Navitas Semiconductor Corporation (NVTS) Earnings Call Transcript & Summary

That was, I think, a really good rundown of the acquisitions made. I would love to give a little bit of an understanding of the GeneSiC acquisition. They're contributing revenue to you guys come second quarter of this quarter already. It looks like they have quite a lot of customers. But the revenue portion, I think, is still growing. Could you give some color into what stage they are with these customers and how you expect that to ramp?

Yes, definitely. So we were pretty impressed and amazed at such a small team and a very engineering-driven team could actually have 500 paying customers today. These are production and preproduction customers. So that's a broad diverse list. As I highlighted, the concentration where we see it was perfectly where we wanted it, solar, energy charging and EV, immediately giving synergistic customer approvals, customer relationships, an opportunity to not only accelerate those markets with our strong technical sales and system design centers, but actually then accelerate the adoption of GaN in likely those same market. So a really nice fit. And we estimate that they're growing 60% -- well, it's demonstrated 60% growth. And obviously, there's a great opportunity to accelerate that with all of the resources that Navitas can bring.

Great. Thank you. If you can give us, I think, something that especially some of the [indiscernible] investors may be interested in when we look at really just the financial portion of this post transaction. When we look at while the amount of cash that is going out for this acquisition and cash position remaining and kind of the operating costs that are associated with the acquisition, can you share some of your thoughts here, either Gene or Ron, in terms of how you guys see cash flow in the coming years? And I guess, do you expect to be able to reach cash flow positive with the existing cash position?

Yes. And I will turn it to Ron to talk through the financial benefits and financial implications of the deal.

Thanks, Gene. Great question. So I think the answer is we feel really good about our cash and liquidity position right now. After the deal, we still have $140 million in cash, virtually no debt. As Gene talked about, the transaction was immediately accretive. It's got revenue, it's got EBITDA -- very high EBITDA margins. So it's quite profitable. So right out of the box, it's helping earnings, it's reducing our burn. And so if anything, over time, it will actually shorten our time to cash flow breakeven. So we feel really comfortable with the cash we have on hand right now and have -- we got asked this question in a call the other day about whether or not we thought we may approach the Capital Markets for equity or debt, absolutely not. From -- we have plenty of cash to operate the organic business.

Yes. Right. Well, I don't want to hog the mic here. And so I would like to turn this to anyone on the call who would like to ask a question, please feel free to meet yourself. If you feel more comfortable sending the questions to me, please go ahead and do that as well. Okay. It usually takes a few minutes for people to warm up to this in my experience. And so I'll jump in here with a couple of more questions. I think there was a pretty good question during the earnings call delineating the traction that you guys have as with the gallium nitride products versus silicon carbide products for the EV space. And specifically, there are already several programs ongoing for onboard chargers. And so I think it would be great to kind of highlight some of the development there and when you expect that to come to fruition? And I think perhaps as a refresher to maybe some of the folks here to highlight the importance of efficient onboard chargers. And I was telling Steve earlier, the most recent publication for IEEE power electronics, I think, goes through a pretty good section there talking about why improved onboard chargers is critical to EV adoption.

Yes. In fact, if you look at the 3 main factors that are going to influence either speed up or decelerate EV adoption, gallium nitride and silicon carbide can influence all 3. One is certainly charging speed. Home chargers today, and of course, superchargers are not that popular around the world with Tesla. But home chargers today can take up to 10 hours to fully charge your EV, that might be fine for overnight charging, but you don't always have 10 hours. Those are 6.7 kilowatt chargers. We're developing today with our customers 20 kilowatt, 3x more powerful, 3x faster charging EV. We know charging is a big concern and a big factor as you highlighted, but we can also affect other things like driving range by making all the key power electronic systems more efficient, we can deliver more of that battery energy to push -- to moving the car for a longer distance for the same battery size. The preliminary estimates are 5% or 10% extended driving range and every 1% is extremely hard to come by. So those are really big numbers. But also conversely, the EV car is still a little bit more expensive than an equivalent gas car. The #1 reason, of course, is the battery. And that's coming down, but not coming down faster. In our case, when we make the entire power electronics more efficient for the same driving range, we can shrink the size, weight and cost of that battery by that same 5% or 10% cutting a significant amount of money out of that EV premium. So looking at driving range, charging speed and the cost premium, we can help progress both to ultimately accelerate EV adoption further beyond its rapid adoption today.

