Soitec SA (SOI.PA) Q3 FY2026 Earnings Call Transcript & Summary

Welcome to Soitec's Third Quarter Sales Presentation for Fiscal Year 2025-2026. Today's conference will be hosted by Pierre Barnabe, Chief Executive Officer; Albin Jacquemont, Chief Financial Officer; Steve Babureck, EVP, Chief Strategy Officer; and Alexandre Petovari, Head of Investor Relations. [Operator Instructions] Now I will hand the conference over to Pierre Barnabe to begin today's conference. Please go ahead.

Thank you for joining us today for Soitec's Third Quarter 2026 Sales Conference Call. I'm Pierre Barnabe, Chief Executive Officer of Soitec. I'm joined today by Albin Jacquemont, our Chief Financial Officer; Steve Babureck, our EVP Strategy; and Alexandre Petovari, Head of Investor Relations. But first, I would like to step back and reflect for a moment on where the company stands today. As you all know, I'm preparing to step down in just under 2 months when my successor, Laurent Remont takes over as the Chief Executive Officer. This leadership handover come at a time when Soitec is stabilized, successfully diversified into new growth areas and well prepared for the new phase of development ahead. The acceleration of our diversification has been enabled by our sustained yet targeted investment in R&D. Today, Soitec is focused on operational excellence and cash generation, supported by a very healthy balance sheet. This gives the company the resilience to navigate diverse end market dynamics and the flexibility to be well positioned for the next growth cycle. In light of this, the third quarter reflects a high level of rigor in execution in a challenging market environment. It should be seen as confirmation that Soitec is operating with discipline using the strategic and operational levers at its disposal. In this context, our priorities are very clear. We are focused on execution, operational excellence, disciplined cost and cash management and on aligning capacity with actual demand. At the same time, we continue to invest selectively in areas that are critical to our long-term technology road map without compromising financial rigor. The overall picture remains broadly in line with our expectations. At a business level, this translated into the following trends: sustained activity in artificial intelligence for Edge and cloud, where demand remains supported across data centers and Edge environments. At the same time, other parts of the business are still adjusting. In Mobile Communications, customer engagement remains active around advanced RF solutions and next-generation platforms despite constrained volumes with RF-SOI demand still impacted by customer inventory correction. In automotive and industrial, while the environment remains challenging, our technologies are well positioned to support future applications once demand recovers. I will now walk you through the third quarter sales figures and our outlook in more detail. Starting with the headline numbers. Third quarter revenue reached EUR 160 million. On a year-on-year basis, revenue remains down, reflecting a 22% decline at constant scope and foreign exchange and a negative currency impact of 7%. This top line performance is driven by different dynamics, strong trend in artificial intelligence, offset by ongoing RF customers' inventory correction in an uncertain smartphone market and weak automotive demand. Sequentially, revenue increased 18% organically compared with the second quarter, coming in above our guidance. This improvement reflects the strong commitment of our teams. Looking at revenue dynamics by end market. Mobile Communications generated revenue at EUR 90 million in the third quarter, down 36% year-on-year organically. As expected, RF-SOI volumes remain impacted by customer inventory correction, which is improving, but not yet complete. UI activity was slightly down year-on-year, while showing an improvement from Q2. Higher demand from Tier 1 U.S. fabless was offset by softer activity in Asia. FD-SOI adoption in 5G millimeter wave is still ongoing with a major recent design win for U.S. flagship smartphone. Edge and cloud AI revenue amounted to EUR 54 million, showing 27% organic growth year-on-year and improving from Q2 '26. Activity continues to be supported by AI-related demand across edge and cloud environments with contributions from both Photonics-SOI and FD-SOI. Specifically, Photonics-SOI remains very dynamic as the technology continues to enable a growing number of high-speed, high-bandwidth optical interconnect applications, including pluggable transceivers and co-packaged optic CPUs. And we continue to strengthen our differentiation with new materials, addressing growing interest for LNOI, lithium niobate OI for ultraband data communication. This product will complement our silicon photonics offering to cover optical transceivers beyond 1.6 terabytes. Automotive & Industrial revenue reached EUR 16 million, improving sequentially versus the second quarter, but remaining down 32% organically year-on-year. Market conditions are still weak. Power-SOI volumes remained low during the quarter, reflecting both market weakness and delivery phasing that is skewed towards Q4 under a long-term agreement with a key customer. Looking at the first 9 months of fiscal year '26, revenue reached EUR 390 million, down 26% year-on-year organically. Performance over this period reflects significant RF-SOI under-shipment, prolonged inventory corrections and contrasted end market dynamics. Edge and cloud AI showed strong resilience, especially excluding the anticipated phaseout of Imager-SOI, bringing the performance of this segment up 29% year-on-year. Mobile Communications and Automotive & Industrial remain more exposed to market adjustment as expected. For the last quarter of the year, we expect around 20% organic revenue growth versus Q3. We maintain our cautious stance on the market environment and are closely monitoring the evolution of the smartphone market outlook and its potential impact on the ongoing customer inventory correction. Mobile Communications should improve sequentially. Edge and cloud AI should continue to show strong momentum, driven by demand for Photonics-SOI and FD-SOI. Automotive & Industrial is expected to remain soft overall, but Q4 will benefit from seasonal deliveries for a specific customer. In this still challenging environment, we remain focused on disciplined cost management and cash generation while continuing to execute our strategy through targeted R&D, technology leadership and product diversification. This concludes my comment on our Q3 '26 performance and Q4 '26 outlook. Then after more than 4 years, this is my last call with you. When I joined, Soitec was in a very fragile situation, an unprecedented governance crisis, dependence on a single product, more than 2 years of RF-SOI inventories concentrated with a few customers with deeply damaged relationship and a heavy cost structure. Year after year, we managed the depletion carefully while giving ourselves the time and the resources to accelerate 4 new product lines, which have all reached critical mass. We have doubled R&D investment and restore the balance sheet. Today, the company is getting ready to turn a corner, driven by a successful diversification of products aligned with AI and energy efficiency megatrends. RF and Power-SOI demand will resume as customers clear their inventories. Our innovation remains dynamic with increased investment to strengthen our positioning in our current SOI market and to prepare our expansion into new markets. Our innovation capabilities will be critical to meet the industry's most promising developments with key players now exploring SOI for advanced computing applications and memory. Our relationships with customers and partners has been rebuilt and strengthened from the U.S. to China, where we executed a new strategic reset with an SAG. Looking back at these last 4 years, what I am most proud of is having recruited, developed and retained outstanding professionals and teams. We have made Soitec stronger and ready for a solid and sustainable rebound because my extended team and the Board of Directors trusted me, understood the plan and executed it with discipline. I'm deeply grateful. I now hand over a solid platform to Laurent. I would like to pay a tribute to the ExCo members, to our diverse leaders across the organization and to all employees for this successful journey. With that, we are now happy with the team to answer any questions you may have. Thank you very much.

