IonQ, Inc. ($IONQ)

Good morning, and welcome to JPMorgan's 54th Annual Technology, Media and Communications Conference. My name is Harlan [indiscernible] from the U.S. semiconductor and semiconductor capital equipment analyst for the firm. Also with me today is Maura Ramdani, he helps us cover our small to mid-cap semiconductor franchise. Very pleased to have Inder Singh, Chief Financial Officer, Chief Operating Officer of IonQ here with us today. Inder will kick us off with a brief overview of IonQ. It's been a pretty earning season. So I've lost some also just a brief overview of the March quarter, June quarter outlook, and then we can go ahead and kick off the Q&A. So Inder, thank you for joining us today. Let me turn it over to you.

Thank you, Harlan. Pleasure to be with you today and [indiscernible] thanks as well. I've been with IonQ as a Board member, originally, when I was still CFO of ARM and had sold [indiscernible] to NVIDIA, and we were in the waiting period for approvals, which, of course, never came. But during that period, I joined the company's Board as the first independent Director and then basically watch to grow from almost zero revenue to last year's $130 million and then joined late last year in September, once we had appointed a new CEO to help them execute on a platform strategy. And it's been a pleasure to watch the company go from being a lab experiment, maybe in 2021 to being commercially deployed more and more. As Harlan noted, we had a strong year last year, $130 million, strong growth year-on-year, guided this year for a top limit of $270 million in revenue. And the company has a track record of beating and/or raising over the last 5 years and hope to keep that model going over time. We provided the guidance to indicate that we were going to, again, double year-on-year at the midpoint of the guidance this year with strong organic growth, meaning our computing business, which was really the primary driver for the first few years, continues to power the top line. And in the coming years, we're going to roll out the rest of our platform business, which includes sensing, it includes [indiscernible] of clocks. It includes the ability to secure networks against quantum, et cetera, et cetera. So a portfolio story very much. And we also indicated that we have strong RPOs, which are a measure of future revenue, $470 million. So feeling pretty good about where we are and looking really to invest in the ecosystem around us to make sure the quantum can continue growing. And with my CFO hat on its obvious things with a COO hat on, it's making sure we have the manufacturing, the supply chain, the IT, the procurement, the supply chain, security as well, all of the things that are needed to scale the company. So those are sort of the opening comments. I know you have a number of questions you may want to try to get into here. Happy to try to address as many of those.

Yes. No, I appreciate you participating today. So the team has advocated that [ Chopin ] systems, your architecture of choice offers superior fidelity, connectivity versus other alternatives and there are 3 or 4 other alternatives out there, as most of you probably know. As the industry moves towards what we call more fault-tolerant quantum computing platforms, like how confident is the team that [indiscernible] will remain competitive from a scaling manufacturability and overall simplicity relative to the complexity simplicity of the platform itself.

Yes, that's a terrific question. So as we looked at the company about 2 years ago, the company was still using lasers to control these ions traps. Ion traps have a natural advantage over other modalities. They begin with less errors, they begin with higher fidelity, they begin with higher coherence. These are all some of the drivers of compute power over time and also they enable computing at scale, if you can get the right number of logical qubits. So about 2 years ago, we learned that using lasers as great up to a point. You can scale up to a point. You can scale up to maybe 100, 200 cubits before the machine becomes too big, too expensive, too bulky, requires too much maintenance, too much downtime. So that learning curve that we went through and we now have our fifth-generation machine rolling out is what was behind our acquisition of Oxford Ionics which puts us on to a semiconductor road map, a much more proven modality that exists today, 30 years of history, 30 years of scaling, 30 years of knowing how to scale something from a few bits to 1 billion bits and more AMD and video, obviously, all of them leverage that. Now we are also. So going forward, our intent is to use a semiconductor road map beginning with our 256 cubic machine, which we are developing already and our 10,000 cubic machine, which we've begun to turn our attention to. So as we look at the ability to deliver what we call time to solution which is really what matters. How quickly can you get to useful answers. We've proven through a paper that we've published on our website that you can all see that for many practical things, Ion Traps offer you the best path to that. And if you have enough qubits, logical qubits, you can do some pretty amazing things. So we sit at a crossroads here, where we are now moving from laser-based systems and Tempo, which we're in the market with right now is our last laser-based system. It's 100 qubits. The 256, we started development on already. On the last quarter, we announced we had successfully gone through developing a prototype, and now we're building the system around it. So we have a clear road path, I think, to being able to scale the 10,000, 20,000 and even 1k million 2030.