Great. And when do you expect some of these customers -- I'm assuming some of these programs are going through partners like Brusa, which then are in at least a design-in process, if not already a process that's won or whatever vehicle type to start [indiscernible]. Could you give a little bit of color into when you would [indiscernible] expect that to come in?

Yes. We have multiple platforms in development being co-designed with our customers for our gallium nitride technology using that EV design center that we opened up earlier this year, that's supporting, I think, up to 8 customer programs, the names of them other than Brusa, if it did come out last year and say they'd be partnering with Navitas to move from silicon to GaN using our technology. The other names aren't revealed, but we think there's actually a very good chance to accelerate that adoption given the silicon carbide penetration. In that case, we're already shipping to dozens of EV customers. I mentioned a number of them earlier. So that gives us immediate EV revenue this year, dozens of customer engagements, which will only accelerate the activity to bring GaN into those same customers. And many of the same EV customers developing both 800-volt batteries where you want silicon carbide as well as 400-volt based EVs where you likely want gallium nitride. So there's a great synergy there and a great acceleration to our plans to penetrate the EV market.

I want to start sending up some questions from the audience. The first one has to do with what do you think is the competitive edge of the [ fabless ] for now both GaN and silicon carbide over IDM?

Yes. I think what a lot of -- there's 2 really important points here. One, a big advantage of GaN and silicon carbide both is not only the exciting new material, exciting technology, exciting performance, they do not need new fabs. They do not need advanced process geometries, they are better to utilize, older, fully depreciated silicon fabs that were built 1, 2, maybe even 3 decades ago. We're doing that with TSMC today using their oldest fab in production built in the East. GeneSiC is working with X-FAB, same thing. The fab was built a long time ago, which means you've got a fully depreciated and also heavily loaded fab with a great cost structure. The last thing you'd want to do is build a brand-new fab because we all know the second key point to semiconductors is fab utilization. They're really not cheaper than a fabless model until you get them 70%, 80%, 90% full. While these markets are still growing, is there any one single supplier that can fill an entire factory quickly to 80% to pay the $1 billion back it might take to buy that fab? It's a very questionable choice. But we do think leveraging existing fabs that are full with silicon and then you can slowly ramp the silicon down as it moves on to more advanced fabs, while you ramp up gallium nitride and silicon carbide to fully utilize that fab. Then you have great economies of scale. So we actually love the fabless model for the next few years, and we think GeneSiC followed the same exact model with X-FAB as we've done with TSMC, getting great cost structures today, great gross margins today. And I think as we grow, the right model probably will shift over time as the volumes can fill entire factories, and this is where we've openly talked about strategic manufacturing investments, different ways we might apply that to transition that model over time to make sure we've got world-class cost to deal with our world-class performance for both GaN and silicon carbide.

Great. And there was a follow-up question from somebody else to -- I mean it's slightly related, which is if you can help highlight some of the advantages of GeneSiC's device compared to others that have an IDM approach that is a little bit more specific on that comparison?

I think the suppliers 2, 3, 4 and 5, that are listed on the performance page. I believe they're all IDM models. So I think embedded there is actually the answer to the question. And frankly, we see the big guys focused more on supply chain. For good reason, there's -- this market is in shortage. There's a lot of opinions out there that silicon carbide demand will outstrip supply for many years to come, which that's a great opportunity for us to make great market share gains if we have a great supply chain. But those performance metrics are against the silicon carbide IDM players and they're very focused on a decent transistor, but mostly focused on the supply chain and big fab investments. In our case, another benefit of the silicon carbide design that we didn't highlight is the design robustness itself to support a very flexible supply chain. It used to be a few years ago that Wolfspeed dominated the supply of the silicon carbide materials, the substrates and even the epi wafers. They signed 10-year deals with many of their competitors, which is, of course, a very strange phenomenon. Today, that's changing very quickly. We have qualified and are shipping today with multiple substrate vendors, multiple epi vendors and all kinds of combinations, mixing and matching over a dozen combination of substrate and epi and X-FAB is ramping very quickly, tripling their capacity for silicon carbide, just coincidentally, like TSMC has been tripling their GaN capacity. So this has actually led to a lot of supply choice and flexibility. A lot of price competition among our substrate vendors, among our epi vendors. So actually, we think we're in a really good place on our cost structure, but also really good place on capacity and upside with their tripling and our good substrate and epi options. We're offering 16- to 26- week lead times, which normally isn't the best in the world, but actually today, the other guys are at 50, 60 weeks and sometimes on allocation without any lead time at all. So that's adding to our strength in availability and upside to even enhance our market share gains on top of the great performance robustness and product range that they have from GeneSiC.