[Operator Instructions] The next question comes from Aleksander Peterc from Bernstein.

All the best wishes for your future endeavors. Can you give us a little bit of color on how you're doing with progress on the rationalization of working capital? What kind of levers you have in place to drive a positive free cash flow into next year? And if you could give us an idea of how we should think about CapEx going into fiscal '27 as well.

Thank you, Alex. Thank you very much. Then I propose for everything regarding cash discipline and working capital containment to leave the mic to Albin, who could comment on the progresses made so far and what the trends for end of the year and some colors for the next year to come.

Sure. Alex, look, we said in Q2 that we're working towards free cash flow positive in fiscal year 2026 and that remains true today. We are making progress on that front. What we have been doing is managing costs in a stringent manner while maintaining selective and strategic investment in R&D. As for inventory reduction, which is another priority, we're aligning production with actual demand. Of course, the downside of this is that it brings a temporary hit on margins and on profitability. On the receivables front, we have renegotiated or we are in process of renegotiating some contracts to lower receivables that will bring -- that will yield results in this year and in fiscal year 2027. And the way to think about our capital expenditure is moderation, I would say. We are guiding towards CapEx of EUR 114 million cash this year. And there is a little bit of flexibility built into this number. And capital expenditure will be much lower in fiscal year 2027. And that we have already invested a lot to build capacity for the company. So there is no need to expand our facilities. Remember that we changed the free cash flow definition in Q2 this year and this was to align with market practice. And now our free cash flow mirrors the debt variance in absence of buybacks, dividends and M&A. Yes. So we are making progress on working capital and free cash flow.

