Soitec SA (SOI) Earnings Call Transcript & Summary

Hello, and welcome to the Soitec H1 FY '22 Results Call. My name is Josh, and I will be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions] I'll now hand you over to your host, Paul Boudre, to begin today's conference. Thank you.

Thank you, operator, and good morning, ladies and gentlemen. Welcome to Soitec H1 '22 Results Conference. I am Paul Boudre, Soitec's CEO, and I'm very pleased to be with you today, along with Léa Alzingre, our CFO; and Steve Babureck, our Investor Relations Officer. Next slide. So we have a lot to cover today. First of all, our strong performance in H1, both at the top line and at the bottom line. Second, our business activities have accelerated in our 3 end markets. In Mobile Communications, we continue to strengthen our leadership, and we have seen the first 5G millimeter wave smartphone embedding FD-SOI products. Smart devices continue to benefit from strong market dynamics with silicon photonics, facial recognitions and edge computing. In Automotive and Industrial, we made key developments regarding silicon carbide. We announced yesterday the acquisition of NOVASIC and a joint development with Mersen on polysilicon carbide substrates. Finally, we confirm our guidance for the ongoing fiscal year 2022. Revenue expected at around $975 million, EBITDA margin around 34% with a potential upside to reach around 35%. Adjusted net cash out are related to capital expenditure confirmed at around EUR 240 million. Next slide, please. So let's start with the highlights of our first semester. Next slide. Soitec's activity continues to be supported by the long-term megatrends that underpin robust growth in the semiconductor industry and support the need for more connectivity, more energy efficiency and more intelligence. The strong ongoing 5G deployment further recovery in the automotive market and solid market trends for smart devices contributed to a record semester. Next slide, please. In H1 '22, we benefit from the triple effect of our increased activity: very strong sales, improved operating leverage and better financial performance. Our EUR 373 million revenues was up 53% at constant exchange rate. Our 36.8% EBITDA margin reflects higher operating leverage and a very strong industrial performance. And our EUR 59 million operating cash flow has been impacted by the change in working capital as we were -- as we are preparing for a very strong H2. Léa will comment on these numbers further in the financial section. Next slide, please. So we have continued to strengthen our company with recruitment effort to support our growth and further commitments to promote diversity and inclusion across Soitec. We have maintained our innovation intensity with a EUR 44 million contribution to gross R&D and 18 new patent families to support new applications. On the procurement side, we keep securing supply of raw materials and equipment, and we have benefited from favorable phasing of LTAs with suppliers on both materials' side. Next slide, please. The strong loading of our fabs was a major driver behind our strong H1 '22 performance. And we continue to ramp up across all our product lines to address the increasing demand for our differentiated products. In Bernin 3, our 150-millimeter POI substrates for [ fixtures ] are ramping up at a very fast pace, and we have installed the first tools to prepare for 200-millimeter qualification. On silicon carbide, as we are making progress towards industrializations, we have confirmed our site selections, subject to financial terms negotiation. Our 200-millimeter fabs are running at full capacity, and we have significantly improved yields on new products in Bernin 1. Finally, on 300-millimeter, we have progressed faster than expected on the Bernin 2 capacity increase from 650,000 to 700,000 wafers per year. And we have made great progress on our ramp-up in Pasir Ris. Next slide, please. In July 21, our corporate purpose was voted during our AGM. We are the innovative soul from which smart and energy-efficient electronics grow into amazing and sustainable life experiences. It materializes our ambitions to share the value we create with all our stakeholders across our value chain and beyond to a wider ecosystem. Our ambitious target on fighting climate change have been approved by the science-based targets initiative in line with the 1.5-degree C pathway. We have also increased our commitments towards developing a more diverse and increasing company. And finally, we are progressing on reporting our approach, targets and achievements to the markets, including rating agencies, with the recent publications of our fiscal year '21 sustainability report. Next slide. So this concludes the highlight of a busy and successful H1 '22 semesters. Now let's move on to our end markets. Next slide, please. On mobile communications, we are experiencing strong growth on existing products, RF-SOI for 4G and 5G smartphones. We are also progressing on the development in the adoptions of new products for 5G. POI for sub-6 gigahertz smartphone filters is ramping up well. More recently, the first smartphone, integrating FD-SOI for millimeter wave has been commercialized. Finally, we are also making progress on the development of new products for 5G infrastructures, GaN on silicon, GaN on silicon carbide. On the end market side, we confirm our assumptions for 5G smartphone units with around EUR 520 million in 2021 and around EUR 750 million in 2022. Next slide, please. So we are also benefiting from a strong rebound of the automotive market, where our products, Power-SOI and FD-SOI are getting increasing traction. We're also progressing on new developments to improve the energy efficiency of electrical vehicles and accelerated its adoptions. We are progressing towards the industry realizations of SmartSiC And we are now under evaluation with several silicon carbide device makers. Next slide, please. So over the past months, we have made significant progress towards the industrialization of our smart silicon carbide solutions. And have notably, I mean, developed a solution based on polysilicon carbide that is expected to bring even more value at system level, thanks to better energy efficiency. We are progressing on our industrialization road map now working on product evaluations with our customers worldwide. We have started to size the energy-saving allowed by SmartSiC compared to current silicon carbide technology. First numbers are around 20,000 tonnes of carbon dioxide have per 500,000 wafer produced. It will be a greener and smarter technology. Next slide, please. We continue to build up a strong silicon carbide program. First of all, the acquisition of NOVASIC adds a critical technological block to our portfolio, polishing and wafering and further differentiates our smart silicon carbide technology. Second, the JDA signed with Mersen will allow the development of polysilicon carbide substrate to optimize power and silicon carbide components through the very low electric resistivity for better energy efficiency, of course. While we have consolidated our silicon carbide offering we have also made progress on the fab decision process with the confirmation of our site selections, subject to financial terms negotiation. Next slide. So now let's move on to smart devices where we are benefiting from solid market trends. FD-SOI traction is increasing with growing appetite for low-power connectivity SoC, materialized by design wins -- sorry, by design wins on WiFi and Bluetooth. The major SOI strong demand is driven by success on high-end smartphones and solid perspective for the next years. Silicon photonics is benefiting from strong activity on data centers. Looking into the future, we are seeing an increasing number of health care applications being developed on silicon photonics. Finally, Dolphin Design has made significant progress on its IP portfolio with several design launches and the commercialization of its processing IP portfolio. In fact, we will share with you our vision for smart devices during CIS Las Vegas in January. So this concludes my remarks related to the business update. I will now leave the floor to discuss our H1 financial results. Léa?