Great. Thank you. Next question is regarding -- last quarter, you had mentioned that the silicon controllers was holding back some of the shipments with the acquisition of a silicon carbide player. How do you expect -- or how do you plan to keep that type of shortage situation happening again?

Yes. The good thing there is when you go into higher power systems where you tend to, of course, target silicon carbide, you're not working with application-specific controllers, ASICs, which is what we saw dominantly in the mobile and consumer space for our GaN chips. In the mobile and consumer space, those ASICs needed to be redesigned to be high-frequency capable to match the frequency of GaN. We worked with some limited partners to do it, but there weren't as many. They weren't enough of them when the shortage came along. Then we worked with our customers to try to encourage more partners to make that happen, ultimately alleviating some of this challenge. If you go to the high-power systems, they're working with DSPs and microcontrollers. And the vast majority of them are digital chips at their core and capable of operating at higher frequency already. So we don't anticipate any redesigns of those systems. The infrastructure is there. They have their preferred DSP or micro suppliers. There's no need for that redesign. And so as a result, of course, there can be shortages in DSPs and microcontrollers, but there's a lot of big semiconductor companies providing a lot of choice for those controllers, and we don't need to wait for some significant redesign to drive the adoption of silicon carbide.

Got it. All right. Another question around GeneSiC. Are there orders now for mass production? Or is it just sampling?

Yes, this year, we're estimating $25 million in revenue this year. So this is many, many customers. We mentioned over 500 paying customers, either production or preproduction. So it's significant revenue, and as Ron explained, financially very profitable, immediately accretive to the company over 25% EBITDA, which is really impressive for a company at this scale and size. So we're at volume production with them, ramping quickly, as I said, about 60% average growth, and we hope to accelerate that while we bring all our resources to bear on that technology.

Got it. I'm not sure if you can share this, but an audience member had asked, what is their wafer per month at X-FAB this year or next year?

Yes. I don't think it's public. We'll check with X-FAB. But it's ironic. It's very similar analogists I think coincidentally, the TSMC, the fab traditionally is the older fab was full with a lot of silicon, they're ramping down the silicon making room and retrofitting silicon carbide, just as we're retrofitting TSMC for GaN and you can retrofit these older fabs for sort of pennies on the dollar compared to the place to build a brand-new GaN dedicated fab or silicon carbide dedicated fab. But I don't believe the numbers are public yet, but certainly, as we get their permission, we'd love to share those sort of figures.

Got it. And kind of reverting back to a supply chain point that you had made earlier is a question in the audience. I wanted to get more detail in any type of capacity issues that you potentially see in supply chain, especially in light of geopolitical concerns?

Yes. I don't. I don't see any geopolitical concerns. At this point, some of our biggest customers for GeneSiC are actually in China and throughout Asia. So we're doing a lot of great business. We have no export control restrictions there. And even though I would actually add, though, even though X-FAB is in the process of tripling the capacity here at GeneSiC headquarters this week, of course, working on the integration. And the big theme to all the calls with the customers and sales and the internal is we can ship everything we can build. So we're going as fast as we can. So a lot of this pressure is we want to get at that tripling of capacity as fast as we can. There's -- but that speaks to the fact that there is just a lot of demand out there for silicon carbide and we're certainly benefiting from it and expecting to take a lot of share -- to take advantage of that and the great technology that's been developed.

