeps you alive, keeps you awake. But I do not see a specific additional threat for the time being since I'm also very, very confident regarding the technical capabilities that we have, and to set up the infrastructure on module and on front and side, it takes time, it takes experience. So I'm not concerned. And I think it's good to have competition. That's one thing. And the other thing, on inverterization, that's interesting one. I do not have all numbers in my mind, but generally speaking, of course, the market for home appliance is typically growing only at a single-digit rate. But of course, as you highlighted and you know, the inverterization, meaning, therefore, the semiconductor content is growing overproportionately. And it's quite interesting that the amount of -- or the degree of inverterized home appliances varies very much all over the world. Japan, for example, is the country with a much -- with by far, the highest grade or percentage of inverterized home appliances all across. I think it's also based on regulation. And while China has put some regulations in place, but there is still a lot of room for growth. So our expectation is that for the next 2 to 3 years, due to this energy regulation scheme, which is expected to become effective, we see then high single digit -- we expect high single-digit growth for semiconductor components in these markets. So between 5 to 10 CAGR for the next years to come because, of course, China market is huge, right? But we also have to acknowledge that also the rate of inverterized home appliances in the U.S., which is also quite a big market, and even in Europe, it's not as high. Of course, in the U.S., to my knowledge, there's not the plan to put this kind of regulation in place. But also, these are markets who will turn to more inverterized -- usage of more inverterized home appliances looking forward. And so from a silicon perspective -- silicon content semiconductor perspective, we see here also good high single-digit growth rates looking forward.

And is inverterization a factor in the industrial automation market as well? Or is it no longer a factor there?

Sorry, can you repeat again?

Is inverterization a growth driver in industrial automation as well? Or is it no longer a factor in that market?

No, I think that is, I would say, unchanged. It's not -- that is basically the replacement cycle, where simply higher-performing systems, lower-energy or better energy efficiency systems are being purchased and used. Most of the industrial systems we are talking about are, anyway, inverterized. That is simply driven by higher performance solutions that are requested from customers and from the market.

Now will now take our next question. [Operator Instructions]

Yes. Jerome Ramel, Exane PNB Paribas. Two questions on my side. To come back on the competitive landscape in IGBT, also talking about your customers, namely CSR in China with the acquisition of Dynex, and CSR used to be a big client for you in transportation, are you seeing some dynamic change there? Second question on silicon carbide. What is your capacity in 150-millimeter in terms of wafer per month? And I got a last one concerning the splitting technology, have you had a look at the Smart Cut technology from Soitec.

Okay. So first question is on China and the relationship to Dynex, also here, simple answer. From today's perspective, no. We see Chinese customers, including CSR, as being very reliable, very good customers. So up to now, no impact seen. Will there be an impact down the road? Might be, I don't know, but today, no. Regarding wafer starts, sorry for not answering this question. We, in general, do not give any details on exact wafer starts that we have. The good message is we have enough headroom to fulfill the demand of our customers today and tomorrow, also related to the growth rates that we have demonstrated, being in the range of 50% plus in the course of the last years. So we expect to achieve EUR 100 million revenue, roughly speaking, for end of this year. So that might be, revenue-wise, impacted by corona a little bit, but that's the way to go, also to give an absolute number in terms. And what we also do is, basically, that we set up the home manufacturing on 6-inch wafer silicon carbide being also convertible and usable for 8-inch equipment. So each and every machine we purchase for manufacturing 6-inch wafer silicon carbide is already, today, able to manufacture 8-inch. And therefore, it's not so easy to separate the amount of capacity because, as you know, the capacity we can manufacture on 8-inch silicon, we talk about hundred thousands of layers. And with this kind of strategy, we will achieve the utmost flexibility being able to reuse also the equipment from the silicon area, and where we do not -- where we only have to do the selected investment for the very specific silicon carbide processes like, for example, epitaxy. And the last question you put on Soitec, I will hand over to Peter.

Yes. Thank you, Peter. So if I got it correctly, so you asked about our, let's say, assessment of the Soitec technology. Because I understood Soitec, but not the rest. Could you maybe repeat the question?

Yes. Just wanted to know if you had a look at their Smart Cut technology because they claim they can split the silicon carbide wafer 10 times, even the epitaxy layer is not proven yet. But just wanted to know if that was one of the options when investigating on top of your own solution.

