Navitas Semiconductor Corporation (NVTS) Earnings Call Transcript & Summary

Hello, and welcome to the Navitas Semiconductor expert call webinar, and thank you for standing by. My name is Alex, and I will be your coordinator for today. [Operator Instructions] I will now hand over to your host, Adi Metuku to begin. Please go ahead.

Thank you, Alex. Hello, everyone, and welcome to this -- welcome to the first call in our GaN CEO Call Series. I'm pleased to have with us today, Gene Sheridan, CEO of Navitas Semiconductor, which is the #1 player in the power GaN space today. In terms of the format of this call, I have a list of questions that I will be putting to Gene. But if you have any questions, please follow the instructions for asking questions, and you will be given the opportunity to put your questions to Gene as well. So without further ado, let's begin. So Gene, firstly, thank you for making the time.

Maybe just to start us off, can you talk a bit about your background in the power semiconductor space, your International Rectifier background, and why Navitas was founded.

Certainly, and thanks Adi a lot for this opportunity to talk to you and your broader group here. We'd love to share a little bit of a history. In fact, Navitas was founded 8 years ago, but our history goes back much, much further. We were actually founded by a management team largely of colleagues that have worked together for 20 or 30 years. Many of us started at International Rectifier I started there in 1988 and quickly joined forces with Dan Kinzer and then in the '90s, Jason Zhang, and those 2 guys are as good as they get in device and circuit engineering and innovation. We started multiple businesses and new technology and major innovations that continue today to drive billions of dollars in the market. But notably, we started that first GaN program at IR back around 2000. That was very early days, very much in the early material development phase, but we can see that potential that early on. So we've always been big GaN believers, but a lot of investments is about timing, not predicting the future, but about when is the right time to go all in, whether it's your career building a business or making an investment, too early, and you could spend a lot of time in kind of fundamental device physics, which happened throughout the 2000 and 2010 period, too late of course, and you could have extraordinary opportunities. So Dan Kinzer and I and Jason Zhang all reformed together got back together in 2014 started out because we felt the timing was perfect, the basic manufacturing and physical challenges, material challenges have largely been solved, but the design and circuit challenges and the customer and commercialization challenge it had not. So that was a real focus and formation of our company. 8 years ago. So we're an 8-year-old company. That's actually been working together for 20 to 30 years.

Got it. And maybe can you also talk a bit about in the last kind of 4 or 5 years, you've come from being a start-up to being #1 in the Power GaN market. So can you talk a bit about that journey? How did you get there? What was your strategy? And then we can talk about the future?

Yes. I think there's 1 overarching benefit that I think set up the other 3. I think the overarching 1 is, although we're a young company, we're actually deeply experienced with some of the best in the business in power semiconductors in my humble opinion, that's from the standpoint of innovation, but also in terms of go-to-market and commercialization. So I think we bring together a really strong team that's done this many, many times before, and that's certainly helping us. But in particular, I'd say there are 3 big drivers. One, we knew that GaN struggles with how to drive the thing. It's very powerful as the transistor very efficient. It's got so much potential. And many people ask them with such great potential. Why has it taken so long to commercialize. And there are a few reasons. One, they're difficult to drive, bit difficult to control. But there are lateral structures and most silicon [indiscernible] are not lateral structures, which opens the door to integrate some of those circuit challenges that our customers have been struggling with, so we squarely focused on this drive and control problem, ultimately figuring out how to integrate drive-and-control circuits that the customers were doing in silicon externally, we figured out how to integrate them directly into the GaN monolithically, which might sound trivial because everybody integrates everything in semiconductors, but actually, this is a brand-new material. You cannot use any of the proven circuits from silicon. There's CMOS here, there's no key channel. The basic building blocks are actually very difficult, but if you get them right and take it in this really fast and efficient material, you can do it, and that's exactly what we did. We figured out how to integrate drive, control and protection into the power device to solve that customer circuit adoption problem, then we went a step further and integrated -- and then invested in system engineering capabilities to teach customers and to co-develop with the customers how to actually get the best out of the system once you have this great GaN IC. And then third, took a unique go-to-market strategy rather than building a transistor and putting it out there for all markets to figure out how to serve it, remind very application-specific choosing 1 market, 1 major application at a time and really nailing how to extract that GaN value and help the customers with our system engineering capability to ramp it up. This slide is a really good view of the blue area that GaN has the potential. But if you try to tackle all of those simultaneously, the results can be a lack of any success at all or at least the mediocrity at best. And so we actually chose the mobile charger market, which are wall adapters plugs into the wall, but delivers a ton of power very efficiently and very high density, so they can pack a lot of power in a very short period of time to a fast charger phone, tablet or laptop. Now that is now DEB fed the 1 mainstream market organ of all markets. And now we're turning our attention while we're continuing that exciting new market growth, we're turning our attention to 2 or 3 others. And you can see on this slide on the right, it gives you some of those GaN advantages I talked about lateral structure, very first on the top there is what opened the door for Navitas to do the innovations we did and there even limited digital circuits we've now innovated. And once we started innovating the drive and control the incidents, now we've gone even further sensing, protection almost every other building block circuit that's done in analog or even limited logic, as I said, we're now integrating into the GaN device, which only makes the GaN system performance efficiency, frequency, density, simplicity, cost reliability, everything gets better as we continue to integrate more and more of these layers of value and different power analog and logic circuit.