Fantastic. And here is a question that I think is partially answered through some of the presentation. But the question is about through the direct competition for GeneSiC is today, and you mentioned a lot of the IBM folks, see if you want to add any more detail there. But then the follow-up question to this is, if you can share more about product plans for the automotive market? So I suppose since it's really apparent that they are shipping to auto book customers. If anything, I guess, you can share in terms of any future plans on the road map with GeneSiC?

Yes, I would add that actually, within EV, there's these 3 main applications onboard charger or OBC, the DC to DC converter, which takes the energy from the battery and distribute it in a car and then the traction controller or the electric motor itself, which moves the car. Actually, our focus before GeneSiC and still with GaN was on the OBC and DC to DC, turns out GeneSiC sales, I mentioned dozens of EV customers, a lot of revenue of that $25 million, that's actually also in OBC, DC to DC. And we actually love that because we're very much a strategic go-to-market company that selects our application markets very carefully. We go very deep with our customers, build a lot of trust by bringing them a lot of system value as well as chip value. And frankly, the big guys have a big spotlight right now on traction control. Obviously, that's where Tesla adopted silicon carbide for their electric motors. There's a lot of competition in that space. And I believe we will attack, approach and win in traction control over time. While all the big guys are very focused and very competitive and kind of fighting that out, we're going to nimbly and innovatively come in and take a major position in GaN and silicon carbide for OBC and DC to DC. So that gives you a little bit more color on exactly where we're approaching these customers and how both of these technologies, again, between a 400-volt battery likely for GaN and 800-volt batty likely for silicon carbide can give us great strength and ultimately great market position or dominance in that first segments of the EV market.

Thank you. Next question is what I'm sure you'll be very happy to talk about, which is in your last revision. We see that the European market is growing pretty quickly. And so if you can share more about what's driving that?

Yes, definitely. So we actually wanted to spend more time on it because it's a great story to talk about, both in our Q2 earnings, obviously, was a big spotlight on understanding GeneSiC and VDD and just latest financial results, but it's actually very exciting. All of our GaN work so far has been focused on power supplies, which are chargers are just a different kind of switching power supply. 40% of the world's energy goes through inefficient motors using silicon chips. That's an incredible opportunity to upgrade the efficiency of those motors, save a lot of energy for the whole world and cut CO2. Motors is something we've never talked about focusing on. And motors are everywhere, not only just the EV traction control, as we said, it's in your home and all sorts of home appliances, it dominates in factory, infrastructure, in robotics in just so many areas. So that's huge. And so actually, last year, we decided to target one customer that wanted to use our technology in a motor application. This is a European premium home appliance company. They haven't allowed us to share that name, but as soon as we can, we will. It is shipping in production, ramping fast. Europe went from 0 last year to 38% of our revenue in Q2. That is not only exciting because it's big revenue. It's ramping up our European focus, which is also a new -- we had a whole new team we put in place during the last year. This is obviously their #1 big achievement. But behind that, it's making the motors more efficient, smaller, lighter weight and ultimately cheaper. Same types of value props were brought to a whole new market around motors, first with home appliance, but second, industrial motors, which is a huge long tail, typically great margins, very sticky. So we're very excited about that. We're going to have a lot more to talk about it. We already have dozens of customers in the pipeline. The products we have today are a good fit and obviously selling, but we're making a next-generation version of those that will make it even more optimizing more successful in home appliances first, and motors and industrial second. And GaN is a good fit for lower voltage, low power in the same way silicon carbide is great for motors and higher voltage and higher power. So you'll see that same complementary nature between the 2, and we certainly expect to bring both into that broader industrial motor market.

That's fantastic. I'm very excited to hear about this particular program also because there are some great motor manufacturers in Taiwan. And so I think as you guys get quick traction there, there are some really good partners who supply motors to some of the U.S., European appliance brands, but the motor is designed and fabricated in Taiwan.