Okay. Got it. Got it. Yes. So upfront, I have to say, I cannot share too much details with you because we have some NDAs in place. But in general, Soitec is a long-year and trustful partner to Infineon also in the silicon arena. And we are both assessing the Smart Cut technology for a couple of years already. So not just with the new restart, it's already a longer year project. So we are in intense discussion. To conclude on that, that's too early for now. But we have a very good, let's say, exchange here, running. A little bit affected by the corona at the moment, but in general, it's good cooperation we have in place. But no decisions yet. No utilization plans.

Okay. And maybe just a final one on my side. For the silicon carbide wafer, do you do the polishing internally? Or do you outsource the polishing of the wafer?

The polishing?

Yes, the grinding.

Yes. So we have a very big grinding capability in-house already due to our SIM wafer silicon technology. Therefore, as much as we foresee, we try to have it in-house.

We'll now take our next question. [Operator Instructions]

It's David from UBS again. Just following up on the competitive question shared earlier. It was mainly focused at some of the European and U.S. competitors, but there's been a few attempts in China to develop sort of domestic IGBT and general power savings capabilities, particularly given the size and intentions they have in automotive for EVs. Is there any of that you give much credibility? And obviously, a few years ago, you set up the joint venture to start shipping your own IGBT projects through -- products through a joint venture, making the module. How is that progressing as well in that competitive landscape?

Sorry. Sorry, I did not switch on my mic. No. Sorry, start again. Thanks. So we take the Chinese competition also in the area of IGBT quite serious, no doubt. We do not see today from industrial -- speaking from an industrial perspective, too much competitive pressure right now. You know that we have, on the automotive side, set up the joint venture in China, where we supply the silicon but that's totally automotive-related topic. What we are currently now expanding is our manufacturing footprint in China. We now became recently operational in our manufacturing belonging to our -- back-end factory manufacturing in Wuxi belonging to us, not related to the joint venture, where we now also localize our footprint in industrial module manufacturing. So these are basically also the steps to become closer to the customer, of course, also to benefit from the Chinese factor costs. And so far, I think that is the answer related to Chinese competition. No plans from today's perspective for JVs in the area of industry business.

That's great. And just one follow-up. You mentioned earlier some of the opportunities with Cypress and the fact that, that can increase the kind of bill of materials for you. How much of your revenue base in IPC today do you think you can potentially drive some form of BOM synergy going forward? And to what extent and what percentage increase do you think is possible in those applications?

Yes. I think that is not so easy to answer from my side because, of course, the whole BOM that we then address does not -- from a business perspective, does not belong to IPC only, right? Because the microcontroller portion will not be accounted as IPC revenue, for us, it will basically remain the products we are speaking about today. So from a power perspective, what we definitely see as direct upside is in number of EUR 100 million. And now the question is how fast will we be able to capitalize on this EUR 100 million that we clearly see out of the synergy aspect from applications we already addressed today. So that is really add-on revenue. And I think that will -- to give a statement on the speed, how fast we will achieve this kind of number, that will take some time to make a thorough assessment. So I don't want to give any false promises here.

Then maybe just one quick follow-up. In terms of the organizational structure and given, I think, within the kind of assets you're now trying to utilize across different business areas into certain end markets, is there a good enough structure in place to drive that collaboration across business unit? Because, I guess, it's taking a little bit out of how Infineon's been structured in the past.

Yes. Also, good question. I think we are -- we, first of all, I have understood that we need to further develop our organization and our structure internally to be able to address those across the borders of our internal organization because, of course, the customer doesn't care. He wants to have the best solution for the given application for the given opportunity. And I think with the measures we now already took to also shape the organization in line with this merger, I'm pretty much optimistic that we will be able to address these opportunities comprehensively looking forward. Are we already there in all dimensions? No. But we definitely have identified that there are opportunities, and I'm very optimistic, as said, that we take the right measures to be able to address it. Okay. I think we have time for a last final question. So if there is any?

We will take our last and final question. [Operator Instructions]

Yes. Good. It's Adi Metuku from Bank of America again. So just first question is on when -- obviously, the Department of Commerce restrictions are coming in, and power products are used in -- they obviously have military applications, especially with compound semiconductors. So I just wondered if you could give us any initial thoughts you might have on how these recent rulings may affect you. And secondly -- I don't know if I'm allowed to ask a couple more questions, Alex, or should I leave it there?