Understood. And now you previously talked about -- well, you recently said that mobile market is where you're operating today, but I understand you recently introduced a 20-year warranty with your GaN products. Can you talk about -- maybe can you give us an overview of that guarantee or that warranty? And which markets do you intend to expand into using that warranty?

Yes, definitely. In fact, we started with the mobile charger market, not because it's the end-all BL for GaN or it's even the biggest value, frankly, but it's a fast-moving market. that has a lot of volume with a very simple value prop, fast-charging lightweight chargers, something everybody can relate to. But we designed these things with our road map in mind. We're -- that's the starting point, not the ending point. Now we're taking GaN into big power, industrial power applications or actually the energy efficiency is a driver all by itself. A consumer won't pay for energy efficiency at low power in consumer application, but they certainly will in a data center or in solar or an EV and so many others. So this is where we're headed. And it's with that in mind, given our really strong track record, we shipped 50 million units without a single GaN-related field failure we tested billions of devices that were within our labs, achieving 20-year lifetime and beyond. So with all of that track record, all of that confidence on the integrated protection and sensing circuits, which gives you added layers of protection, protect that transistor under all fault conditions and dangerous operating conditions. All of that combined together to give us confidence to set this new standard with a 20-year warranty. When even silicon is typically a 1- to 2-year warranties. Only the big guys usually can negotiate maybe 5 or 10 years or something, we're offering 20 years to everybody on all of our GaN ICs.

Understood. And now I mean, this feels to me like if I'm a customer and I'm looking at a 20-year warranty, is there any reason why I would go with someone else's than Navitas, so maybe what are you seeing in terms of reception on that warranty? Is that helping you win a lot of share, especially against the big guys like Infineon, et cetera?

Well, I think these things work in combination. The warranty is very important. Reliability is a major consideration for power in general and certainly for long-life applications, 20-year expectations for solar. 2-year expectation for EV, 10 to 20 years for data center. It's a very conservative industry. I'd say that's the number 1 thing that has held customers back as just field track record. Nobody wants to see any trouble people get nervous to be first. So you need to give them a lot of confidence and a lot of data. And we've done that with 50 million unit shipped without a single GaN failure with these billions of devices hours that we've tested in our lab, but now we're adding another layer of confidence with the 20-year warranty. So I think you've got to give them many layers of comfort to allow really big disruptive things to happen in the industry, especially as you bring them into the high-reliability markets.

Got it. And are you seeing traction? Are you seeing more interest after you've introduced this 20-year warranty? Is that accelerating adoption?

Yes, it was actually very timely because we've just started in the last couple of quarters, started sampling our brand-new even more protected GaN ICs that are going into the high-reliability markets, so data center, solar and EV. So I think that's where it's really paying off, and it's obviously an opportune time as we're doing the sampling and customers are making decisions, do they jump in with GaN is now at the time and the reception has been fantastic, both to the warranty and our -- all of our field testing, all over lab testing, but also, of course, the devices themselves to have the driving control problem solved to have the built-in protection. Sensing capability, all of these things are building a lot of excitement. We're really pleased with the response and see some big uptick coming in solar, data center or EV in particular.

Got it. Now a lot of the investors I talked to, specifically focus on the EV market because we see that as a big market. And so here, you said this warranty is helping EV makers think about adopting GaN quicker than they would have otherwise done. Now the usual consensus seems to be that GaN and EVs, especially in onboard charges, will probably not happen until the later part of this decade. Do you think your warranty could accelerate that?

The one thing about GaN, you can't drop it in late. You have to start from the beginning because you're really redesigning everything to really get that great system value, which is why we have the system design centers to help our customers, everything is new in the in a GaN basic power supply. The controlled technique, the EMI method and filtering, the magnetics and transformer design, the thermal design, power density methods, everything is new. So there's a lot to do. Development times are shortening, especially in EV. It used to be back in the day with at least 5 years or 6 years. Things are getting more modular but they're happening faster. But we're still looking at probably 3 years. So we started sampling earlier this year. Here we are in early '22, we think the first production ramp-up on EVs probably in '25, which I think is consistent with your comment. And there's nothing we can do them. Given the confidence with these great samples and the devices, the innovation, the warranty, the field track record so they get going, but you can only go so fast, I think, with the development testing, the integrated system integration and ultimately, the field testing that they will still do, of course, for any of these new systems.

Understood. And this EV market is at specifically for onboard charges, as I said, or is that for a different application?