That's great. That's very clear. Can I just have a quick follow-up on your mobile business? I have a couple of questions. The first one is, are you concerned about the health of the mobile phone market? We've seen some forecasts now pointing to a decline in calendar '26 given the tensions we see in memory prices in particular? And the second part of the question is, could you give us an idea by how much you're under-shipping into the channel? What's the kind of order of magnitude there in your RF-SOI product line?

Okay, Alex. On the smartphone market, we are observing, listening like you and reading like you that there are some tensions coming from memories, memories prices and availability that could weight on the dynamic of this market. Then we're going to revise or not our forecast during the Mobile World Congress. We were expecting a growth around 2% of this market in volumes for this calendar '26 year. We might revise maybe this trend looking at the different analyst view. That said, what is weighting the most, of course, for us is the inventory depletion that is going in the right direction. Then we continue to under-ship and we are accelerating this under-shipment over the last quarters. Then from -- you remember the 2.5 million estimated inventories in 8 inches equivalent RF-SOI by our customers on September, we moved to 2.3 million. End of December, we were around 2 million. Then if we continue to under-ship between 200,000 to 300,000 wafers per quarter, we could imagine that by end of this year, calendar '26, we're going to be in the range of 1 million. We don't know if this 1 million is the right momentum and turning point, but it does correspond to the volumes of our customers' inventories before the COVID event then 5, 6 years ago. That's what we see. Then we under-shipped quite significantly since the last quarter and for the next 4 quarters to come to be sure that we're going to reach a level that is close to what we were observing 5, 6 years ago before the COVID. That's what we can tell you.

The next question comes from Emmanuel Matot from ODDO BHF.

Of course, Pierre, all the best for the future. I have 3 questions, 3 questions. First, Pierre, so this is your last publication and your last call with us. Do you think you are leaving Soitec at the low point of the cycle? Second, are you able to keep up with the strong demand for Photonics-SOI? Or are you facing any constraints in terms of industrial capacities, your suppliers? And my last question, maybe for Albin, to what extent are you hedged on the euro-dollar for the next financial year?

Then Soitec obviously is reaching step-by-step an inflection point. What is clear is that we are building a platform that is ready to rebound in the near future. It's too early to tell you exactly when it's going to come. But it's clear that the growth machine has been totally reinforced with these 5 new products today, 4 new products on top of the RF-SOI that are critical masses and many of them are growing. And for the -- for namely Photonics, I will come back on it, of course, FD-SOI and POI. And the 2 others, RF and Power are in inventory depletion mode. And of course, as we said, by end of this calendar year, we're going to have reached the pre-COVID level of inventories by our customers. And you can imagine that step by step, we're going to reach this inflection point to growing again. And what is also very important to my point of view, and we need also to think on the future beyond the quarters for which we give guidance is that we have doubled the R&D investment from around EUR 60 million to EUR 120 million today, also to prepare the future and to add new products on top of the 5 I was mentioning. And to underline what you said and what you asked on Photonics, today, Photonics is in a very dynamic momentum. We have no specific limitation. But to be sure, we organize properly our factories because, of course, we are sharing the same factories for the 200 and particularly the 300 millimeters. Then it's a matter of anticipation. But we have access to the right level of bulks. As you know, we diversified also our sources of silicon bulk in terms of quality and particularly the one able to correspond to Photonics requirements and demands. We have today more and more customers asking for Photonics and more and more in volumes, 200 and 300 millimeters. We are working on enhancing, thanks to the LNOI technology, the capabilities of our Photonics portfolio by extending the bandwidth and the capacity to reduce latency. Then now it's really a question of anticipation. It's a question of signing LTAs with some of these customers to better anticipate what's going on and to manage the allocation. But today, there is no specific limits to take the ride and to accompany a market that is growing by around 25% to 30% per year. Albin, do you have any point on the third question, please?