So since the sound was a little bit distorted on our side, maybe you could help us again with the question. So I got the question on military, but sorry, we didn't -- acoustically, we did not get it completely. Maybe repeat it again, please.

Yes. Sure. So I was just saying power products are used in military applications. And obviously, International Rectifier had exposure there and silicon carbide, gallium nitride, they originated from military, they have military origins. And obviously, you guys have positioning in these 2 markets. So I just wondered if you have any initial thoughts around how the recent Department of Commerce restrictions may affect Infineon. And then I had a quick follow-up just on silicon carbide. Did I hear you say that you had EUR 100 million in revenues this year?

Okay. Maybe starting with the second question. Answer, yes. So we expect -- before corona, we expected that we would hit the EUR 100 million revenue on silicon carbide this year. Now maybe it will be slightly coming from the lower side, right? But generally speaking, yes. And now back to your first question regarding military exposure. So from IPC's divisional perspective, we do not entertain military business. So the HiRel heritage that we inherited from International Rectifier is basically concentrated, even inside a separate legal entity in the U.S. And from the divisional structure, this belongs to PSS division, or better known formerly as PMM, where we have a separate subunit, which is called HiRel. They even have also a separate -- still a separate IR-branded brand name because they are very well-known for it. So there's a complete separate legal entity which focuses on the usage for high-reliability semiconductors, where only a portion of it is for military, right? There are also a wide variety of other applications, like undersea cable satellite stuff, which is not military, but the military topics is inside this. And now the focus for gallium nitride and silicon carbide, from today's perspective, the application focus is clearly nonmilitary. So all the lead customers, the lead applications we are talking about in my -- on our side, on IPC side silicon carbide, it's completely nonmilitary. It's only civil usage. And the same is true for PMM or PSS regarding gallium nitride. So here, the focus of the application is enhanced efficiency, enhanced performance for switch mode power supplies, which is nonmilitary related.

Understood. Very clear. And if I could, just a couple more follow-ups. Just on the slide -- on Slide 14, you talk about -- you don't show 800- to 900-volt MOSFETs for silicon carbide. And I think most of the competitor literature I've seen for SiC MOSFETs for EVs focus on 800 to 900 volts. Am I missing something here? Is it just the topology, et cetera, that you use, you can achieve the same result using different voltage MOSFETs or...

Yes. We had a deeper assessment about the need of intermediate voltage classes here. And it turned out at the end that this era of 900-volt MOSFETs, which has been in place about 2 or 3 years ago was really a transition kind of approach in the end. Today, we see a large acceptance in the higher voltage area for the 1,200 volt. And therefore, we don't think it makes sense to have the complexity of intermediate steps in place here. What is a bit different is in automotive. So in automotive, probably the journey will go towards something around 700, 750. But also here, our initial target for the propulsion is 1,200 volt. For that reason also here, the first products are in 1,200-volt modules and the 600 volt part is just the charger, and there the 600-volt or 650-volt voltage level is perfectly enough. Also we don't see a long-term justification for 900 or 800.

Maybe to add on the comment of Peter, we are absolutely flexible regarding the voltage classes, right? We orient ourselves on the customers, as you already stated. And when we see that based on the application needs and also the change on the application, we need to adapt the breakdown voltage, then we simply do it. And I would like to bring in a lively example, which is now being advertised actively -- starts to being advertised because we're now going to introduce the 2.3 kv IGBT, especially suited for central inverters for PV because you might be aware that the operating DC voltage of PV systems is now emerging or has already emerged towards 1,500 volts. And that requests a redesign of the inverters and, therefore, we decided to go for this intermediate voltage class of 2.3 kV on the IGBT side, which did not exist so far. This product -- brand-new product has a very, very high -- very high customer demand and we are very happy that, as to my knowledge, we will be the first guys serving the market with such kind of product.

Okay. This is Alex again. Well, thank you very much for taking part in the call. We are already 15 minutes ahead of time. So with that, thanks again for the colleagues from IPC and for your attendance and your interesting questions. And if you have any further questions, please don't hesitate to contact IR here. And with that, I would like to conclude the call, and yes, wish you a good day for the rest. Bye-bye.