Yes, I completely agree. And I think just like chargers, a lot of our markets have become commoditized with little incremental improvement in cost and efficiency and density over the years because silicon wasn't delivering much. We are literally decommoditizing markets one by one. And just like we're decommoditizing and disrupting chargers for your phone or tablet, we're going to decommoditize the motor market, in one application and market at a time. So it's very exciting, but we also have to be very thoughtful and targeted in how we approach these things to deliver that maximum system value to drive the adoption.

Great. Next question is around how Navitas now plans to split the resources within the company as far as business engagement goes between gallium nitride and silicon carbide?

Yes. We're working through that right now. It's certainly important to be sort of strategic and thoughtful on how we do that with the right short-term, medium-term and long-term priorities. But at a very high level, we have what they need to scale the business. So we've invested in a very strong technical sales force. We have over 30 field applications engineers plus the sales team. We've invested in the system design centers for electric vehicle and data center. We've invested in the operations team that can scale operations around the world, both the front-end of fabs, but also the back-end OSATs or assembly and test. And we've invested in the management team, including in-house legal counsel, the addition of Ron Shelton, our CFO. So very professional seasoned management team. These are all the things GeneSiC didn't invest in. That's why it's immediately profitable, immediately accretive and immediately valuable to GeneSiC to allow them to scale to a whole new level and increase their acceleration. So at a high level, it's a perfect add-on. It becomes a design center for our company that can immediately tap into all these same resources. With that said, we're all busy, so we have to be smart and thoughtful on how we balance GaN and silicon carbide but there's great synergy here and a great opportunity to bring these 2 things together without any real overlap or inefficiency and certainly no redundancy.

Great. Next question is around the IP for GeneSiC, how much of that is proprietary to GeneSiC or how much of that is from X-FAB? You can share a little bit about that?

Yes. Also here, again, coincidentally, very similar to the TSMC situation. You can go to TSMC and get a standard MOSFET flow for GaN and nothing more. And you can go to X-FAB to get a standard flow. These guys have gone in and significantly optimized the flow and the design that is completely proprietary to X-FAB. And just like TSMC, they are very sensitive to protecting customers' IP and making sure that's not available. They know about the patent portfolio. It's over 20 patents issued or protected around that core transistor and how it's designed. If you know a little bit about silicon carbide, there are some people that make trench. Some people make planar. This is what's called a trench-assisted planar design, very unique and novel in the industry. Nobody else has something like it, and that's the underlying capability. They own that IP completely. We can take that IP to another fab and another one over time if it's warranted or necessary. So it puts them in a very strong and well protected position around that unique trench-assisted planar silicon carbide device.

Okay. Thank you. I think we -- I get this question every quarter, and I think it is a good question, but -- and so the question is usually around what your expectation for market segmentation in the coming years between consumer, EV and solar?

Yes. That's certainly changing in an exciting way. On the GaN side, I think we're on track or even a little bit ahead of schedule about mobile, of course, is going to continue to go from just 1% or 2% adoption. So there's a lot of upside to go in mobile. Obviously, there's some China slowdown in the smartphone with their inventories. We think that will bounce back in the next 2 to 3 quarters, certainly figuring that out. Taking that into consumer is already happening. We're going into TVs, desktop PCs and others, so that will start ramping more significantly next year. But next year, we add in the GaN for servers. In '24, we added significant revenue for solar and in '25, as we outlined, we add in significant revenue for EV. Now what we've got to do is roll into that, the immediate 2- to 3-year acceleration of EV, energy storage and solar shipments that are happening this year because of the GeneSiC acquisition. So we're actually going to be rolling that all together, doing an updated multiyear financial plan and look to give some further updates on kind of preliminary guidance for next year, we will be able to get a little bit more of a breakdown or assessment of how that plays out. But clearly, we're going to have a really immediately multimarket diversified business, which is going to make us obviously a more robust, high-growth, high-margin company. So one market is down. 2 others are up or this one is down, another 2 are up, and that obviously is creating a diversity that will allow us to handle any sort of bumps or ups and down in the market as they naturally occur.