Yes, that is our focus. So as I mentioned earlier, application-specific approach is a unique strategy of Navitas. It's not it's for 2 reasons: One, there is a lot of system reengineering to do here and a lot of new skills to be brought to bear and trying to do that for every application simultaneously is not practical and you won't get a good result; number two, our GaN chips are application specific. We're looking at the applications saying, what integration makes sense that brings more performance, more reliability, simplify design, lower cost, smaller footprints, all of these good things. So the application-specific approach means that when we say EV, we have to pick when we say data center, we have to pick where are we going to go and we pick the biggest one, but also the highest value -- once in this case, it is OBC but also DC-to-DC converter, the DC-to-DC is playing the energy off of that battery, distributing around the car, where the OBC, of course, is delivering the fast charging capability. And traditional OBCs today, even on a Tesla or 6.7 kilowatt, it sounds like a lot of power, but it's actually really slow charging at your home, about 10 hours which is overnight fine in many cases. But many times, you don't have that kind of time. And so we're going to be changing that dramatically in terms of the power delivered the efficiency of that energy delivered to the battery and ultimately the fast charging time.

Got it. Now you mentioned DC-to-DC. That's probably not the main invertor, right? or is that?

That's right. That's right. We often talk about 3 main applications. There's lots of smaller applications, peripheral applications, but the 3 big ones for power chips, especially high-voltage power chips EV, the OBCs to charge it, the DC-to-DC to pull that energy off the battery distributor on a car and then the traction controller, the electric motor is the third, which we're not focused on yet, although I think its time will come for GaN in the short-term, I think that's more of a silicon carbide play as a lot of people are talking about.

Okay. Got it. Now you briefly talked about high voltage. So can you give us an overview of the different voltages you operate in? Do you yourself as having an advantage in any particular part of the power semi market, high voltage, low voltage with your GaN products.

Yes, it is an important point, Adi, and this slide here gives you the sort of voltage across the x-axis and the power level across the Y-axis. And there's a loose relationship between the 2. It can be a little confusing. But as you have higher power systems, you tend to want to operate at higher voltages to move that current around as efficiently as possible to keep that explanation a little bit simple. But the sweet spot today for Navitas and for GaN is 600 to 800 volts, that voltage range, as you can see in blue, covers a whole lot of ground because the grid the power that we're pulling from the grid around the world is operating from 110 to 220 volts. And you want a lot of voltage margin from that voltage to the power device that sees that voltage and converts it and distribute it efficiently into low-voltage DC power to power things, whether it's 5G base station, solar, consumer applications, LED lighting, you can see them all listed there, including a big part of the electric vehicle market and the data center market is also included in that category.

Got it. Now one of the things that we've noticed historically with the silicon-based power semi market is the module capabilities, and with silicon carbide as well, there was a lot of discussion around the module capabilities to different vendors. Do you think the GaN power market will be a discrete market? Or will modules provide an advantage? And if modules do provide an advantage, what is your strategy there?

Yes. Yes. So number one, I think in low- to medium-power, which is a relative term, but let's say, sub-20,000 watts, which you can see on the Y-axis covers a lot of ground here. I think you're going to see discrete packaging, if you will, but we believe GaN ICs, even with simple drive integration, I should add that the integration we're talking about is extremely cost effective. We're adding drive, control, venting protection and so much more level shifting, bootstrap, all 3 of things and a $0.01 in terms of our cost, a small fraction of that GaN chip almost free compared to a GaN discrete. So I think a GaN IC, compared to GaN discrete is very, very compelling and will therefore, dominate in large parts of the market. but above 20,000 watts. I think power modules, whether it's IGBT, silicon carbide, Oregon are very popular. What I think is exciting for a GaN power model or a smart module today, power modules usually demand a big price premium because there's a lot of complexity inside that module. So while it's great for convenience, great for manufacturability, right? The simplicity of all of that, you just bolt it into your system create a good heat sink and a good thermal path and your sort of done, you're paying a big premium today for that traditionally with IGBT and even silicon carbide. I think GaN has potential to dramatically simplify the interior construction and the number of components needed inside the module because of GaN ICs and the built-in protection that we could probably change that equation. And that's -- so we don't have any announcements to make, but I think that's a real exciting promise of getting GaN smart, intelligent, highly integrated power module and eliminate that premium that people are used to and frankly, accelerate module adoption above 20,000 mark.

Got it. So if I were to summarize that, basically, above 20,000 watts should still need modules, but those modules will be far less complicated?

Yes. So as that said, there's a split out there, not every -- there's no perfect cutoff line now everybody goes immediately to modules. I think you'll also see discretes and power packages with GaN ICs inside, highly integrated a single version of it, a half bridge version of it, sort of small integration levels that will also be popular. But I do think kind of changing the game on power modules, so they don't have that big premium, price premium is a pretty exciting possibility.

Got it. And how are you tackling the module opportunity given historically, at least, the view is that modules are hard to make and people like Infineon and Mitsubishi Electric have a long-standing advantage there. How would you want to target that market?

What we've done I think like we've done in discrete packages, if you will, the chance to re-innovate and rethink how that internal construction, not only in the number of components, as I mentioned, because of our GaN ICs integrating many of them. We can reduce that premium of modules, but it's also a lateral chip. Traditionally, you have vertical power devices also being constructed with passive components and other lateral structures side by side. This creates a lot of that internal construction and added cost challenge of power modules with a GaN IC that operates at very high frequency. It shrinks dramatically the size in the need for some of the passive components, it eliminates the need for the secondary lateral chips that are in there. You can actually re-innovate kind of create disruptive new innovative new packaging techniques that not only change that cost structure might also change the supply chain, where that traditional strength has been over the years. So I think that kind of innovation opens the door to new entrants like Navitas and possibly new supply chain partners that can make that happen away from where we're seeing traditional strength with the bigger players.

