Infineon Technologies AG (IFX) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the conference call for analysts and investors for the Infineon's intended acquisition of GaN Systems. Today's call is hosted by Alexander Foltin, Executive Vice President, Finance, Treasury and Investor Relations of Infineon Technologies. As a reminder, this call is being recorded. This call contains forward-looking statements and/or assessments about the business, financial condition, performance and strategy of the Infineon Group. These statements and/or assessments are based on assumptions and management's expectations and resting upon current available information and present estimates. They are subject to multitude of uncertainties and risks, many of which are partially or entirely beyond Infineon's control. Infineon's actual business development, financial condition, performance and strategy may, therefore, differ materially from what is discussed in this conference call. Beyond disclosure requirements stipulated by law, Infineon does not undertake any obligation to update forward-looking statements. At this time, I'll turn the call over to Infineon. Please go ahead.

Thank you, operator. Good morning and good afternoon, respectfully. Ladies and gentlemen, welcome to our special analyst and investor call related to the acquisition of GaN Systems. Yesterday evening, we have announced the signing of an agreement to purchase GaN Systems in all-cash transaction. This deal will significantly strengthen Infineon's gallium nitride activities. The business ownership of which is with our PSS division. I am joined today by Adam White, PSS President, who is dialed in from the Canadian capital of Ottawa; and Uli Pelzer, Division CFO, whom many of you will recall from his days as Head of Investor Relations. Adam and Uli will give you an overview of the acquisition, providing color on the strategic rationale, financial merits and the integration concept. The statements will be accompanied by a presentation, which is synchronized with a telephone audio signal and is available at infineon.com/slides. Following their prepared remarks, Adam and Uli will be ready to take questions from you. A recording of this conference call, including the aforementioned slide set, will be available on our website at infineon.com/investor. Now over the Atlantic to you, Adam.

Thank you, Alexander, and welcome, everyone. It is a great pleasure to talk about this exciting news to you. We are acquiring GaN Systems to strengthen our gallium nitride or GaN portfolio and thus reinforcing our global leadership in power systems. Infineon and GaN Systems are joining forces, bringing together highly complementary strengths in terms of IP, application understanding, customer access enabling us to address fast growth applications to create superior customer value. With unmatched R&D resources and application expertise, we significantly accelerate our road map and meaningfully shorten time to market for our customers. Crucially, the acquisition of GaN System fully pays into Infineon's corporate strategy, fostering our leadership in power systems through the mastery of relevant power technologies, be that of silicon, silicon carbide or gallium nitride. Let me further stress this point. The perfect fit with our overall strategy by putting the acquisition into context, we will be very familiar with the chart on the left-hand side, showing how wide bandgap materials are expanding and the capabilities of power semiconductors compared to traditional silicon. Silicon carbide and gallium nitride have superior electrical properties, pushing the boundaries in the terms of power density and switching frequencies, creating significant system-level benefits. While all these -- whilst all 3 baked materials will coexist for quite a while, the transition of wide bandgap means the future market growth in power semiconductors will be predominantly from SiC and GaN. Today, the GaN market is still patent but it is poised to see the highest growth rates. That's where GaN systems comes into play. The key selling point of gallium nitride is its superior switching performance, resulting in high power efficiency, compact form factors and lower system cost. The market is clearly accelerating and taking off as a couple of key power applications have reached or are getting close to their tipping points. Good examples are chargers and adapters for laptops, tablets and handheld devices or high-voltage power supplies for servers. In supporting the megatrend of renewable energies, GaN is powering residential solar installations. In automotive, gallium nitride enables high-power efficient and compact onboard chargers. As is happening often with disruptive technologies, their speed of adoption and market growth beyond an inflection point is underestimated. We see that market researchers continuously increased their projections calling for mid- or double-digit growth rates over the coming years. According to Yole Development, GaN for power management applications offers a cumulative market potential of over USD 6 billion over the next 5 years. And it would not come as no surprise to us if these estimates in hindsight proved to be conservatives. The transition parts of individual applications are going to differ. Some will move directly from silicon to gallium nitride. Others might well see a period in which silicon carbide is the technology of choice before the full advantages of GaN could be reaped. Other applications, not on this chart, will remain best addressed with silicon or silicon carbide. To state the obvious, these are predictions based on current technological assessments not by the laws of physics. What this underscores again is the importance of mastery of all power technologies in order to broadly address applications and create the highest customer benefits. As far as GaN is concerned, it is expected to be the preferred technology in somewhat Infineon's core portfolio applications by the year 2030. It is, hence, clearly important to get ourselves positioned. With that now, I'd like to hand over to Uli.