Yes, absolutely. It's clear that foreign exchange continues to be a significant external headwind for Soitec. And the reason for that is that we have a significant U.S. dollar exposure on our top line. So this makes us sensitive to exchange rate fluctuations. The one thing I would like to point out is that we guided for fiscal year 2026 on the EUR 1.14 per dollar and we have -- and this number has remained constant throughout the year. So we have hedged quite effectively our transactional exposure in fiscal year 2026 or fiscal year 2027, we will give you the number you should factor at the next call. Nevertheless, what I can tell you at this point is that we have hedged 70% of our exposure at 1.19 at this time. And so there is 30%, which remains to be hedged.

The next question comes from Robert Sanders from Deutsche Bank.

Most of my questions have been asked, but maybe you could just talk a bit more about the quantum of computing opportunity. It seems like a lot of the initial quantum is using a PIC and EIC. How much of those PICs are using SOI today? Look, interested that recent SkyWater deal, for example, or are you at a sort of nascent stage?

Then on quantum, of course, and this part of some press release we issued recently. It's a market we are, of course, working on. We are observing very cautiously. And SOI is bringing some capabilities very interesting for COVID generations, including, of course, low power consumption. It remains exploratory. We are working R&D mode in these areas. And for the moment, the volumes expected even midterm are quite limited as long as, of course, this technology is not spreading out massively and becoming a mass market application. We are not yet at that stage. But there are some hypothesis. It could become, of course, in gradation with binary calculation, the mass market features and the mass market application. Then we are in SOI is presenting some technological interest. We are working cooperations with some labs and a few emerging companies. But still not in our, let's say, radar screen for in a midterm point. But in the long term, we're going to see step by step. And of course, we're going to update you on the different progresses made.

Got it. And just a quick question on the loading. Maybe you said this already, but I couldn't hear it. But what is the plan for fiscal '27 from a loading point of view? Are you just going to take the hit on the profit, run down inventory on hand, which is very high still and basically in a year's time, start with a clean slate? Is that the goal? And what loading percentage are you targeting?

Then, Albin, perhaps you can maybe complement.

Yes. So as for the loading is concerned, I think one of the key action for us is to really match procurement with manufacturing with delivery with end market needs. So that's a priority for us. We've -- we're not guiding on fiscal year 2027 revenue. You understood from Pierre that we see a lot of tailwind for some of our products. You also understand from Pierre that there is still some inventories on the RF market. So from that, you can infer that our loading will remain at a level which is below normal level in fiscal year 2027 and the impact on the profitability will be pretty much the same as to what we indicated at the end of Q2. But again, what is important for us is to act sequentially. Now we are concentrating on free cash flow, working cap, our own inventories. Then at some point, we'll see revenue stabilization and before a rebound. And when we see a rebound, the loading will go up. And obviously, hopefully, where we will be in this place, profitability will go up, but in a context where we have lower G&A and the working capital, which will be closer to what we should have on our balance sheet.

The next question comes from Daniel Schafei from Citi.

Pierre, wish you also all the best in your future endeavors. I would have 2 questions or maybe I'll just start off with RF-SOI. So on the inventory digestion that you mentioned through 2027, is it fair to assume that the first half would be more on the higher end of this 200,000 to 300,000 range? Or will it be more even throughout the year? And then also just on overall goal levels, you mentioned the 1 billion -- sorry, the 1 million level that would be aspirable. Just factoring in, let's say, the midpoint, 250,000 per quarter, that puts us at 12-month high inventory levels as basically expectation. Pre-COVID, the levels at customers were roughly 6 to 9 months. I'm just wondering, was there any -- is there any reason why the aspirable goal is now higher than the previous level? Or -- yes, that would be just great to understand.

It's difficult to say. We give you points of comparisons compared to what we are experiencing and what we experienced in the past. Then the 200,000 to 300,000 per quarter is an average. Then of course, it can -- it depends on quarter after quarter. But over 1 year, we can say that deflation is around 800,000 to 1.2 million within the course of 12 months, it's an average. And that's the reason why from 2 million end of December '26 with the under-shipment we are doing right now, we should be in the range of 1 million by end of this year. The 1 million correspond to what was in the inventories customers in RF-SOI before COVID. Is it the right, let's say, turning point to see customers let's say, investing again, buying again and to see the RF-SOI business for us growing again? We don't know. It's, of course, an assumption we share with you. Will it be before? Will it be later? That's really an observation and assumptions and comparisons. We're going to see within the course of 1 year, the need for, of course, our customers. We're going to see if some also breakthrough innovation might accelerate some, let's say, investment and some requirements and ask for RF-SOI specific volumes. That's point of comparisons we give you and a trajectory. That's very important and to give you figures that are as reliable as possible. And -- but of course, we can imagine that calendar '27 should be a year of growth for RF-SOI, but we don't know exactly when.