And we'll get into the -- I do think it is a big differentiator for the IonQ team, the optical/laser-based control approach to your, I think, innovative electronics/RF control based opportunity. We'll go into that a little bit later. But going back to the earlier -- my earlier comment, which is that there's multi sort of modalities that exists now for enabling sort of quantum computing architectures. Do you expect a future where there will be multiple modalities that exist, superconducting, [indiscernible], photonic-based quantum computing for different workloads or -- do you think that the industry consolidates to sort of 1 or 2 sort of modalities given the compute related applications that are required.

Yes, terrific questions. I think there are a number of modalities in the market already. There are a number of companies that are either using [indiscernible] as you mentioned, superconducting is another very popular one. There's photonics, there's neutral atom and so on. So multiple modalities. Usually, what you find is over time in industry and I've lived through a few industries in technology, you end up consolidating around a few. So I expect there will be a few. I don't think there's one, right? I think ion-trap definitely starts with advantage is there. I think superconducting with names like IBM and others behind it, probably is also there. As for the others, I think they have more development work to do. These 2 are furthest along. Ion trap for sure, because we've been investing in it for 5 years now and then superconducting, as I say as well. So we are preparing for a multimodal world in the future. So 5 years from now, absolutely, there should be a heterogeneous environment. Our networking capability, which we're unique in being able to connect Quantum with Quantum connects Ion trap to another modality. Our ability to secure against quantum is also agnostic of the platform itself. So we are preparing for that. We think ion-trap will play a key role. The other modalities may play a different role.

As we -- going back to the differentiation that you guys brought into the portfolio with the acquisition of Oxford Ionics and this whole notion of how do we control the qubits, right? Tradin historically, you've used sort of light/laser-based techniques to control the qubits. You guys have with Oxford Ionics have brought this very elegant. I think very simplified sort of electronic means to control the qubits where, like you said, you're leveraging like classical semiconductor base like existing like very, very mature, like semiconductor technologies, right? And so as you move from your current platform, which is temp, which is still optical-based, laser-based to your next-generation 256 physical Cubic platform, where you will be integrating your new electronic control architecture. What are the key milestones that we should look for between now and expected sort of 2020 time frame for your next-generation solution. What are some of the milestones? What are some of the key sort of KPIs that we should be? What are you looking for in terms of bringing the solution to the market gate fidelity reliability, uptime, calibration, packaging yield, manufacturability. What are some of these metrics?

Yes. Fantastic question. So we've begun to reveal some of those milestones already. So the last 2 earnings calls, we've talked about the fact that even while we're putting the Tempo system into the market and that's going to drive the majority of our revenue in computing this year, we've already developed the 256,000 chip prototype already developed. So it's gone through tapeout A, B and C and D is now complete as well. So it's got feature-rich ability at this point. We are now surrounding it with the rest of the system. The chip is about the size of your thumbnail, the machine itself is much bigger for us. So all of it has to come together and work together. There's a compiler that has to be part of it. There's other electronics that have to be part of it. All of that is now being put together into multiple prototypes for the rest of this year. Each quarter, we'll be telling you how we're doing. Last 2 quarters, we've been ahead of schedule. What we thought we would take 9 months to do has been done in just a few -- we're working with a fab here in the United States that allows us to accelerate our road map. Unlike some of the fabs we were looking at overseas previously. Not only is it secure from a U.S. government standpoint in terms of supply chain and the government feels comfortable with it, potentially being a customer in the future. But also, it gives us the ability to do parallel prototyping, not just 1 at a time. So to your point, the ability to get from 100 cubic laser-based system to a 256 cubic electronic control system is already there. It's already on a chip. And to go from 256 to 10K is the next milestone that we'll be talking more and more about. The ability to have electronic control means fewer lasers, fewer lasers means lower cost, fewer laser means less complexity, less downtime, less bill of materials cost. So as the machine becomes more powerful, it becomes simpler and potentially cheaper and over time, our strategy with our 5-year road map that we've also laid out is to make our machines modular so that after the 10,000 cubic machine, which we've already started to work on, you start to do modular upgrades. You don't have to replace the machine anymore, you do swap outs of a few modules within the machine and the system stays intact. So you get customer stickiness that way. Our customers benefit from lower total cost of ownership. Our machines don't require being operated at 0 degrees Kelvin or close to that. We don't have to have dilution refrigerators, helium access, et cetera, et cetera. So there are some advantages. So the cost of buying the machine and then operating the machine, which is really what a customer looks at TCO, much, much lower. And then modular upgrade strategy makes it stickier with a customer because we forward deploy engineers and app developers to make our machine become part of the customer's revenue stream, not just their cost equation.