Yes. Thank you, Adam. Welcome, everyone, to this call. It is clearly important to get positioned in GaN, and that's where then GaN Systems comes into play. GaN Systems is a global leader in GaN power semiconductors with a strong product IP base with top-notch application understandings as well as a broad product portfolio and superb customer access. The company was founded in 2008 in Ottawa in Canada. It's thus far privately held by both strategic and financial investors. With more than 200 employees across locations in North America and Asia, most of the employees having an engineering background, the company has created an impressive library of patent and has an industry-leading lineup of devices and packages, all purely around gallium nitride. GaN Systems is fabless. It's foundry partnership helping it to scale and ramp revenues quickly. Focusing on server, telecom, automotive, industrial and consumer markets, the company's revenue is currently in the low to double-digit million U.S. dollar range making GaN Systems one of the leading players in this very young market. As you would imagine, the financial value created by the transaction lies in a significantly accelerated path to strongly growing future revenues and profitability supported by revenue and cost synergies. The acquisition will bring together highly complementary strengths and thus, creates a winning formula for shaping the gallium nitride market. In this market, competitive differentiation does not hinge on base material supply as GaN transistors are grown through epitaxial processes on commoditized and readily available silicon wafers. Infineon commands critical IP relating to efficacy and front-end device processing, GaN Systems adds product and packaging patents. On the manufacturing side, GaN Systems is contributing foundry capacity corridors, whereas Infineon is expanding in-house capacity sites in Villach, Austria, and in particular, in our new wide bandgap that's under construction in Kulim in Malaysia. Both sites will be ready for 8-inch wafer production in the not-too-distant future. Now in order to reap the benefits of gallium nitride at system level, specific topologies and packages are necessary. Adding Infineon and GaN Systems expertise in these areas, we'll fast forward the creation of highly innovative solutions, among them also the monolithic integration of logic functions. Further key success factors are deep application understanding and excellent access to lead customers. Also in these areas, the strength of GaN Systems and Infineon complement and, in fact, reinforce each other. Overall, therefore, the combination is taking all the right boxes. We see strong cultural fit, and we plan to establish a dedicated GaN business unit to facilitate the integration. Adam, again, over to you.

Thank you, Uli. In fast-paced technological evolution, the power to innovate is crucial. The combined platform will feature leading GaN IP with patent families, outnumbering those of peers by a factor of 6 to 7. With GaN Systems, we will have the industry's strongest R&D force, both in terms of manpower and budget. This is critical to significantly speed up time to market and leverage learnings across different use cases. In order to optimize its potential in power systems, gallium nitride comes with specific requirements, whereas silicon carbide can be seen as a drop in replacement to silicon, GaN is calling for bespoke topologies a customized system architect. This explains, in part, why the adoption of gallium nitride is somewhat lacking the one of silicon carbide. It also explains the all-important role of application understanding, take a single-stage solar inverter as an example, offering clear benefits in terms of power density efficiency and reduce complexity and cost, but needing a system redesign. Deep analysis and comprehension of what is needed at a system level is key to creating customer value. This is part of Infineon's DNA. As we have been following our strategic P2S or product to system approach for more than a decade. From our interactions with GaN Systems team, we know that we are thinking along exactly the same lines as they have developed and nurtured strong engagements with market-shaping customers. The acquisition of Gas Systems will enable us to create superior solutions for our customers and unlock significant financial value. The number of gallium nitride products in our portfolio is set to double instantly. We will serve over 2,000 active customers in our consumer, industrial and automotive-focused applications. In these applications, we see the design opportunity pipeline more than doubling through the combination to exceed EUR 3 billion. We significantly accelerate the time to market growth with market-shaping OEMs and distributors, thus creating highly attractive revenue synergies, achieving scale and learning faster will in turn lead to manufacturing cost efficiencies, in particular, from gradually ramping our in-house capabilities. Overall, we will be one of the leading GaN semiconductor companies. Uli?