Fantastic. I think there was -- there were recently some really good articles highlighting this change, not just within the power electronics space, but broadly across all the key semiconductor players. If you look at folks like NVIDIA, even though today it's largely still graphics cards, a lot of the investments that they've been making in automotive is what they hope can pay off and what a lot of people are highlighting is this diversity is going to help smooth the traditional seasonality of the semiconductor space. And I think it's a really interesting one to observe right? We're all really familiar with whether it's storage or compute, the cyclicality. But I think as more of these players are transitioning into the industrial sector, into the automotive sector, this level of cyclicality should actually even out over time.

Yes. I think that's very true. And it's easy to say, well, everybody should be more diverse and serve multiple markets, but you have to be awfully careful. It's focus that leads to greatness. It's diversity that can lead to mediocrity. So it's a very tricky balance. And the dilution of your focus was what underlines your success, your customer intimacy, the deep value that you bring in, in a given application or market. And so you're either going to have to buy that diversity for folks that have had intensive focus on those markets for a period of time or you need to be awfully thoughtful. And I think we're doing both. We bought it with GeneSiC giving immediate diversity for companies that focus for over a dozen years in those key markets but we're also being really thoughtful on where we apply diversity. And power is a very big market. If you try to offer power devices to everything you're definitely headed for mediocrity and I would say, lack of success. So I think it's easy to say you want the diversity, but I think your comments about the general market is certainly true, and we all welcome a little less cyclicality of semiconductors that we've had over the last 20 or 30 years. So there's bound to be balancing out as semiconductors are into everything. So for one market's down, 2 others are up at a broader scale, as you described, Edward, I agree.

Yes, but a very good point on the focus. Okay. And the very last question we have from the audience here is regarding margins from the European motor company, whatever you can say about that. But I'm also interested, just broadly what your expectation for margins would be selling into the motor space.

Yes, definitely. And we were pretty open last year and in our Q1 announcement and reinforced again in Q2 that last year when we decided to go for the business. It wasn't obvious. In retrospect, of course, we're happy we did because we did not have the optimized part for the product. We have a higher performance part that was overkill. And we didn't have time to spin the park to meet their aggressive schedule. So we decided, fine, we will go for it. We want to get in with that customer. We want to learn about that market and that application. And in doing so, it's significantly below our target on an average gross margin. But at the same time, we agreed with the customer that with time, we would spend a cost-optimized part and move to Gen 4, which is now happening. In fact, we actually just sampled the customer on schedule. They're doing the valuation. They're very supportive because it was all agreed. So it's actually going to go from a well below margin business to an above-average margin business as they ramp that new cost-optimized Gen 4 chip. We're on schedule to start to have production for that customer next quarter. It will be a small contribution to the next quarter and then start ramping significantly in Q1. So we've got a very clear and I think robust plan to get that margin way up. And I think that's indicative of it will actually end up being better margin than our consumer mobile business, which is kind of what you expect in the more industrial or even home appliance markets. And then we've got a pipeline of customers behind that, as I said, that I think will feed that revenue and that margin profile further in that new market.

Great. And then speaking of Gen 4, I think it would be valuable to the audience, if you can give a quick refresher about what happens to your products generation over generation. This is one of the -- one of the most important factors that triggered our investment into Navitas. It's our belief that generation over generation, you guys look at performance and cost improvements to the point where you're not only in parity with silicon alternatives, but you can actually be cheaper and higher performance. And our expectation is this -- as it is today, $20 billion power electronics market, GaN has been chipping away slowly at this stage, even under price premium, but once it hits parity and even is cheaper than the alternatives, this shift to GaN is going to be a dramatic wave. I'm very much looking forward to that transition.