Got it. Now when I look at the market share data in the power GaN space, I mean, the market itself is relatively small. But it feels like the top 5 players rule relatively smallish players startups, really. And I just wondered, how do you see competition ramping in space from the big power semiconductor incumbent? And then specifically, how do you view STMicro, Infineon as competitive in this space?

Yes. I like our chances because power is a very big market. It is dominated by big players, but with Si comes some challenges. It's hard to be nimble. It's hard to make fast decisions. It's hard to take a lot of chances. And a lot of people in the semiconductors are more focused on M&A than they are organic investment and innovation. So I think those are fundamental industry observations that create big opportunities for fast-moving visionary directive companies like Navitas that can really change the game. We actually went back the last time we saw something this disruptive in power was back in the '70s and '80s when we had bipolar transistors, it's actually very analogous to what we're seeing today. Bipolars dominated being used in linear regulators, very inefficient power supply. It's very expensive, very big and bulky. A Power MOSFET came along, opening the door to a switching power supply, everything in the power supply change, new controllers, the architecture is new EMI technique. Everything I mentioned earlier, we had to redo it. It created the door for analog ICs that created powerhouse companies like Maxim and EDI and Linear Technology, right? Didn't exist in the '70. They created application-specific ICs to go with those power MOSFETs that open the door for new leaders like International Rectifier to create their Power MOSFET leadership throughout the '80s and '90s. If you look at who the top 10 power semiconductor companies and power split companies were in the '70s and then fast forward just a decade later, almost no company within the top 10 of power semiconductors and power electronics that was also in that top 10 list. Just a decade later. That's a classic scenario where disruptions come and the big guys are saddled with their traditional technologies or not see the disruptions come are not aggressive enough to obsolete or protecting their traditional assets and capabilities, major disruptions can come all new users, all new winners. So I think that's a pretty exciting thing. We have not seen this before until this decade. And I'd argue we're only 2 or 3 years. into a decade-long major disruption. And of course, Navitas plans to be that next-generation power semiconductor leader when that decade is over.

Got it. And specifically, I mean, there's been a lot of talk about China building its own semiconductor industry. And I noticed INTERSCIENCE is one of the players in the GaN market. I just wondered how do you see them as a competitor? And yes, any thoughts on whether -- how the Chinese will fare in the GaN market?

Yes. I think, of course, it's a big market, it's no secret, and it's happening finally after years of development. So we're going to see many players, but they're all in the category of GaN discrete from our perspective. So none of the others have solved this fundamental problem with how to drive and control and protect these things to give them the reliability and ultimately get the speed and efficiency at a GaN at the system level, which is so important ultimately to the broad adoption. So INTERSCIENCE like others in the discretes are going to be there. I think they'll have a role in the market. but I think they'll be limited in the broad mainstream adoption. You can't price your way into performance. You can't price your way into fast charging and high efficiency. In the end, that's what people want from GaN. We're changing the profile of what you can do at power electronics in major new markets like solar, renewables, broadly data center and EV and ultimately, low price only get us so far when you're trying to redefine the power density, the power efficiency, the frequency, the fast charging capabilities of these power systems.

Got it. And just briefly on my previous question. So on -- you said the large guys are, we're -- struggle to be nimble, et cetera. How do you -- do you think Infineon [indiscernible] will be relevant in 10 years' time? Or are you planning [indiscernible] the launch?

Well, I think they're capable, respectable companies. So I'm not here to criticize the competition as much as state that there is a really extraordinary opportunity for new leaders to emerge and become major players in the world of power semiconductors, and that's certainly our intent. Starting with GaN and GaN will always be critical. We're also suggesting when we talk about being the next-generation power semiconductor company, GaN's not even in that kind of mission statement, if you will. So we are looking more broadly at other complementary technologies that will make us the mainline next-gen power semiconductor company that I described.

Understood. And since you talked about other technologies, can you talk a bit about your plans in the silicon and silicon carbide space? And how you intend to build up your capabilities there, how you intend to differentiate?

Yes. We've been pretty open that last year with our IPO, we raised nearly $300 million to reach cash flow positive with our current GaN business, we shouldn't need more than $100 million. we had $253 million on our balance sheet at the end of Q1. So that leaves us a lot of dry powder. And we can put that dry powder to work in a lot of different ways, additional organic investments or joint ventures, partnerships or of course, acquisitions. We could do more in GaN, even though we love our position. Obviously, I wouldn't rule out more investments or more acquisitions in the field of GaN. Every next-generation power semiconductor or power system that uses GaN still uses silicon for the controller, the low-voltage brain, low-voltage chips that, that chart earlier showed will likely stay with silicon for a long time to come. So there's an important place for silicon in these next-generation power systems and above a certain power and voltage range as this chart shows, [indiscernible], but it's still going to be the preference even though GaN kind of the new kid on the block, and we're coming on fast, especially in these new markets, we move to data center, solar or EV. At some point, the vertical structure actually silicon carbide signed through. It can handle really high voltages, that can handle really high temperatures very well because of the temperature coefficient. So above the certain power and voltage range, we still think silicon carbide is the winner as we're already seeing happening in the market today. And that's a very sting area for us. It's largely a perfect complement while there's some overlap, and there'll be some kind of interesting debates about GaN versus silicon carbide around 1,000 volt per less. When you go above 1,000 volts, there is no commercially viable GaN anything silicon carbide is a very interesting investment area for us going forward.