Yes, everyone. Let's quickly go through the key facts of the transaction. We plan to acquire GaN Systems for USD 830 million in an all-cash transaction, and we're going to use available liquidity on our balance sheet to do so. The transaction is subject to customary regulatory approvals and closing conditions, and we expect that closing should take place still within the current calendar year. Adam, back over to you.

Thanks, Uli. So let me just take this window of opportunity to summarize. The merits of course, acquiring GaN systems. The combination will create a leading GaN patent portfolio. the strongest R&D force in the industry with best-in-class application understanding. Combining foundry and in-house manufacturing capacities will be a key process, IP will be positioning Infineon as a leader in a game player. Let me finish once again putting the GaN Systems acquisition into a bigger picture of the Infineon Group strategy, for which we always adopt a long-term entrepreneurial perspective. GaN Systems contribute significantly to our competitive position in gallium nitride, which in turn add to Infineon's strong position as a leader in power systems.

Thank you very much Adam. Thank you very much, Uli. Ladies and gentlemen, this concludes our prepared remarks, and we are now opening the call for your questions. Operator, please start the Q&A session.

[Operator Instructions] First question is coming from Mr. Francois Bouvignies, dialing in from UBS.

I have 2 quick questions, if I may. So maybe the first one is for Adam. I mean, when -- in your Slide 5, you talk about GaN tipping points reach our insight for 3 applications, including chargers, server and onboard charger. And I think we can see already the charger happening today, and it's clearly a very good product for that -- my question is more on the server and onboard charger. When I look at your slide, it looks like the server and onboard chargers are more at the end of the decade in terms of adoption and you have the silicon carbide that will be adopted in before that. And my question is what makes you think you are the tipping point for these 2 end markets? And put it a different way, out of your EUR 3 billion pipeline opportunity that you will have combined, do you have any server or onboard charger already in this kind of pipeline? That would be very helpful to understand the timing of these adoptions.

Yes. So first of all, Francois, lovely to hear your voice, and thank you for the question. So look, let's just take server as an example. There's a lot of talks about the green server. We recognize today the ability to, quite frankly, compute a lot of information within the existing space of a data center, meaning a rack and then ultimately going down to a blade. So if we can obviously provide the server customers a value proposition by improving efficiency, improving density, meaning size then ultimately, they can compute more power and more of a greener way than currently is happening. So here, we've already engaged a number of companies that are very much interested in our value proposition along the dimensions that I just articulated. The other area is onboard charger. Clearly, here that there are a number of designs out there in the industry that goes from silicon as well as silicon carbide because of their certain topologies and the preference for our customers' R&D. But we've also seen an acceleration of customers now very much interested in new topologies in the areas of multilevel, for example, where we can, of course, offer a gallium nitride-based solution, coupled with silicon -- and here, what we find is, again, it gives performance in the areas of efficiencies as well as density and overarching over cost performance of the solution. So we believe at the moment, there will be an adoption rate. As we've highlighted earlier and myself, that we take as a company a longer-term entrepreneurial perspective for these markets to adopt but it's vital that we position ourselves today.

Great. I think that was very clear. The second one is the maybe -- can you develop our give your assessments on the Antitrust. And what's -- because it seems to gain systems have a significant market share for a small market. Obviously, today is still -- but if you combine with Infineon, it makes a clear leader, and I think you showed the patterns compared to #2. So what's your assessment on the Antitrust front? How much market share do you think you would have combined to the market? And also on the regulatory side, is there any exposure to the defense application for GaN? I'm not aware of big application there, but I just wanted to have your view on that front.

Yes, Uli, would you like to take this?

Sure. I can have a stab at that. Yes. Francois, so I mean, it's tough to comment on how regulators are going to look at this. But we -- the combination of the 2 companies, pro forma in the calendar year 2022, in our mind, would not command a market share that would give rise to very serious regulatory concerns at an antitrust level. And in terms of defense, there is a very small defense exposure, but we are confident that this will be manageable.