Thanks, Paul, and hello, everyone. As Paul stated, I am happy to report that as we committed, we resumed our growth trajectory and we closed a record semester for revenue, EBITDA, gross profit and net profit. We reached EUR 373 million of revenue, representing a 53% organic growth as compared with last year and a 36.8% EBITDA margin. Our operating cash flow reflects the impact of the strong growth on our working capital. I will come back to this in the following slides. Next slide, please. We have disclosed our H1 revenue in October. So not the prior year. Let me focus on the major highlights. Over 53% growth in semester, driven by the increasing success of 300-millimeter products. Compared to H1 last year, 300-millimeter sales grew by 97%, excluding currency effects. This is a direct result of a sharp volume increase, thanks to the strong demand and thanks to our capacity expansion plans. The growth came from all our 300-millimeter products, RF-SOI, FD-SOI, imagers and photonic SOI. Regarding our 150-millimeter and 200-millimeter wafer, sales increased by 23%. We enjoy higher sales of Power-SOI products, thanks to the strong rebound in the automotive market. And in addition, we benefited from the continuous ramp-up in the production of 150-millimeter POI wafer for RF filter at our Bernin 3 facility. Finally, as usual, sales in royalties and other revenues are mainly related to Dolphin Design and Soitec Belgium. Let's talk now about profitability. Next slide, please. The group reached EUR 131 million of gross profit, which represents a 35.2% gross margin. It translates into a 4.8 points improvement over H1 last year, despite an unfavorable FX effect. Our strong growth improved the loading of our fabs and our operating leverage. On top of that, we enjoy a very good industrial performance with better end and very efficient cost control. This industrial performance is also the consequence of industrial choices we implemented some months ago as we decided to partially internalize Epitaxy and refresh capabilities. Finally, as we had anticipated, we benefited from a more favorable phasing of our long-term agreements with key bulk suppliers during the first semester. Next slide, please. Out of this EUR 131 million of gross profit I just commented, we generated EUR 75 million of current operating income which is an operating margin slightly above 20% of our revenue. We significantly invested in R&D with net R&D expenses from EUR 18 million to EUR 28 million which represents a 58% increase over H1 last year. This reflects higher labor costs due to hirings and external expenses as well as higher depreciation expenses related to both capitalized R&D and innovation tools. We increased our R&D efforts to strengthen our positioning in each of our 3 end markets, mobile communications, automotive and industrial and smart devices. To maintain leadership in SOI business, to go deeper in POI development for the next product generation, to speed up on silicon carbide, as Paul previously explained, and to continue to develop Dolphin Design portfolio. Regarding SG&A, we keep structuring our multiregional footprint to prepare for growth beyond FY '22. We contain SG&A compared to sales. In a high-growth context, the increase in our SG&A expenses was contained at plus EUR 6 million year-on-year. Employee expenses increased due to new earnings during this year and during the current period and higher employee reserve plans approved during previous fiscal year, especially with the increase of the share price. Next slide, please. At the net income level, we also improved profitability as our net profit increased from EUR 22 million in H1 last year to EUR 74 million at the end of September '21. Our net result represents 20% of our revenue. In addition to the improvement of the current operating income commented just before, we recorded a nonrecurring income of EUR 9 million that is mainly made of the reversal of the depreciation related to our Singapore plant initially booked in FY '16. Regarding our financial results, we reported