Okay. And -- so are you able to say any more on silicon carbide and what you might do that? Any further detail?

No. No specifics at this time. It is a big market already today, much bigger than GaN because we are the new kid on the block, but it does take time to develop. So if we did it organically, it will take some years. We did it through acquisition, that obviously could speed it up, but we don't have anything to announce until we've got one of those things to give some specifics around.

Okay. Got it. And then moving to your strategy with manufacturing GaN products. Can you talk about how you manufacture them what gives you an advantage if you're using a foundry to manufacture them and yes?

Yes. We are working with TSMC exclusively at this time. GaN has another really interesting angle, while the material is super advanced as we talked about, Navitas design is highly differentiated and very advanced. GaN can be manufactured on very low tech tools from a semiconductor perspective. You can basically retrofit older 6-inch or 8-inch fabs with very older geometry technology. The one at TSMC is Fab 2, Fab 1 is not even in production anymore. Fab 2 is the oldest one in the production I think it was built in the '80s. So these are highly depreciated, highly utilized Fabs and silicon is largely moving on to 12-inch, the thin [indiscernible] 65-nanometer, whatever it might be, opening up these fabs that otherwise might get mothballed, and for pennies on the dollar, very limited capital, you can upgrade an old silicon factory to be excellent for GaN manufacturer. And that's exactly what TSMC did that gives you a great cost structure and it can run GaN and silicon simultaneously. So I think the fabless model is actually really attractive, especially at this phase because that can leverage older factories. You don't want to go build a $1 billion factory. That's what INTERSCIENCE did actually doesn't really make a lot of sense when GaN has this wonderful ability to retrofit older investments and run right alongside of silicon, which means you want -- the key for economic advantage in semiconductors is to have fab 80% full or more. GaN can run right alongside the silicon. And then as a GaN ramps, silicon tends to ramp down because it'll move on to the small bench to more advanced factory. So I think that fabless model and this capital-light model makes a lot of sense for the GaN industry in general and certainly for Navitas and TSMC.

Got it. And now if you're using TSMC, I think some of your GaN peers may also be using TSMC, I think EPC is if I'm not mistaken, or maybe it's not EPC it's someone else, but how do you intend to differentiate versus competitors? And then what would your strategy be if you were to move to silicon carbide, which you said earlier?

Yes. So the big differentiation certainly for us are in the 3 things I talked about at the device level is the high level of integration. We're really the only one. Certainly, the first I would say the only one in high-voltage GaN. When we announced our GaN, 3, 4 years ago, almost every GaN company said, here, we're going to make GaN IC monolithically, everybody said that's so compelling that makes so much sense, why doesn't anybody do it? It was on every road map. But here we are 3, 4 years later, nobody is producing even samples let alone production availability of the GaN ICs. The one exception would be, as you alluded to, in low voltage can where we're not participating today, efficient power conversion or EPC has done some good work in GaN ICs, it's a little bit easier to do some of the integration we talked about at lower voltages, and they've made good progress in that category. So that's a big differentiation for us on top of the system design centers and the system assistance and co-development we offer to our customers and find that, that unique application-specific go-to-market strategy that kind of ties it all together. 1 major application at a time. And together, reading a whole lot of system and semiconductor or circuit innovation and value to our customers in each of those targeted areas. As you look at silicon carbide, that is a vertical structure. So it's not going to be as conducive to integrating other circuits, analog circuits that are traditionally done in analog. So that will be a problem. But I do believe the system capability we're bringing together and the circuit integration innovations that we're getting in GaN, we're also very capable of doing those in silicon. So I think there's a parallel to the market approach, to the application-specific approach and to the system and circuit innovations that we can bring to silicon carbide, even though it may not be monolithically integrated in the silicon carbon transistor itself.

And how would you manufacture? Would you then have to use the foundry? And would you still have advantages versus IDMs?

Yes. Good question, and there's not much to announce yet. Obviously, we're not in that business yet. So this is all a little bit of a theoretical discussion. But there are -- I think that market is maturing as well. There's IDMs, which are vertically integrating, but there is a multiple fabless options, foundry options out there. And here again, in the early -- relatively early stages. And even in silicon carbide, are -- you were relatively early, do you want to leverage foundries that are already running very full, you got the -- then you can the economic advantage of a full fab in that case, running silicon carbide with other device technologies. I think that outweigh the additional margin you would pay to that outside foundry to leverage it. Where you need to be later on, IDM and vertically integrated may start to make more sense.

Got it. Maybe at this stage, Alex, are there any questions from the audience?