And it's worth echoing, Francois, the GaN market is obviously at its infancy, and market shares will, of course, fluctuate. And again, as we -- as the markets grow to a bigger dimension. Yes?

Today's next question is coming from Mr. Aleksander Peterc calling from Societe Generale.

[Audio Gap] to any comps or anything that would tell us that this is a fair price. That will be my first question. I have a follow-up, please.

Aleksander, I'm afraid it's early. I'm afraid best case, half of your question was audible to us, not sure why that is.

Okay. Sorry. Yes, let me try again, apologies for this. Can you hear me right now?

Yes. Now it's good.

Okay. Cool. I was just wondering if you could provide any insights on how you arrived at the transaction price, the EUR 830 million? What exactly, what kind of comps or metrics you looked at or anything that you could give us to justify the price tax, first of all?

Uli?

Yes. That's been a two-pronged approach where, on the one hand, we've looked at multiples of comparable transactions in the venture capital, private equity and also IPO areas in recent history. On the other hand, we've applied the discounted cash flow methodology to value the company. I think outside of the technically, how have you done it when you think about what would you put into a financial model or into a discounted cash flow model. In my mind, you've got an overall power discrete market that today is worth greater than USD 10 billion worldwide, where the silicon part of that is showing some growth. But as we said also during the introductory remarks of this call, the vast majority of the growth is driven by wide band gap and in particular, by gallium nitride. So did this addressable market has a potential nicely into the billions when you think 5 years out, when you think 5 to 10 years out, obviously, that's much bigger. And the combination of the 2 companies has great prospects in a market that is growing very dynamically. So I think you -- if you want to try and use current financial year multiples, they will inevitably look high. But I think all the -- they will come down very fast as that market will see very dynamic growth going forward. And in fact, growth over the last 2 years has surprised on the upside.

Yes. And if I may complement on this, and again, exactly what Uli said, we, Infineon, continue to take a long-term perspective to ensure we are positioned. We have great respect for GaN Systems for establishing a very credible brand due to their solutions. Now the other topic to answer this is you could also cross reference Navitas. Today, Navitas' market cap is, give or take, USD 930 million. So again, there is a multiple, but we wish to make sure that we go -- having the technologies in-house from a perspective of silicon, silicon carbide as well as gallium nitride to reinforce our leadership in power systems.

That's very clear. And can I just ask also, when you show the over 350 patent families, what's currently sitting in Infineon and what will be brought in by GaN Systems. That will be a first follow-up. And the second very small one is if you could be more precise on what you mean by the EUR 3 billion design opportunity pipeline? Is that what you think you will garner in a couple of years? Or is this what you think you can target but would not necessarily get?

Yes. So we publicly announced as a stand-alone Infineon that we've had of over 300. So again, now with this new statement, I think you can do the basic math to work out how many we would inherit with the successful closing conditions. That's the first part of the question. The second part, we state here that actually, we have greater than 2x design opportunity pipeline. This is purely in GaN Power in the focus applications of greater than EUR 3 billion. Now the way to read that, that does not all translate to revenue. I must stress what we classify as a design opportunity pipeline, there are different levels of conversion to success. But what that tells us is what Uli and I have been projecting here that we really have significant confidence that the customers are now really putting their R&D resources in designing gallium nitride. And as I mentioned in my script, this is not a drop in replacement like silicon carbide would be. We have to have bespoke topologies. And this is where we see when those customers are willing to try the new topologies with gallium nitride, they reap and unleash the potential of the gallium nitride performance. So EUR 3 billion, greater than EUR 3 billion, but we must stress that is the opportunity pipeline does not translate one-to-one with revenue.

Today's next question is going to come from Mr. Andrew Gardiner, calling in from Citigroup.

I had a question around the sort of the complementary nature of the deal that you're calling out. So one on the product side and one perhaps on the manufacturing side. So on the product front, you're saying you have 2x the available gallium nitride product. Is there not sort of -- what was the overlap like between the Infineon portfolio as it stands in the GaN Systems portfolio, are you saying there's not really much overlap. Therefore, it is truly complementary between the 2? And then on the manufacturing side, as you point out, they're fabless, you're an IDM. And I think you hinted at this in your comments, Adam, but are you now seeing the opportunity to perhaps bring some of that fabless volume back into your internal farms and therefore, say, Kulim would ramp quicker than you previously anticipated?