Yes. Before we go into some of the forward road maps, you have already gone through 1 transition, right? You're focusing on your fifth generation tempo platform. Moving to -- we've been talking about your next-generation $256 million qubit platform. But going from fifth generation to sixth generation, just help us understand like the scale of -- from your customers' perspective, the scale of applications and complexities that you've been able to unlock for your customers in making that move from fifth generation to sixth generation.

Yes. Terrific question. I mean in terms of classical computing, when we think about increasing the number of bits in a processor, for example, the amount of level on cash, things like that. There are a few things that actually drive up computing power, but it's still mower's law. It's basically doubling over time and lowering cost over time. With Quantum, it's exponential growth in computing power. It's true to the power of N not 2x N. So when you go from 100 to 256, you basically have exponential increases in computing power. You just have to make sure that you are able to do that in a manufacturable way, sustainable way, which we're doing. But also you have to make sure there are algorithms and applications ready to take advantage of it. So we've already done a lot of proof of concepts with our older generation machines, things around life sciences, like protein folding, things around drug discovery, accelerating drug discovery, for example, in partnership with NVIDIA. A number of things that you can do with fewer qubits with 256 you unlock so much more. And you can just think with 10,000 qubits, it's a leap up in the ability to get to full tolerance.

Beyond your 256 6th generation system, I think on the last earnings call, you guys said you guys are already preselling some of these platforms right now. Your next shift would be your -- the team is already starting to focus its sites, executing on your next-generation platform, which is your 10,000 qubit solution, that's a pretty significant jump. What underpins the team's convictions, you can deliver that step change and which are sort of the leading indicators, KPIs that would signal to us that the team continues to be on track to execute that.

Yes, absolutely. So as we have turned our eye to the 10-K. We've not taken our eye off 56, of course. As we've turned our eye to that, it's around multiplexing. So something that the semiconductor industry knows how to do it very well. It's leveraging a CMOS environment to actually scale from 256 up to 10-K. And so very proven path over decades, we're following that path. And to your point earlier, which was really important, we're using mature nodes. We don't have to be 3-nanometer or 2-nanometer ever. We're talking about things that are 128, maybe going to have that as we go to shrinking die size over time, never having to meet those advanced nodes, which means fully depreciated plant, and therefore, lower cost for us over time as well. So the milestones will be very similar. It will be the ability to demonstrate that we can have a prototype of a 10-K that will be step 1 to have multiple iterations of that to work out the yield over time, of course. And then to build a system around that just as we're doing with 5 generations experience of building systems.

So from -- I think the way that you described it is 256 to 10,000, that's classical leveraging semiconductor expertise. And as we all know, covering semiconductor companies the circuit complexity will become more. It's probably still a monolithic kind of chip focus. If we think about your road map now to 2 million physical qubits in that sort of 2030 time frame, I think you guys have articulated a number of different potential strategies, right? It could be multichip. It could be still kind of very much monolithic chip sort of focused. And so help us understand for the 2 million physical qubits 2030 time frame, how much of what remains is still sort of fundamental science innovation versus engineering and scaling work that's largely derisked that can take advantage of either your semiconductor expertise or your optical networking expertise, what are the additional technologies or breakthroughs that are still required to achieve that and so on?