[Operator Instructions] We have a written question from [ Hudson Haville ] who asks is built in driving production, et cetera, possible with vertical devices on silicon?

Yes. I think that's a similar question. So I think when it's vertical, silicon carbide or others, it's going to be more challenging, if not impossible, you've got to be creative, and it gets more expensive to try to integrate lateral circuits, which analog circuits or logic circuits, of course, traditionally are with that vertical device. So you have to think about other ways to create the integrated system benefits and circuit benefits that we've talked about.

Okay. Any other questions, Alex? Just a question from Gunter.

Yes. A question from Gunter, please go ahead and state your company name.

Can you hear me now? Hello?

Yes.

It's [ Gunter Halter ] from [ Polar ] Capital. I was just -- I mean you recently announced the hiring of the CFO -- also mentioning the M&A experience now in this call, you also -- you're talking about M&A about your excess cash and also in relation to silicon carbide I was just wondering, I mean, in the current market environment where some -- a lot of SPAC companies are struggling to survive and you're in the comfortable position with a strong balance sheet and with cash and cash probably is going to be king in a very difficult market environment potentially in the coming months and maybe quarters. And at the same time, the silicon carbide, I mean, in contrast to gallium nitride, I see silicon carbide that the big power semi companies, they are already very strongly involved in this technology, and it's also a more mature market, I would say, if you could maybe talk a little bit why you think it makes sense at this time to think about silicon carbide entry?

Sure. Yes. Gunter good questions and good topics. And certainly, we're not making any announcements now talking about the future and the future potential as we see it. So one perspective as we talked about in GaN and silicon carbide extremely complementary more than they're competitive and allow a company with the aspirations like we do of becoming that next-generation power semiconductor company to have the tools in the toolbox that can address broader markets. That appeal is sort of obvious. I also mentioned our unique go-to-market strategy, which I don't think even the big guys are applying in these markets to bring a lot of system value and circuit innovation rather than just offering a better transit or allowing the market to sort of figure it out from there. I think that can also bring us good value. But I don't want to put too much weight on this topic because we don't have anything to announce at this time. it's a little bit of a theoretical discussion about the possibilities for the future. And I agree with your thought that cash is king, we're going to be awfully careful with our money. We're not going to gamble with that money. We're not going to take big chances and put the company at risk and we're going to focus on cash flow and cash flow to positive cash flow, runway to positive cash flow and positive EBITDA over the next couple of years and make sure we use that cash very judiciously to get us there.

Gene, maybe could you remind us, are you -- did you say you were going to be cash flow positive this year?

No. In a couple of years, actually, we're estimating 2024 -- and that's why I mentioned sort of reserving $100 million for organic business to make sure we're on track to that. And as I'm implying with any M&A things we might contemplate will be certainly very sensitive to cash and that runway to cash flow positive, frankly, trying to accelerate it, not doing things that would increase our risk on runway and cash conservation to profitability.

Got it. Now moving to substrate. There's been -- a lot of the investors on this call will know silicon carbide and the issues with getting silicon carbide substrates. Can you talk about how easy it is to get substrates within GaN? Is that an issue? Are you having to -- is that a bottleneck at this stage? Can you talk a bit about the cost, who your suppliers are, et cetera?

Yes. In fact, we're quick to say GaN, but we should take a step back. And actually, when we say GaN at Navitas and virtually all of the GaN power players, it's actually a very thin GaN epi layer on a silicon substrate. And since all the circuitry, the power, the current flow of the voltage, that's all along the surface lateral, as we said. So that silicon substrate is really more like a mechanical carrier. You don't have the circuits in the silicon, the power flowing through it. But it's also very cheap and inexpensive, which is why I say perfect mechanical carrier. In fact, it's relatively low-quality silicon. So the cost of that for 6-inch is pretty small. $30, $40, $50, really, really inexpensive. That's one of the challenges with silicon carbide, it is vertical, which means the entire power device from top to bottom, needs to be in this high quality, really efficient material silicon carbide, silicon carbide epi on top of silicon carbide substrates. The challenge is growing those rules or substrates is time consuming and very expensive and the quality of them is very demanding. So I think the cost of a silicon carbide substrate is something like 20 to 50x more expensive than that of silicon today. And of course, it will come down over time. So I think those are some of the differences. People are playing with different substrates on GaN mainly to see if you can take GaN into the higher voltage and higher power regime of silicon carbide, but -- and that's certainly something we're investigating and monitoring. People are looking at SOI and GaN on GaN and GaN on silicon carbide. All of these things have their pluses and minuses. I don't think anything has near-term viability or commercial potential from our perspective, but it's something we're investigating and monitoring going forward.

Got it. And just you mentioned GaN on SOI. Can you talk a bit about what are the positives and the negatives of GaN on SOI? And what would you need to see if you were to adopt GaN and SOI?

Yes. I'm no expert on SOI or even all of different substrate options. But I think in general, you're trying to figure out methods that can handle that higher voltage in a tiny chip. At some point, handling 2,000 volts, 3,000, 4,000 volts along the surface of the device is a challenge, and you want to look at vertical structures where you need to then have the power flowing through that structure. In the case of SOI, it's more about insulation, you can get some challenges in how some of the biased current or leakages flow through that silicon substrate SOI will give you an inherent insulation element to minimize some of those challenges, but it's expensive. And so you've got to really think about what are the unique applications where that's really a problem and you're willing to pay the premium for something like an SOI substrate.