Okay. Thank you, Andrew. So let me start, and Uli feel free to add your comments. So first of all, it's very, very important to understand. We do have what we consider as a complementary portfolio. Here, we are both servicing the GaN markets. There are 2 different technologies with characteristics that may benefit some applications for more advantages from a value proposition perspective. So we are very much looking forward to, quite frankly, doubling the amount of products that we can now service to our customers. And of course, we will also be having some complementary ICs in the areas of drivers and control IC capabilities from both parts of the organization. So this isn't, again, just all about the GaN switch. It's about really complementing our power systems play where we want to put in together the best drivers, the best control ICs, the best switch technology. And of course, that gives us benefits as well with -- they've got a very good embedded package technology. We've also got a lot of package families that we can of course, do derivatives on as well. So that's really, really exciting to us, Andrew. And then on the foundry side, as we stated, look, we've got our in-house capabilities in dual sourcing within Villach as well as Kulim with the new facility that Uli highlighted in his address. But on top of that, we're very much motivated in working with the foundry industry because ultimately, we see benefits of having capacity corridors to ultimately service our customer needs.

And just if I could have one follow-up on the prior question from Alex on the pipeline. I'd also seen GaN Systems talk about an $8 billion pipeline that was sort of around the time of their prior funding round. So what is the distinction between how they have defined what was a particularly large number relative to what you're now calling out is EUR 3 billion?

Yes. So look, I won't comment now on historical information there with how GaN Systems have obviously gone to market. So -- and again, from our perspective, the pipeline of how we counter pipeline what we classify is, for example, design win, for example, design win, for example, and business win. That's where we come up to this number than greater than EUR 3 billion.

The next question is coming from Mr. Lee Simpson calling in from Morgan Stanley.

Great. Congratulations to everyone on the deal. Just sort of take a step back here. I'm just trying to understand some of the value. Given that there's a great breadth of IP and patent family and clearly some know-how. And there seems to be 2 aspects here. There's a need for a bespoke systems capability, which I think you've been quite clear about. But it also looks as though there's a need for an architecture redesign, and I suspect using e-mode. So having acquired GaN Systems, can you maybe just give us a sense, Adam, for how much does a deal like this really inhibit the ambitions for others trying to come in and replicate what looks like a class-leading proposition in GaN?

Yes. So first of all, thank you for complementing the deal. This is a full credit to, one, GaN Systems for establishing themselves in the market; and vice versa, for the Infineon team for getting us to the signing stage. Yes, we're excited, honestly, because we see this value proposition, but I believe, as I was mentioning earlier on, a lot of engineers where you go from silicon, if they got a drop in replacement for example, more similar with silicon carbide, the time for market for the engineers are there, they can see great benefits. Now that's great, but there are certain applications that really benefit from higher switching frequency. And that area in higher switching frequency, when you change what we call these topologies, the application design circuitry, then what we see is the eyes light up with our R&D contacts within the customers. And the who's who of the industry, when they play with this and when they test this, we know and we see the smile in their eyes that were where they go, wow, this really is an incredible performance. And of course, as we go down our path, there's no doubt about it that there will be competitors today and competitors tomorrow. These markets are very large, as you know, and they will continue to significantly grow as we talked about in our script, and I'm sure that there will continue to be a very healthy competition landscape. What we want to do here is just position ourselves, make sure that we are truly ready for the tipping point. If you look at charger and adapter, look at some of those now designs happening in the industry over us, say, 100 watts, most of the high-end charger and adapter market, the engineers now are only really focused on the gallium nitride-based solutions because they see the performance that, that can bring at a system level. I hope that answers your question.

No, that's very clear. And I think maybe just one quick follow-up. I mean given the considerable R&D that you'll have as a sort of stand-alone GaN business when 2 are combined. When can we expect the genuinely fresh new devices from the combination. Is that a couple of years out? Or could we see that sooner?