Okay. Perfect. And then just quickly also on Edge and cloud AI. Just given now throughout the last quarter, there were a few Photonics players mentioning different targets in terms of growth, which, yes, fairly from a lower base sound more aggressive. And so I just wanted to ask, are you still comfortable with the 20% to 30% CAGR range for this business? Are you slightly more bullish? And is there a potential to come even more above this range? Or are you, let's say, comfortable with the midpoint for right now?

The term comfortable doesn't exist in our world. But are we confident? And are we, let's say, working hard to beat the growth of this market? Of course. And today, we have positioned our silicon photonic solutions everywhere we can. We have more than 5 customers today engaged in our silicon photonic solutions and more and more are coming. And each of these customers are asking for more and more volumes. Then clearly, there is a dynamic. I'm confident that this dynamic should last because the need for AI are very important. I mean, the demand for AI is higher than what the industry today can provide. And of course, we are a part of the components of this industry because the silicon photonics is today the only solution, viable solutions that is allowing, first of all, next-generation AI data centers transfer control, transform electrons into photons for high bandwidth, particularly if you move up to 1.6 giga, not only for the data centers, but tomorrow to interconnect the GPU and particularly with the co-packaged optic solutions. And on top of it, we are enhancing our photonics layers with lithium niobate, let's say, add-on that is helping the industry to move beyond the 1.6 giga -- terra. That means that we have today a plan, a clear plan and the industry have a clear plan to fuel the silicon photonics growth for the coming 4, 5 years without any doubt. And our market shares, positioning, relationships with our customers is making us confident. Now we need to, as I said to Emmanuel, to anticipate this development, this growth to prepare the industry to have enough rooms for delivering on time, on quality and even to beat the growth of this market that, as I said, is around 25% to 30% per year.

The next question comes from Sebastien Sztabowicz from Kepler Cheuvreux.

One on the competition in the SOI market. Have you seen any kind of change in the competitive landscape with new players [indiscernible] position being a little bit more aggressive? I'm thinking about the global wafer plant that is building up in the U.S. Do you see them gaining a little bit more market share in your key market? The second question is coming back to Photonics-SOI. Can you remind us a little bit the difference in terms of content between pluggable optics and Co-Packaged Optics? Is this a big step-up when we are moving to CPOs going forward?

On the overall SOI market, of course, there is -- we always say that there is competition, starting with our only licensee today with SEH. But we don't see big changes in the segment shares we are observing and particularly for us regarding the 200 and the 300 millimeters. Of course, players are claiming to have SOI solution. And some SOI solutions are not using our technology like Smart Cut. You can have also other ways to do SOI, silicon insulator, namely P-SOI that is quite well adapted for power application in the cars. But even in that domain, competition and our positioning is quite strong. Then today, we don't see segment shares significant evolution and the competition is far away from what we are doing. All the more that we continue to invest in our SOI technology. As I said, we have doubled our gross R&D investment from EUR 60 million to EUR 120 million over the last 4 years. And of course, it is fueling our advance from an innovation point of view. We are filing more and more patents every year, more and more. This year, we're going to even beat what we did last year that was quite exceptional. Then we continue to run ahead. And talking about GlobalWafer, as I just said, we have only today one licensee, only SEH because as you know, we have decided in '24 to terminate the license contract with GlobalWafer. And of course, that means that GlobalWafer is no longer authorized to use any Soitec IP in any form. And they have 2 years kind of transition time till July '27 to adapt themselves because at this time, we will be in a position, of course, to infringe them for any copy or any use of our patents and IP. Of course, it is coming years and years after they decided to build a factory in '21. And then of course, they will have to manage these huge changes for us. That's, of course, the name of the game. Then that's really the situation. If we look at the Photonics-SOI content, then if you look at the transceivers today that are used to interconnect servers to servers in the data centers are using a classical architecture that is the first architecture that is allowing to use 400, 800 up to 1.2 terra. Now the industry is looking for more bandwidth and also to reduce latency. If you want to reduce latency, you need to insert your, let's say, interconnections at the substrate level. And this is a co-package optic in some of the architectures that's going to help the boards, the graphical and processing unit boards to interconnect each other. Then the Co-Packaged Optics is really a new architecture for which we see some pull forward because it was expecting to come in '28, then '27. Then today, we have heard that some first, let's say, design going to be commercially available by end of this year, then there is a clear acceleration. And on top of it, we are developing and accelerating the development of LNOI that's going to enhance the capability of data throughput and data bandwidth. And we clearly see a very strong evolution in the architecture of the photonics, let's say, capabilities. And the transceivers are really at the beginning and we are selling a lot of wafers, particularly to serve these needs. But the next waves that are going to come will serve the Co-Packaged Optics first wave and then we're going to have some evolutions, particularly with miniaturization and concentration of this signal plus LNOI. Then of course, it is part of the 25% to 30% growth we will observe in this market for the coming 5 years. Then, of course, the volumes of wafers asked by the market going to grow more and more, but it is also part and it is translation of the Co-Packaged Optic adoption, then the evolution and the LNOI adoption at the same time. Then it's really correlated with what we see volumes versus technological evolution and new design wins.