Got it. And with integration of the driver be with using a substrate can on I provide any advantage in terms of integrating logic onto the device. So -- are you already able to do that really well with silicon?

Yes. And I said I'm aware, we've really nailed that. That was the first thing we did with Generation 1 was the driver integration that's still fundamental to the value because they're so difficult to drive these very sensitive inputs or gates of GaN, and that's true for everybody's GaN. So integrating the driver is something we really perfected with low-cost can GaN on silicon. And now, of course, we've taken that to a whole another level of not just driver, but level shifters and bootstrap the sensing control [ dv/dt ] or EMI is a tricky thing and actually being able to control how fast you switch, not too fast, not too slow. It's a tricky balance, and we've got all that integrated in. So the levels of integration continue at a pretty rapid pace with each generation that we develop, and we're doing all of that. We see a lot of potential to keep that innovation going and that integration going with GaN on silicon.

Understood. One of the players I spoke to one of your competitors said that the driver that you've integrated is not the same as it's a relatively low-level driver. Is that understanding correct? And would you be able to integrate more into these monolithic ICs going forward?

Yes. We've actually done a variety of them. Some are simple, some are complex, depending upon the application need. We have a half-bridge integrated, which has not only the 2 power devices, high and low side power devices and their drivers, but also level shift functionality, bootstrap functionality, dv/dt control and protection. So all it goes far beyond actually a simple driver in many of the implementations they have bridge as an example of that adds a lot of layers of driver elements, kind of like a smart driver and again, not just 1 device, but 2 and even how you do the level shifting between the high side and low side device's is pretty tricky. So we have pretty advanced driver integration now in GaN, and I think that will continue.

Got it. And it feels like that's one of the key things why you guys went from #2 to #1. Correct me if I'm wrong. But are you seeing your competitors also adopted. How will you stay ahead of the game in terms of integration?

Yes. So we were -- when we started the company, and we knew this driver was a big problem holding everybody back, we actually did a little patent search, and it was a real greenfield. There is nothing out there. So that was just indicative of the opportunity in front of us. So not only did we innovate all of these driver-related building blocks. We also modeled them. We patented them and now we built up a patent portfolio that's over 150 patents issued or pending. Anything and everything you can think of that are common in silicon, but hadn't been innovated in GaN. And you really do have to innovate them not only how to make them functional in GaN but fast and efficient using that awesome material of GaN. So that's really been a key strength. And that was just Generation 1. We're now launching -- well, we're sampling Generation 4 this quarter. starting production next quarter. So I think if anybody going to be out there trying to copy us or follow in the footsteps obviously, you've got to navigate the patent portfolio. There is an incredible amount of know-how, not just our last 8 years, but our whole career is sort of leading up to this point. And then ultimately, you've got to move like the wind because if you copy our Gen 1 or Gen 2, we're introducing a new generation every year. So that's a pretty rapid pace. So we know we've got to keep that up to keep this #1 position that we've acquired and keep that going and frankly, strengthen our lead.

Got it. And now on the patent side, I remember a slide from when Infineon bought International Rectifier really showed International Rectifier having, I think, the #1 patent portfolio in GaN. I don't know if that was specifically on the transistor side or if it involved associated things around the transistor. But I just wonder -- I mean, despite that, you've seen a number of smaller companies come up in the power GaN space. recently, including yourselves. So is that patent portfolio really going to prevent somebody like an Infineon or ST or some of the big guys from monolithically integrating driver ICs?

Well, I think you always have to have a multilevel competitive strategy. No one dimension is adequate, just like even though 1 patent invention is adequate. So I think you have to have lots of layers to these things. Some things you don't even patent they're not publicly -- you don't want them out in the public or PDK, for example, the entire know-how of how to create all of these popular analog and power building blocks in GaN, we put into our PDK, which is our device and circuit library that's characterizing every new modeling, everything, and that's how we actually build up these circuits. None of that is in the patent. We want to protect that and keep it as one very large free secrets, all the system know-how, we've done. How do you -- once you have this amazing GaN. I see you still have a lot of work to do to get the full system value. Like I said, new controllers, new magnetic, new EMI, new filtering, so many new techniques. There's a lot of know-how there. That's not in patent. That's not easy to duplicate. That ultimately creates a lot of stickiness with customers. I think our business is really all about trust and a lot of that trust is technical trust, not just showing up of a great device, but showing up a lot of know-how that can help the customer navigate in [indiscernible] but disruptive time of GaN [indiscernible] or carbide-based power system. So I think all of that has to come together. And I think any large competitor or small competitors got to navigate all those different layers of value and competitive advantage before they're copying exactly what we do.

Got it. And now you've mentioned a lot of the advantages of GaN. One of the things when we talk to somebody like an EPC, they're also very vocal about the cost benefits the power benefits or reduced power consumption, more power-efficient products. And yet adoption seems to be relatively slow. What is holding up adoption of GaN? Is it mainly that the -- it mainly customers wanting more comfort around reliability. Is it just a longer lead times, the longer site production times in some of the markets you operate in? What exactly is holding it up?