Yes. No, that's very well GaN and silicon carbide are really both very far away from their theoretical limits. GaN is obviously even more immature, you might say, or newer in its development. So we're moving at an extremely rapid pace. Of course, we're a very focused and innovative company. R&D is our lifeline. We're developing a new generation every year. Last year, we started the year shipping 100% Gen 2. By the end of the year, we were shipping a 100% Gen 3. This year, we launched Gen 4 on schedule, started sampling last quarter, initial early ramp-up this quarter, ramping even more with more customers, including that home appliance one, as I mentioned, starting next quarter and then Gen 4 will be a big driver next year. We've got Generation 5 and Generation 6 in parallel development that are right on the heels of Generation 4. Each generation can take a different form. In general, they're proving to be around 20% cost performance improvement. But in some generations like Generation 3, we're adding all new layers of integration, Generation 3 added sensing, the ability to [ censure ] your own voltage current and temperature cycle to protecting that device. And that was perfect -- perfectly planned the perfect timing of making a more robust and reliable devices as we bring this technology into high reliability markets like data center, solar, EV and energy storage. Generation 4 is more of a classic 20% cost performance improvement without too many new features, but you're going to see other layers of integration that take reliability to an even higher level with the Gen 4 versions that we'll be applying to the higher-power products. Frankly, the things we're already sampling today. We just not have publicly announced them. So later in the year, we'll make public disclosure about that Gen 4 more details as well as the Gen 4 version going into high reliability and high power markets. So it's super exciting. We look forward to bringing I think silicon carbide and GeneSiC has been moving at a similar pace of a generation every 12 or 18 months. We hope to accelerate that, but then add those other layers of integration and value that we talked about and that Navitas is sort of famous for.

Great. Fantastic. And I think part of that cost reduction is not only the power IC itself can get cheaper or your margins are getting higher, but also you're consolidating a lot of the other BOM components that would be -- need to be there to support the traditional IC and now all of that is getting rolled into your chip. And not only is that reducing costs, but I think we have some pretty good conversations before this consolidation, there's data proving the enhanced reliability by not having all these other parts.

Yes. In fact, another -- further color on the question about sort of manufacturing cost structure and fabless versus IDM, it's clear to us that design is the #1 factor for cost reduction, far more important than wafer price. If you look at it, each generation, we're affecting the design -- the cost structure in a significant way in 3 different ways. One through design, we're shrinking the chip for a given performance that obviously gives more [indiscernible] from a lower cost. Secondly, we're often integrating other circuits and components around the device for a fraction of the cost that they cost the customer previously. So as you just referred to, saving there is bill of material costs by integrating more of those components very cost effective in the GaN. Third, we're pushing the frequency higher and higher. And as the frequencies go higher, those passive components, we don't talk about too much in this call, we didn't talk about it. Passive components are 50% to 70% of the size, weight and cost of most power systems. That's why they were so big and bulky and looked like they were designed in 1975 because they kind of were. They haven't gotten much better. So as we keep pushing the frequencies higher, we keep shrinking the other parts of the BOM, which are the passive components. So design and design innovation has 3 different levels to driving the cost of the chip down through smaller size, driving the circuit cost around it by integration and driving the passive costs down through higher frequencies. That's a triple benefit if you're a really innovative design-driven company like Navitas is on GaN, and we're certainly planning to accelerate the same sort of behaviors and opportunities in silicon carbide.

Great. And we have one more question popped up and I think it's a really good one because we didn't get to spend much time on VDD, Can you elaborate on what some of the Navitas' plans are on incorporating VDD into various applications, both for GaN and silicon carbide? I think one of the audience numbers is speculated this combination of both silicon carbide and GaN and VDD together. I'm not sure if that's part of the plan, but any information you can share there would be great.

Yes. And you can actually -- if you go down deeper, a lot of these power systems break down to 2 or more phases of power. The front end could be served by silicon carbide, which is facing the grid. And the grid has a lot of fluctuation, a lot of excess voltage and current. And so it's very important to have your most robust, reliable, proven technology on the front end facing the grid in that first phase. Some might argue silicon carbide having been shipped for 15 years is more proven, more reliable. GaN's the new kid on the block. We're doing an amazing job to make it reliable and to prove it, but out of caution, you can go with silicon carbide on the front end, that next phase is effectively protected by the first phase. And the next phase you want it to just be crazy fast and crazy efficient. Well, gallium nitride is actually -- they're both better than silicon, but GaN is faster and more efficient actually than silicon carbide. This is not technically disputed in our industry. So that's an interesting combination. What's cool about VDD is you need digital isolators in every phase because you have logic chips and you have the power device, and you have to build in safety isolation circuits to protect the logic chips from the power devices. This could be up to 6 isolators and some applications up to 12 in bigger power systems. That's a lot of digital isolators and $0.20 to $1 can really add up. And not only is it a critical function that's got to create great isolation. Now it's got to support the high speeds of silicon carbide and GaN exactly what VDD developed for us, and now we can go productize it either as a chipset for a total solution or as an integrated approach like we said, sort of a smart isolated GaN switch, a smart isolated silicon carbide switch. And everything I just said fits identically to all the target markets we're talking about: server, solar, energy storage, electric vehicle. Might even have a play in mobile and consumer, but I think that will take longer to sort of figure that out, and it's not as many components because it's a much smaller, lower power scale device.