Yes. So we can't now talk about the road mapping because obviously, we are separate organizations until closing. And of course, here, we are effectively competitors until that stage. But it's pretty intuitive to us that they -- as I echoed earlier on, there's a lot of complementary portfolios. And we're really looking forward to getting to the closing conditions because we genuinely feel that there's a lot of derivatives and what do we mean by derivatives. This is the ability for us to potentially put the technology from GaN Systems in some of our packaging as a point #1. Point #2, that there's even great ways that we can now really couple our IT capabilities. As I mentioned earlier, the drivers in the control ICs into a system approach with their gallium nitride technology as well. So this is what we're sort of -- we're going to have to hold our engineers back, honestly, because I'm sensing already when we've announced this just over the last 24 hours, A lot of people are already beginning to brainstorm and come on up with ideas. So I can't give you the exact date, but -- of course, at the right time after closing, we will come out to the market and show our road map and where we're leading to. So it's really, really exciting times. And I really appreciate you recognizing that and understanding that this is part of the future for the industry. And here, Infineon is looking forward to supporting and shaping that area.

We'll now go to Johannes Schaller, calling from Deutsche Bank.

Adam, Uli, congrats on the great deal. Let me maybe play the devil's advocate a little bit, if I can. I mean, Adam, you obviously have an international rectifier background. That deal closed about 8 years ago and you spent a lot of money on R&D as we all know. I guess maybe can you contrast this acquisition a little bit against International Rectifier? Or I think where I'm going with this is what does this deal bring to Infineon really that you cannot develop yourself, let's say, if you spend the EUR 800 million on R&D instead of that deal kind of where really the points where you say, look, we cannot get there. And then a second question, just on automotive. I know Peter isn't on and maybe that's a question for him, but GaN Systems also has a traction inverter product based on gallium nitride, can you maybe talk about this a little bit in the prospects you're seeing here because that could potentially be quite a game changer in these days?

Yes. So thank you, Johannes, and appreciate the recognition on what we're doing here. So yes, so as you know, some of you know as well, I actually came from International Rectifier in 2015 to join the Infineon family. Now of course, Infineon purchased International Rectifier for multiple reasons. And in there, there was a crown jewel of no doubt on the gallium nitride side plus the IP portfolio that came across with that acquisition. Now full credit to the team of Infineon to really embrace the technology and to, of course, work with the technology to get it to a point of really a robust and performing technology, and that takes time. The industry, again, there's 2 real reasons why the industry hasn't adopted gallium nitride quicker. One, the technology, it is a very complex technology, but it has incredible performance, and that's why it's taken us time as a stand-alone company to get to the quality levels that we need to stand behind the brand of the Infineon brand. So that's 1 element. The other element, again, we are comfortable and we're confident here that we can, of course, further be successful in GaN stand-alone. We do believe that, and we fundamentally believe that. And I'm very confident here from what we've seen in due diligence that GaN Systems will have the capabilities of going alone and they would be successful. Now this is the magic. The magic is if we come together, that really helps accelerate our portfolio. It accelerates the amount of people focused on gallium nitride, greater than 450 people just in the areas of R&D and application. That doesn't include the other areas, for example, in operations or sales and those areas. So it's this whole concept of how do we ensure that we accelerate ourselves, how do we make sure we've got the right portfolios? How do we ensure we've got the right customer access and how do we ensure that we get a rich pipeline conversion. That's the magic. That's why we're doing this deal. That's the answer to the first question. The second question, yes, what I'm going to do here, respectfully, is defer to Peter Schiefer related to traction for what he sees as the value proposition there moving forward. especially to do with wide band gap because, of course, we've got multiple solutions in silicon as well as in silicon carbide. But I will say in automotive, though, we're getting a lot of interest, especially in the area of the onboard charger. The who's who of the industry are definitely seeing the significant benefit of gallium nitride in the onborcharger application. Why? It's basically along the lines of efficiency and density ultimately bringing system cost benefits as well.

We'll now go to Sandeep Deshpande calling from JPMorgan.

Congratulations on the deal. I'm trying to understand a couple of things on the deal. Firstly, my question is what is holding back much greater gallium nitride adoption. I mean you've talked about all the wonderful things about the technology. I mean, as we've heard or seen for a long time in silicon carbide, it has been the cost. What is it in gallium nitride? That is the what is going to cause that big hockey stick as such? The second question, I think, is for Uli. I mean, in terms of the deal itself, when do you expect it to be accretive to Infineon? How should we be looking at the costs associated with this? I mean, I'm sure the business is not profitable at this point. So how should we be modeling it within Infineon once it is integrated in terms of whether there is going to be any significant dilution of the earnings?