a loss of nearly EUR 5 million this semester as compared to a loss of EUR 10 million last year due to an increase of financial expenses for EUR 4 million, mostly related to noncash interest following the issuance of our new convertible bonds in October '20. And the foreign insurance-related gains of EUR 3 million due to a favorable FX rate effect as compared with a net loss of EUR 6 million last year. Finally, our income tax continues to benefit from tax loss carryforwards. And in addition, we booked for the first time a deferred tax asset on tax loss carryforward in Singapore for EUR 2.5 million. Next slide, please. Let's conclude the P&L chapter with EBITDA margin, the main profitability indicator of our guidance. The EBITDA from continuing operations amounted to EUR 138 million in FY '22, up by 78% from EUR 77 million in H1 '21. Despite unfavorable currency impact and continuous efforts in R&D and SG&A, the EBITDA margin stood at 36.8% of revenue in H1 '22 compared with 30.4% in FY '21, benefiting from a strong operating leverage and a very good industrial performance. Let's look at cash and balance sheet now. Next slide, please. Overall, net operating cash generated by continuing operations went down from EUR 102 million in H1 '21 to EUR 59 million in FY '22. Let's keep in mind that we started to grow again this semester, while our revenue was flat last year, which mechanically translated into higher working capital needs. Change in working capital reached EUR 82 million during H1 '22 compared to a cash inflow of EUR 31 million recorded in H1 '21. The cash outflow from working capital regarding in H1 '22 came as a result of a EUR 37 million increase in inventories, related to the strong expansion is 200-millimeter finished goods and in POI to prepare for H2 '22 A EUR 20 million increase in trade receivables, reflecting the growth of the activity. A EUR 19 million increase in other receivables, mainly research tax credits and tax receivables and a EUR 7 million decrease in trade payables and other liabilities, mainly related to the payment of social contribution on employee shareholding plans. And we paid lower tax than last year due to tax reimbursement and lower tax down payments expected in FY '22. Cash out from investing activities reached EUR 103 million as compared with EUR 48 million last year. Capital expenditure was mainly related to capacity investments carried out, both in Singapore for 300-millimeter SOI wafer production and in Bernin 3 for 150-millimeter POI wafer production. They also include investments in our end. Next slide, please. We moved from a cash position of EUR 634 million at the end of March '21 to EUR 590 million cash position at the end of September '21 due to negative EUR 44 million free cash flow as CapEx outpaced operating flows during this first semester. And we did not book any new financing during the period, so the financing outflows are related to loan reimbursements. Next slide, please. Our balance sheet remained very strong in H1 with a EUR 590 million cash position at the end of the period. On the debt side, we ended this half year with a total gross debt of EUR 637 million. The impact of our 23 convertible bond conversion is minimal in H1, EUR 12 million, as conversion requests from bondholders essentially came after the end of this first semester. The H2 impact will be more significant as it would reduce our gross debt by EUR 130 million. Noncurrent assets are driven by CapEx. Current assets and liabilities driven by seasonality effects versus March 21 and [ by the ] activity increase. Next slide, please. Finally, a few KPIs to underline the strength of our balance sheet. All in all, we reinforced our balance sheet structure during this semester. Equity is up EUR 90 million, benefiting from the conversion of the OCEANE '23 for EUR 12 million and from the result of the period. Net debt increased from EUR 4 million to EUR 47 million due to the cash used to invest in CapEx during the period. On this note, I will leave the floor to Paul to comment our outlook.