Yes. A lot of the science breakthroughs that were needed are behind us at this point. Now it's about engineering and manufacturability. The last remaining milestone in the science breakthroughs was getting to 49s, and we did that, 99.99% fidelity which means the lowest possible error rate, which means basically it's on par with classical computing at that point. So we have to maintain something close to that as we scale. The engineering part of it is around the triplet strategy, moving beyond multiple things, scaling up. And at some point, maybe even going beyond 2 million physical qubits, we would use interconnects and things like that if we needed. The team feels very confident about even getting to the 2 million, to be candid, at 2 million, 80,000 logical qubits, you can do some really, really impossible things in very, very short periods of time. So we feel confident that we are executing the road map. What I like is that we're ahead of schedule. We're ahead of schedule on the 256 development, and now we're ahead of schedule and actually starting to think about the engineering design of the 10,000 qubit system. I'm not predicting anything yet. There's always things to do. But working with Sky water, which is our foundry here in the U.S., we've had very good success in being able to demonstrate that you can make a chip-based Ion Trap system and scale it. And 256 is far more than anyone else has been able to do so far. For sure, using electronic controls were unique. And we think that over time, that will be a natural advantage in terms of costs coming either further down. And either we pass that to our customers or keep some of that ourselves, that's a decision still being made.

Yes. This sector is somewhat very highly technical. We hear terms often being used highest fidelity, sort of physical qubit, physical gates. We hear about things like error correction and so on. The bottom line is the end game is to build a compute system that is fully fault tolerant, right? And the team did put out a blueprint for that, right? You call that your walking cat architecture. And so spent a few minutes sort of talking about fault tolerant, quantum computing and what it means for IonQ. And then it also appears that as a part of this fault tolerant sort of road map, right, you are potentially moving towards what we call a QCCD like architecture shutting ions into dedicated zones for competition. Maybe you can also sort of talk a little bit about that as well.

Yes. The ability to do any to any connections is also quite unique to Ion [indiscernible] it's harder to do with the other modalities. So if you have 10,000 or 20,000 or 200,000, being able to entangle ions that are not physically next to each other and being able to do that in this cat state that you talked about, which is part of our walking cat architecture is unique because that operates in a way where you can not disturb the quantum entanglement, still be able to look for errors and be able to correct those errors. That's a fall tolerant machine. We think when we are at the 10,000 and beyond, we can start thinking about fall tolerance, which is why we published this paper called the walking Cat architecture. It's acute name. It's named after Shorting [indiscernible] Cat, it's about 100 pages, so it's not a light read. You can have an AIH and summarize it for you and make it easier to understand. But essentially, it's -- it involves modularity, it involves making sure that we can have manufacturability as we do this. It involves making sure that we have a compiler system and a micro architecture, all that come together, it's all published. So not only are we talking about the Ion Trap, not only are we talking about the number of qubits going to 10,000. We're talking about a fault-tolerant machine, which essentially, if you think what that is, it's a self-filling machine. If it finds an error, it corrects the error itself without intervention and that's what you need for industrial scale.

Just kind of pivoting to business strategy. You're pursuing computing, networking and sensing simultaneously often with different technologies. How are you integrating these into a unified platform from a hardware, software and go-to-market perspective? And can you share perhaps a few concrete examples of applications where these capabilities work together.

Yes. Great question. So again, the company is unique in terms of the platform is put together, which includes the ability to network machines together. So going back to my days at Cisco Systems and learning that you need to be platform-agnostic, connect everything to everything. Our approach to networking is exactly that. We've demonstrated from a technology standpoint and now from a deployment standpoint, in a number of countries we've announced that we can deploy the network irrespective of the compute platform. And even if you don't have a compute platform. We've also demonstrated the ability to secure against what quantum computers will be able to do 1 day, which everyone calls QDay. The ability to break encryption, which is you probably have been reading and I've been obviously tracking is getting closer and closer and closer. Even a year ago, people were saying it's 20 years away. Now Google and others are saying it's a few years away. So it's a question of whether it's a few years or less. So we're preparing for our customers to be quantum secure and have quantum computing at the same time. We're also preparing for the ability to provide networks and sensing P&T networks that are jamproof in an environment where you have GPS being spoofed and jammed every day as we've seen. So that that platform or that suite of products that we bring. Some people start with 1 thing and go to another. Some people start with 2 things. Some people start with more than 1 thing. But we have the ability under 1 roof now to have a customer start their journey by buying the network first and then the computer or vice versa or in the case of like a customer a quantum Basel, by a computer and the next generation and the next generation and the next generation. That's a huge lock in for us over time. And it gives us visibility through the RPOs that we've talked about to be able to serve those customers over time and having $3 billion of cash available also helps as well in terms of our ability to invest for the long term.