I would say 3 or 4 years ago, everybody was excited about GaN transistor and frustrated they could not get the commercial value, certainly not economic, commercial significant value at the system level. And that was largely this drive and control challenge. We ended up adding so much extra circuitry and silicon around the GaN and the silicon drivers would slow you down, add cost, add complexity and degrade performance. So I think that was the big thing. Of course, we solved that with the GaN IC. The next big thing became, well, reliability. It's a very conservative industry. They don't believe PowerPoint, you have to have data, lab data is good, but field data is 10x better. And that, again, is kind of why we started with the mobile market because we can get data very quickly, a lot of volume quickly, now it's not 10-year life and 20-year life applications, but you need to get that field track record. So now we've got 4 years under about 50 million units, not a single GaN failure. So I think that's quickly going away. Then we added more protection circuits. We added a 20-year warranty. And now we have the GaN ICs to go into those high reliability, bigger, more industrial markets like data center, solar and EV. And I think you're left now with just 2 things. The system know-how on how to take a great GaN IC and make a great GaN-based power system. That's why we have a mobile design center that helps all of our customers do the system design for mobile chargers. Last year, we opened one for data center. So we're in the middle now of designing data center power supplies with our customers, for our customers using our GaN ICs, this year we announced one for EV. And again, I say broadly, EV, but it's squarely focused on OBC and set DC-to-DC, like we said. And they're a active now designing onboard chargers with GaN with our customers concurrently to make this happen. And so I think system know-how is going to continue to be a challenge. There's going to be limited resources in the world on people who now to do this, and this is why our go-to-market application-specific strategy, so key or system design centers are so key. And then the final one is cost. They're still -- it's still a very price-sensitive market. So you're bringing a lot of value but at what price. And that is important, and we're equally aggressive on driving system cost reduction and component cost reduction. And there's a lot of pieces to that, not just a GaN chip or GaN wafer price coming down each generation, more integration, lower system costs, each generation higher operating frequency lower system costs or raising the cost of the path for components in the system. All of these are working together, higher efficiency means you have less thermals to manage and reducing the cost of thermal management. So all those work together, so where we confidently predict by next year where existing cost carry with silicon and in '24 -- 2024, it's existing cost reduction. So I think that's the last layer when you nail the GaN IC to drive problems, you nail the system reliability concerns and the warranty and all that, you nail the application-specific know-how with their design centers and now you get that system cost premium to be very small, if not 0 or even a cost advantage. Now there's simply nothing holding back this whole market from taking off, although I still think it takes off 1 major application at a time because it does take that concerted effort in each of those segments.

Al right. So essentially keep an eye out for 2024?

Well, I think the fact is, if you start designing today in these applications for '23 production for '24 production. Data centers will start ramping in '23, solar will ramp in '24, and we think EV as we said earlier, probably ramp in '25. But that's not sitting and waiting. It's actually doing the system work, they just take more time with a lot of their system integration and field testing.

Got it. And just to confirm on the EV comment, that's the OBC ramping in '25, not DC-to-DC?

Probably a combination. In fact, there's a trend to create hybrids where you actually enclose both of them in 1 system. So a lot of those products are running concurrently, we'll probably see both OBC and DC-to-DC in '25.

Got it. Got it. And maybe at this stage, we've got another 5 minutes left. Alex, are there any questions on the call?

[Operator Instructions]

Maybe whilst we're waiting for any questions to come through. Now your focus so far has been on the power GaN market. Do you have any plans to be in the RF GaN market that currently is a bigger market than power GaN? And if you do intend to go into that, what would your strategy be? What would you need to build in terms of capabilities, et cetera?

Yes. We're really all power guys. Powers is a big market, but also unique. There's not a lot of universities that teach it. A lot of it is dedicating your career around power electronics. And even though the material sounds like it's all the same stuff. Power for -- GaN for power different substrate. By the way, you GaN, silicon, it's what's dominant. Here, you're going to tend to use a different substrate. But more importantly, I think the device design, the circuit know-how, the system capabilities all very different and very unique. So we plan to stay squarely focused on the power space. And when that's a $20 billion industry that's probably going to $40 billion or $50 billion in the next couple of decades, I think there's plenty of opportunities to do what we want to do in the power space.

Got it. I was just going to bring up that slide where you showed 13 billion opportunity?

That's right. And that 13 billion is just target markets, it's not the entire in the entire market, but rather the 5 big markets that we're targeting.

Got it. Okay. That's very clear. Maybe, operator, are there any questions at this stage?

We currently have no further questions.

Okay. So in that case, we're almost at the end of time. So let's end it here. So firstly, thank you very much, Gene, for making the time. That was very informative, and all the best in growing Navitas and I'm sure we'll reconnect again and a big thank you to our clients as well for your patronage. We'll end the call here. And Yes. Thanks, everyone, and have a good day.

Thank you, Adi. Thanks, everyone.

Thank you for joining today's webinar. You may now disconnect.