Uli, why didn't you take the second question first, if you don't mind, and then I'll answer the first question.

Yes, with pleasure. Look, it is dilutive, obviously, to earnings today. That said, if it closes within the current calendar year, you're going to see a very small -- and I think from what we're going to report publicly as a PSS division, you will not even see an impact. And when will it a discernible impact for you in the outside world, if I can call it that, and when will it begin to be accretive to earnings. Wow, it's going to be very fast growth in the market. It will take some time. If we close in the current calendar year, it's going to be a matter of let's say, 2 to 3 years before we reach that point.

Okay. And then, Sandeep, on your first question. Look, I really want to emphasize the point that it really takes a relationship between us as a supplier as well as the engineering community of the customers. When customers are willing to look at a system approach, meaning that they're also willing to look at new topologies -- that's where we see these huge value propositions coming in from their perspective. So and again, this is not a drop in replacement. And that's very important to note because the adoption of silicon carbide clearly was also a function of cost, as you emphasized, but also a function here that they have a number of applications that you just drop it in and is very robust on the drive schemes. Here, what we're showing now and demonstrating, by the way, between 2 wonderful organizations with Infineon as well as GaN Systems, when those customers are willing to open their minds open and look at the true value that it can come from new design circuitry, then we are very confident that in faster switching applications, for example, there is a massive value proposition along the dimensions that I previously mentioned. So that's one of the reasons why the adoption has taken time. We're very confident on the robustness of the technology. Millions of devices have found their way into the field with very good overarching PPM levels. So we feel very, very confident of putting the Infineon brand behind our quality commitments. And that's why we don't have any concerns on that. And plus moving forward, gallium nitride is also very close from the manufacturing after you do the epi processes that you can reuse a lot of the existing silicon CapEx to also support the build-out of gallium nitride. So this for us will ultimately be a technology that a number of customers will also adopt to.

Today's next question is going to come from Mr. Matt Ramsey calling from [ CD ] Cowen.

Congrats on the deal. This is [ Joshua Hopper ] on behalf of Matt, by the way. But congrats on the deal. I wanted to ask about Slide 4 in particular. It seems to suggest that the silicon power market is flattening. It was surprising given that the industry has been growing, I think that is the low double digits for the last decade or so. I guess I want to confirm, is that the right messaging takeaway? And if so, it sort of indicates that there's at least some cannibalistic element of silicon carbide. So I'd be curious in your view of IGBT growth within silicon given your leadership there.

Yes. Okay. So thanks very much again for John, for the feedback. And so look, it's really important, again, I really apologize for being somewhat of a stuff record, but we want to leave you understanding that we at Infineon believe hugely in the benefits of silicon in the benefits of silicon carbide as well as gallium nitride. We're in the fortunate and luxury position to be able to develop leading-edge technologies in all 3. Now here, just to really emphasize why we also see growth of silicon, not so long ago, we announced our new facility, 300-millimeter power and mid-signal facility in Dresden. So those markets will absolutely continue to grow, and we're very confident that we needed that and that facility over time will also grow with the wafer start knowing the demand that we're working today. Now also, though, it's just logical. The other markets of these disruptive technologies in silicon carbide and gallium nitride, they're disruptive, they come from a lower base of revenue. So logically, they -- we are modeling that they will grow quicker than the current silicon if you use that as a reference point today. But please, it's a great question. But from our side, we've just announced a 5 billion facility because silicon will also continue to grow, and that's what we are preparing for.

Okay. I guess, bigger picture, now that you've got a scaled portfolio of prospects, IGBT, silicon carbide and growing in GaN. How important is the diversity of power semi solutions more holistically to your customers? Like do you get many customers who want to be able to get several of those technologies for one provider or even for innovation putting them on the same module? Or is this -- is the acquisition motivated more by the opportunity in GaN specifically because of the growth rates there?