Thank you, Léa. Now let me conclude our prepared remarks by sharing with you some forward-looking statements. Next slide. So -- As we announced in October, we expect fiscal year '22 sales to reach around $975 million. It represents an annual growth of around 45% at constant exchange rates. Organic growth will continue to be driven by all 3 end markets: ongoing 5G deployment, further recovery of automotive market, sustained market trends for smart devices. We will be able to capture part of this very strong demand, thanks to our very strong operational performance as we demonstrated in H1. So thanks to higher operating leverage, driven by a robust level of activity and a strong industrial performance, we expect fiscal year '22 EBITDA margin to reach around 34% with the potential upside to reach around 35%. We will continue to benefit from the full loading of Bernin 1 and Bernin 2 industrial facilities, higher output at Bernin 3 and an increased loading of Singapore plant. We will have some headwinds in H2 compared to H1, such as raw material and energy costs as well as the phasing of FX hedging contracts. Finally, we confirm our adjusted net cash flow -- sorry, net cash out related to capital expenditure at around EUR 240 million as we invest in our capacity to support Singapore ramp-up in 300-millimeter SOI and the capacity increase in 150-millimeter at Bernin 3 for POI products. So this concludes our presentations today. I am sure you have plenty of questions, so let's jump straight into our Q&A.

[Operator Instructions] And our first question comes from the line of David O'Connor from BNP Paribas.

Paul, maybe firstly, on the EBITDA margin. H2 implied below H1, yet you're raising the full year. Can you just talk around the margin headwinds that you're facing in the second half of the fiscal year? And maybe if you can rank them as well, please? And I have a follow-up on the SIC business.

So I will probably let Léa give you a little bit more color on this.

Thank you, Paul. Yes, let's go back to the margin dynamic. So in H2, we expect slight increase in gross profit versus H1. The operating leverage will offset the headwinds such as energy costs and bulk price. But part of this improvement will be related to non-EBITDA items such as better absorption of depreciation expenses and the share-based payments. And on the other hand, the EBITDA in H2 will also be impacted by the level of R&D and SG&A expenses with a catch-up effect from H1 to H2. That's why, yes, you are right, we are expecting H2 EBITDA margin below H1 EBITDA margin.

And maybe for my follow-up, Paul, it seems like on the SmartSiC strategy, there's -- some of the building blocks are falling into place now. But just curious, with no customers yet announced, why did you partner or why do you buy NOVASIC versus just partnering with them? And just if you could also talk the last milestones that remain on your -- before SmartSiC is adopted.

Yes, thank you. In fact, it is clear that the acquisition of NOVASIC is strengthening our expertise in the wafering of silicon carbide. And we are in the process, obviously, underway to prepare our industrializations. So it's a very unique and very important process block in our activity, and we have been working with NOVASIC for a long time now on this. So basically, regarding the building blocks, as you can see, I mean, with -- including the Mersen partnership -- strategic partnership that we have now in place, it is clear that the overall smart silicon carbide technology is clearly under our -- and we own it, right? I mean we can really develop at the speed we want. What is very true now is that we have, basically, multiple customers engaged in the evaluations across all regions. We have wafers running in -- manufacturing in their device manufacturing fabs. And we have, obviously, qualifications, evaluation plans ongoing.