In terms of content in millimeter square, do you have some data for pluggable than Co-Packaged Optics or this is not something that you have in mind?

We have, of course, some data, but we prefer to speak in volumes of wafers because, of course, millimeter square evolution is changing, particularly with new packaging, new 3D packaging that is also modifying a bit the way to see the, let's say, the footprint in a planner way. And of course, things are changing. It's better to think wafers volumes and type of wafers volumes. That's more accurate.

The next question comes from Oliver Wong from Bank of America.

And wishing you all the very best for your future endeavors. A couple of questions from me. First question is, I believe you said by the end of calendar '26, we'll reach -- customers will reach about 1 million wafers in inventories. I was wondering what kind of -- in terms of the smartphone growth assumptions, what are you assuming for this? Are you assuming closer to your existing sort of plus 2% smartphone unit growth? Or are you assuming closer to what some analysts are now baking in terms of a decline for this year? That will be my first question.

Yes, the impact of the growth rate is not significant. 1% correspond to a few 10,000, a few thousands of wafer. Again, talking 8 inches equivalent to be sure that it's very clear. Then the impact is quite limited. What we are really working on is to continue under-shipping to reach this 1 million that correspond to what was the case, what was the level of inventories before the COVID. Then the growth rate, whatever it is, positive or negative in, of course, a single-digit mode will have a limited impact in terms of volumes effect for us and might change for some weeks this inflection point if 1 million is an inflection point.

Got it. And then also just wondering how margins are trending for the second half of this fiscal year. You guys did around 34% EBITDA margins in the first half. Just wondering from both the gross margins and OpEx how things are trending and what we should be aware of for the second half?

Well, we don't communicate, of course, precisely on the margin evolution, but maybe Albin can give you some, let's say, trends and colors.

Absolutely. So just on gross margin, the thing to keep in mind is that there are several drivers. There is currency, there is a mix, the price and there is the loading of the fab. And the loading of the fab is by far the most potent driver of margins. So we don't guide on gross margin, but think of the fab loading as a drag on the gross margin of somewhere around 600 bps. I hope that's helpful. In addition to that, there is the foreign exchange, which should be a drag of approximately 300 bps.

And this is half-on-half?

And of course, it works both ways. When the reloading -- when fab will reload, we will see operational gearing.

Yes, particularly after the effort we made.

This concludes the question-and-answer session. I'd like to hand the program back to Pierre Barnabe for closing comments.

And thank you very much for your interest in Soitec and for the depth and quality of your questions. The next date in our agenda will be the release of our fiscal year '26 results on May 27 with Laurent after market close and a presentation held in Paris on May the 28th. In the meantime, we will be very happy to meet with you on the road and at the Mobile World Congress in Barcelona very soon. This ends our call for today. Thank you.

This concludes today's call. You may now disconnect.