Yes, great, great question. So look, again, one of the luxury positions, we got the 3 technologies, and we're working now with customers with multiple designs. We absolutely are going to couple whether it's silicon carbide or whether it's in the gallium nitride, the right IC technologies, the right packaging technologies whether that is going to be multiple die with monolithic solutions in packages or whether we do embedded packages. And of course, in the gallium nitride, the road map will no doubt take work to the inherent benefits of gallium nitride where it's a lateral device so you can actually monolithically put a number of devices into one solution. So here, really, customers are really working themselves and we are offering them really system perspective, and we can then offer them in some of their particular applications or use cases, different solutions were including silicon and SiC or including silicon or gallium nitride or pure silicon play all depends on what they're looking for. But this is what is exactly what is so fascinating about our industry at the moment. We see a tipping point in these disruptive technology -- and now really, customers are now working with us at a system level, and I must stress that from an architect level to really look at things a little bit differently. And those customers are willing to do that, they are -- I think they're going to come out with a lot more winning value proposition than the traditional way that the industry has been doing it for the years past.

We'll now go to Adithya Metuku calling from Credit Suisse.

Yes. I had a few. So firstly, Adam, you talked about monolithic integration just now. I just wondered, can you talk a bit about where exactly GaN Systems capabilities from a monolithic integration viewpoint. And how that compares to what Navitas and Power are already doing. These 2 Navitas and Power have made a big deal out of the monolitically integrated products. So any color you can provide there on how your products will compare will be helpful. Secondly, just a clarification on the -- on Slide 10. You talked about more than 2,000 active GaN customers. So are these -- are all of these customers actively using your solutions or GaN system solutions today? Would that be the right way to understand it? If you could clarify that. Thirdly, I just wondered if you could talk a bit about the rationale behind using foundry for GaN and whether you see any real differentiation from having internal manufacturing in this space or -- or will it not be a key differentiating factor? And finally, just a clarification. Does this add anything on the RF GaN side at all?

Okay. Great. All right. So let me take them one by one. So first of all, on the monolithic from GaN Systems. So look, I let GaN Systems under their own call talk about their road map and where they're going to position themselves. But what I will say is that we understand from an Infineon stand-alone perspective that if you play to the benefits of the unique lateral structure of GaN, then you can do all sorts of different levels of monolithic solutions, whether that is bringing multiple switches together, whether that's bringing elements of the driver into the switch together. So that really is a huge benefit in certain applications. So really, I will be very clear in stating that in order, again, to play to the benefits, it will be foolish for Infineon not to have that firmly in our sights, our road maps. But of course, how you partition the GaN is very, very important. And that's why we're working with a number of customers to understand as we develop a road map, what level of partitioning they need for monolithic. Question 2 was about the customers, yes. So this is the combined effect that we are just really giving an indication that the amount of customer interest and has already -- these 2,000, we say greater, please notice the greater 2,000 today actually purchasing gallium nitride. Why did we put that out? And I'm great that you picked it up there because we see the interest growing exponentially. We truly see more and more customers now understanding how to use GaN and why they want to use GaN to get the better overall system performance. And I believe in the foreseeable future, that number of customers will again grow moving forward. Point number 3 on the foundry, look, and again, we've got the in-house capabilities for the Infineon stand-alone technology. GaN Systems being a fabless, they use utilizing the benefits of foundry. All I can say is we are really looking forward to working with foundry partners on the gallium nitride technology. We see a true benefit of teaming up. We've got some ideas that we're looking forward to working with the foundry partners on. And we hope that there's a mutual benefit ultimately for both of us to coexist. And I must stress, this is not different to how we today work with our ecosystem, meaning our internal plus our external partners from a foundry perspective as well as a back-end perspective. We have a lot of technologies in Infineon portfolio where we, of course, use both internal as well as external. And then the fourth topic is just to be very clear, the GaN Systems has nothing to do with RS GaN, zero.

All right. This has been our last caller, time to wrap up. Thank you very much to all for dialing in on a Friday afternoon here in Europe and for your questions. Thank you, Adam, and Uli for your presentation. We are concluding now our special analyst and investor conference call related to the GaN System acquisition. For any further questions, please feel free to contact the IR team here in Munich. Again, thank you very much. Take care, and have a good rest of the afternoon.