[Operator Instructions] Our next question comes from the line of Sébastien from Kepler Cheuvreux.

Coming back to your SIC substrate sourcing strategy, Are you going to focus only on polySiC with Mersen for your sourcing? Or are you going also to work with other suppliers and notably on basic silicon carbide substrates? And also attached to that, could you remind us a little bit the key benefit of polySiC versus traditional SIC wafers in terms of number? What is improving in terms of efficiency and so on: And more on the business side, could you comment or elaborate a little bit on the trends on business in the start of the quarter and moving into the next fiscal year? What kind of visibility do you have? And what should we expect in terms of organic growth development for the fiscal year 2023?

Okay so basically, the strategic partnership with Mersen on polysilicon carbide is not exclusive, meaning that we have also the ability to work with other polysilicon carbide providers. We will focus on the product that we are bringing to market on silicon carbide on polysilicon carbide. Why? Because it's really bringing the differentiations at the device level and at the manufacturing level for -- in terms of die size basically, I mean, die size, but also yield and also the overall reusability of the top silicon carbide. So we see multiple, multiple, at the device level, advantages for polysilicon carbide. But at the system level, we continue to confirm the -- basically the extensions of the value of silicon carbide as substrate. So we continue to get, due to the low resistivity of polysilicon carbide, we continue to get more kilometers out of the same battery in a way, right? So that's basically the reason why we will focus on this technology only.

And on the business trends right now and moving into the next fiscal year, how do you see the business developing visibility?

So on the business, I mean, as we told you during our Capital Market Day, we were forecasting the first sales on silicon carbide at -- in Q4 fiscal year '23. Again, we're not talking about significant, but we are going to get into the market. And obviously, starting fiscal year '24, starting the ramp. And that's the reason why we are absolutely, I mean, at the right confidence level to, not only make the acquisitions and the partnership we are talking today, but also to continue to move ahead with our site selections and industrialization process. So in fiscal year '26, we continue to plan for high single digit of the $2 billion, sorry, that we have planned for the -- during our CMD.

And 1 last question, if I may, on silicon carbide. How do you see in the addressable market? I don't know, 5, 10 years out for this kind of fixed up rates.

It's -- I mean, obviously, there is still a lot of expectations on this market, but clearly, on the fiscal year '26, fiscal year '30 horizon, we are talking about several hundred million market for Soitec, that's for sure.

Our next question comes from the line of Varun from JPMorgan.

This is Varun from JPMorgan. Firstly, just on EBITDA margin, did you quantify the impact from favorable phasing of bulk silicon LTAs to your first half margin? I just want to get some clarification on that. And then secondly, if you take the second half '22 EBITDA margin as a baseline, and I know that you're not providing guidance for fiscal year '23 just yet, but just taking to H '22 as a baseline. And given that you will likely start the construction of your new silicon carbide facility in fiscal year '23, should we expect a margin dip in fiscal year '23 compared to fiscal year '22? And then just another point on the overall demand environment, there are some concerns that we may see a broad-based slowdown in the smartphone market. So just want to hear from you, what are you hearing from your customers at this point in terms of their buying behavior, in terms of inventory of your products in the channel? Some clarification on that would be helpful. And then finally, on the millimeter wave smartphone announcement today, is the FD-SOI content in the commercialized device in line with what you had expected?

Okay, Varun, lots of questions on your side.

I apologize for that. I apologize for that one. I appreciate your answers.

We will take them one by one. First, on the profitability, let's go back with Léa.

Okay. So the first question regarding profitability was regarding the driver for the H1 versus last year. So yes, we'll not give this level of details regarding bulk part in the gross margin improvement. But it is a significant effect on the improvement between H1 '21 EBITDA margin and H1 '22. On the perspective for FY '23, yes, as you said, it's too early to give guidance. But yes, we are driving the company for this 34% to be a floor in the future, 34% EBITDA margin to be a floor in the future.