Before we -- I want to make sure that we address any questions in the audience. If you do have a question, feel free to raise your hand. We'll get a mic, please wait for the mic to come to you if you have any questions. We've got a question right here in the middle here.

Putting your COO hat on, and the topic of supply chain vulnerability and Quantum Technologies as a sovereign technology, how are you building your road map for a shifting regulatory landscape.

Yes, terrific question. Thank you for that. The fact that we are developing a road map that I think is without parallel, with all due humility. The ability to have 10K and have 20K in the time frame we're talking about means that we will create machines that can do amazingly great things, things that Classco just can't do and amazingly bad things potentially at the same time as well. It's important for us to have, therefore, to your point, not only secure supply chain in terms of availability, right, but also in terms of provenance of the components, the manufacturing being secured itself. So we were asked by certain natural security customers to have that in place before they start to even think about deploying some of the things that we have for those types of applications. We were looking just like every other company in Quantum is like which foundry do you use, how do you scale? Can they move fast enough? Is it secure? And I'm not going to name any particular ones you can probably figure those out yourself. Most of the foundries that are out there are for semiconductors. They don't have experience with quantum. And what I was finding with my CEO hat on as I negotiated with some of these foundries was, they were amazed by how much volume we were predicting we would need and how quickly we would need it. And they were struggling with their own parent company to be able to justify funding that part for Quantum alone. So they're asking for things like revenue share and stuff when I said over my dead body. So we started looking at a U.S. foundry at that time as an alternative. It turned out to be SkyWater. SkyWater brings with it the highest level of military security for many of the applications that they already do for the government. We felt comfortable having them manufacture for us because we could look at provenance, we could look at making sure that the people that would work on our machines in terms of developing the chip itself, we would have clear line of sight that there's no embedded malware. As you know, in semiconductors, there are things called secure enclaves, they're not always secure. So those are the things that we can now focus on. So surety of supply and security of supply for our compute platform, in particular, is something that we took very seriously because we figured -- might as well do that now rather than having to do that later. It will be very hard to change foundries 2 years from now versus today. So we're starting our chip road map entirely in the SkyWater foundry to your point. The need for sovereign ownership of machines is something also we're seeing. Every country that I've spoken with that Nicolo, our CEO has spoken with or our sales team is looking for a machine to be owned by them, right, which is why we're selling more and more systems. They're happy to get cloud access to learn, to understand how Quantum works to train people. But for hybrid workloads, which we're seeing more and more of. Every country is saying next to my AI factory, next to my GPU cluster, I want to keep you and I want to be able to do hybrid computing. And for that, I need access to the machine itself, not cloud access. There are certain things you can do just fine on the cloud. There are many more things you can do if you own the machine. So we've moved very much into providing those machines. To your question though, which is a good one. I come from semiconductors most recently in other areas. We recognize that when we have a 10K, 20,000 and beyond, we may be not allowed to sell those machines to certain countries. We're operating already as if we have export controls even without them and being in placetoday. So I wouldn't want to promise something to a customer and say, buy our 256 and not be able to sell them a 10K next or 20K next. Thank you for the question.

Any other questions? Got 1 up here.