Perfect. Well, I think that I can conclude our session today. These are some very fantastic questions. Thank you all for your time. It's very exciting to see both of these acquisitions roll into Navitas, aligning quite perfectly for the future that you guys have planned. You guys have been alluding for a while that you guys are not just the best GaN company. That's not the vision, but you guys want to be the best in power electronics. And so exciting paths that you guys have paved to get to that end goal. I would like to ask our audience and I think this is kind of unique to the Taiwan session here is that we have a lot of people joining that either have portfolio companies, investments or even business units within their own CDCs that might have some application that's related to now both GaN and silicon carbide. And so if you can think that there are some opportunities within your portfolio or within the organization that can be pertinent to Navitas, I think it would be a great opportunity to reach out. And so as always, you guys have Stephen's contacts. We'll make sure that's also circulated and you guys can reach out to him to get in touch with the folks at Navitas. I think it's -- it will be an interesting way to really connect a lot of these newer applications, especially with the Taiwanese ecosystem.

Yes. And that's well said, Edward, because GeneSiC, as I said, small team, no sales force sold through distribution. So the brand awareness is surprisingly low. We're going to immediately -- starting next week, our Taiwan team will be trained and ready to go. We've got a great sales team, FAE, application small center there, ready to go. So we're ready to work with a lot of new opportunities to get that name out, get the word out, start sampling customers. So we'd love to have any recommendations and suggestions to help build the Taiwan business. It's already off to a good start. They've got good revenue there, but I'm sure there's a lot more opportunity as we get engaged.

Yes. And while we're really excited in the U.S. that we had the CHIPS Act and the Climate bill is in the process of being ratified. These 2 bills create a lot of momentum for what basically intersects at what Navitas does both on the chips side and both on the climate impact side, but this is not just the U.S. in isolation. Every country is crafting similar bills, we have portfolio companies within Mesh itself that are benefiting from some of this policy in Taiwan. And so I think a lot of the investors on the call know this far better than we do what types of policy is going to drive additional adoption of these technologies both on GaN and silicon carbide. So it will be really excited to see how that makes its way into new business opportunities.

Yes. No, you -- obviously, we couldn't be more excited. There's this perfect storm coming together between CHIPS Act, which is going to inevitably upgrade older silicon fabs to GaN and silicon carbide like we talked about, the clean energy bill, if you break it down and look at that, it's actually the exact markets we're talking about. How do you accelerate EV adoption? How do you accelerate energy-efficient home appliances? How do you transition home appliances that are still gas based to move to electricity based like heat pumps? All of these things are in that bill. How do you move to more renewable energy and solar? I mean it's the definition of how do you accelerate Navitas' success in the market. So we're super excited about.

Great. Yes. We were seeing a lot of stuff in energy storage. That's becoming a strong policy that Taiwan is pushing for. And on the Taiwanese ecosystem does quite well in UPS as well in backup power. So I think these are all exciting opportunities that plug into your new and improved product portfolio.

Yes, Absolutely. And not to forget, of course, Taiwan is dominant in notebook power supplies and server power supplies, significant roles in solar and then a fast-growing EV and energy storage market. So this is a great -- for us, and we've got a great team, and we're just going to keep investing in building that up.

Good. Good. Well, very exciting. Thank you all for your time.

Thank you, Edward, for the opportunity. You always put in a great event with a great turnout and really good questions. So thank you so much, Edward and to all of you.

Thanks very much. Thank you.

Appreciate it. Thank you. Bye-bye.