Thanks, Léa. And moving to Paul for the millimeter wave questions.

Yes, and the smartphone trends maybe first. I mean, clearly, we -- I mean, we are very solid on our 520 million smartphones and 5G smartphones. And we see that clearly as part of solid numbers. In terms of millimeter wave, I mean we are extremely pleased, by the way, to get this, [ piece by piece ], smartphones on the shelf, including our FD-SOI as part of the millimeter wave solutions. I mean, it is coming a little bit even earlier as we were expecting, and this is great news. I mean there is a report produced by [ Yole ] on this, and I just advise you to go and read it. This is great. So in terms of what we can see on this, I mean, this is a Samsung 28-nanometer FD-SOI devices that you get into these phones. And the first information we are getting is showing that the overall, I mean, I mean millimeter square that we see on these phones is in -- roughly in line with our expectations. So great news and very, very solid driver on this. Obviously, millimeter wave will be also RF-SOI. So as I said from the beginning, you will have 2 types of architectures in the phones, 1 with RF-SOI, the other one with FD-SOI in the future. Regarding trends and inventory, I mean, very, very -- I mean we are monitoring and clearly, there is no warning in the inventory. I mean, as -- if we can ship more, we could sell more.

Our next question comes from the line of Didier from Bank of America.

I've got a couple of questions. First, can you maybe just give us a sense of your assumption of raw wafer prices for the second half? Maybe the sort of delta in the first half, so to better understand what are the headwinds. And the second bit, I just wondered on your EBITDA margin guide for fiscal year -- for the full fiscal year, when you say north of 35%. Presumably, that's including the one-off gain in the first half. Just wanted to clarify that. And I've got a quick follow-up on silicon carbide.

Just maybe to reiterate the messages on EBITDA margin, first with the -- on the dynamic and the headwinds we see for H2.

The headwinds we are seeing for H2 are mainly, as we explained, the bulk price as compared to H1. And the energy cost and the phasing of our FX contracts. We are hedged for the full year, but our hedging contract during H2 will be less favorable than the one during H1. We'll not go into the details of the bulk price for sure, but we anticipated -- we know we'll have an increase of the bulk price for the second half. Maybe, Paul, you do -- you want to comment?

Yes, maybe just to add, I mean, this is clearly -- when you talk about -- and we talk about it already. I mean we know that our ongoing supply chain in bulk silicon is in terms of pricing on our new contracts is going up. And we also say that we have also increased our wafer pricing. And what it is right now, I mean, all our wafer pricing, new pricing will happen in the new contract, and this is also a phase-in of these contracts. So in our H2, we have a phase-in on our bulk prices and also a phasing that is probably a little bit delayed compared to the phase-in of the bulk pricing to basically explain what Léa is saying. So there is, I will say, 1 quarter discrepancy on all this, but this is what we have to pay for.

On EBITDA margin, does that include the one-off gain in the first half?

So the one-off gain of what, sorry?

The full year, the margin guidance, I think you said 34% and potentially up to 35% presumably taking into account what you reported for the first half, which was a small one-off gain in there?

Yes.

Okay. And on silicon carbide, I just wondered, I think you've addressed a lot of the points already, but maybe, Paul, if you wanted to just qualify a little bit the nature of your engagement. Is it with Tier 1 chip makers? Or is it with automotive OEMs or Tier 1s? And I'm thinking specifically about one of the leaders in power semiconductors that does not have, if you want, internal silicon carbide substrate, whether you've sort of had conversation with them and whether that could justify the current acquisitions you made.

Yes, we -- I mean, clearly, with the innovations that we are going to bring to the market, you can think that we are talking to all Tier 1s around the world and we are also talking to carmakers because clearly, what we are interested in is to understand the carmakers, road maps and the problem they are trying to fix. So we want to stay tuned with carmakers in terms of the objectives they have, and we clearly work with all the Tier 1 device makers to make sure that our specifications comply with their manufacturing and devices specifications. So clearly, we are talking to the full ecosystems.

And Didier, just to go back on the one-off item comment that you mentioned...