Could you give us a sense of how important software and algorithms are for your competitive [indiscernible]

Hugely important. Obviously, the question around algorithms and software. And that's not lost on us for sure. So we have 1 of the largest application development teams, if not the largest in the world that we built and are building. We've identified about half a dozen areas end markets like life sciences, material science, financial services that we will develop algorithms for ourselves and then others that we will do it through partnerships. So protein folding, things like that, we will do with someone else perhaps, drug discovery will do for someone else perhaps. Whereas in material science and battery chemistry and things like that, we might develop that ourselves. So you can't do everything, but we are investing in the ecosystem at the same time as we're investing in our products. So one of the stats I read just this morning actually was a research study that came out today, and I was like really surprised. In the world, it said there are only 5,000 quantum engineers. It sounds like a lot, but not really. There are a lot of quantum physicists, not many quantum engineers. What do we need at this stage? Both physicists, of course, but much more quantum engineers. So we started investing in universities, certain universities, not everyone, right? Where quantum engineering, we think, can be something really big, where they can have our machine, train engineers on our machine. You can see the benefit and then graduate as Quantum engineers. And so 5,000 hopefully becomes 10,000 and much more. If you think of all the companies in this space and you think about even the Googles and the Microsoft, all having Quantum folks. They all need engineers at some point. Fortunately, they're not building machines, that's not their business model. IBM is, of course. So we want to do something that helps the entire industry and us. And one way to do that is to have people able to develop quantum algorithms. And so the -- if you think about the iPhone and the app stores, the example that I try to use, if we're building more and more powerful iPhones. We're building the app store that goes with it at the same time. Some that we will have ourselves, some that will curate that to work on our machine.

Thanks for the question. Any other questions we got 1 right there.

Great insights. Two questions. First of all, in terms of -- obviously, you've heard Quantinium is going public. They're also in the train modality would love to understand from your perspective, where you think IonQ is going to be differentiating. And then you were talking about various modalities. Google a couple of months ago announced that they were working on, I wouldn't say necessarily abandoning their superconducting program, but moving towards neutral items as an alternative. And obviously, scalability was one part of that. I would love to get your comments and perspectives on those 2 points.

Yes. I mean, look, as I mentioned earlier, I think I would love for all these modalities to really have a market in the future, let's say, 5 years out, right? I'd love for all of them to coexist. I think the reality is probably some of them have more science breakthroughs to do than others that will just take a little bit longer to get there. That's not a knock on any modality. I mean every engineering, I'm an engineer like every engineer thinks they're doing the best thing at the right time, and all of them are as well. To your point, Quantinuum is also an ion trap company. In the U.S., I know ourselves on them. And I wish them well. I do think that we need to have a number of really successful companies 3 to 5 years out for this to become an industry. And I'd love for them to do the same investments we're doing in the ecosystem. We're just ahead in terms of the fifth generation, the sixth generation, the seventh renovation and then selling it scale and manufacturing it to go. And we'd love to see all of these actually take off. As I said earlier, I think 2 are already on the trajectory, superconducting, yes, Ion-trap yes. Neutral Adam has certain advantages, and I'll let those companies speak for themselves. Some of them are here here today. And of course, Photonics, over long distances offers lots of promise, still has some science breakthroughs, having light travel and being tangled over very long distances is a nontrivial matter. So we -- the networking that we have, the security that we have, the sensing that we have, is meeting customer needs today, which is flowing through our revenue stream right now. And as I said, we are investing in making sure there's actually an ecosystem. And that's how companies always need that ecosystem for success. This is a nascent industry. We draw AI engineers from the trillion-dollar tech companies. They choose to come to work with us. because they think they're going to build the most cutting-edge bleeding edge applications that can't be simulated in a classical environment. I'm not saying QPUs will replace GPUs. People would love for me to say that. I'm not saying that. I think it will be a hybrid world. I can come from a CPU company arm. There are still more CPUs than GPUs believe it or not, but they all coexist together. I think that every modality begins with some benefits and some disadvantages. On Traps begin with probably more advantages and our founder 30 years ago, whether lucky or smart, chose Ion Trap allowing us to be able to be where we are today. And we are a merchant supplier. In fact, we sell components to the other quantum convening companies. They don't talk about it. We don't talk about it. Some of the things that they require for their machines, not all of them, some of them, their machines wouldn't work with our components. So we want all of them to see it actually. The competition to me is not any of them candidly. I think the competition is probably a sovereign nation on the other side of the planet, maybe a few of them trying to get to the same Q day that this country is racing to as well.

Great. Well, we're just about out of time. Inder. Thank you for your participation today. Look forward to monitoring the progress of the team as the year unfolds. Thank you very much.

Thanks for having us.