Did you refer to the reversal of the Singapore improved -- Singapore building? That was a one-off effect we were mentioning.

Yes.

So no, it's not included in the EBITDA margin as this is depreciation, so noncash item. So it's not -- it does not improve the EBITDA. That's neutral on EBITDA.

Our next question comes from the line of Ken Rumph from Jefferies.

Firstly, a question on the JDA with Mersen, just to try and understand the nature of that. It's basically a supply and technical cooperation agreement. Is there an anticipated kind of financial impact in terms of shared commitments on research or development? I'm just trying to understand exactly what it is beyond kind of cooperating on supply of polysilicon -- polySiC. Second, a couple of questions. One for Léa, I guess, is just the sort of the shape of hedging going -- FX hedging going forward into next year, how far it's gone and at what kind of level? And kind of a related question, but I guess more for Paul, on the kind of length and general trend in, crucially, the kind of extent of your long-term agreements on bulk supply. What's the kind of runway that we have forward and, we understand, the trend, obviously, in prices?

Okay, so on the Mersen questions first. I mean, this is a strategic JDA to develop a new range of polysilicon carbide substrate for the EV market. So basically, I mean, we are developing together this raw material, raw polysilicon material that Mersen will sell to us. As you know, I mean, the impact of this material is very low resistivity for more efficient components. It will improve our 200-millimeter scalability as well in terms of technology and cost of ownership perspective. Polysilicon carbide is obviously compatible with smartcard technology and which is critical, but also customer spec. Polysilicon carbide substrates will enable higher energy efficiency, basically fostering the development for -- of more energy-efficient electrical vehicles. So we have that here, a joint development where, at the end, Mersen is selling raw materials that we will be polishing and wafering internally at Soitec. It's obviously a very important partnership, but as you understand, we have also the right to buy polysilicon carbide, too, from others.

The next question was regarding the -- our hedging contract. So for FY '22, we have a fully hedged rate around 1.20. And for FY '23, we are partially hedged.

And the last question regarding bulk supply LTA.

The bulk supply LTA, I mean, we are basically arranging, between 2 to 4 years, LTAs in terms of what we are closing in -- with our suppliers. So 2 to 4 years is the range that we have today.

[Operator Instructions] We do have a question on the line from Robert Sanders from Deutsche Bank.

I just had 2 questions. The first one on silicon carbide, It looks like you have 2 decent lead customers on the semiconductor side now. I was just wondering when the kind of go/no-go was from their point of view, or to put it another way, I assume they're kind of doing a dual-track process. But obviously, they will, hopefully for you guys, going to move to a sort of single track. So I was just wondering when that moment is, you think, when they will fully commit to go with you guys. And I have a follow-up.

Yes, we -- I mean, as I said, Rob, I mean we are introducing a technology that is compatible with the existing platform and that our customers around the world are working on. So this is a benefit for Soitec because obviously, our technology and product introductions will come smoothly. And as we grow our capability and capacity. I mean, obviously, customers will engage at the speed of this capacity that we will build for sure. So there is -- I don't see it like this. I don't see it as a go/no-go. I see it as a progressive and very solid adoptions in the next 3 years.

And just on the GF side, obviously, they've done their IPO, they've got a lot of investor interest. And obviously, that's firmed up their CapEx plans. I was just wondering has that affected that whole process and the fact that they now can access the public markets? Do you think that's going to affect your prospects with your largest customer?

Yes, no change. I mean we clearly have a very strong visibility on what our customers are doing over the next 2 to 3 years. And obviously, I mean, we are extremely pleased to see a good start of GF in this open market. And clearly, you can read from what they said yesterday that they are very, very optimistic, and we are too. So what is important for us is that all the foundries around the world continue to increase their capacity. As we know that this is also part of the limiting factors for the entire industry. So we will -- we are in sync with GF as we are with all the other ones. And obviously, what GF is reporting is clearly a very positive message.

So we have no further questions in the queue, so I'll hand you back over to the speakers.

Okay. Thank you very much, everyone. Thank you for attending this call today. We'll be on the road today with a few of you, and we'll be happy to take your questions. So thank you very much. Next event in Q3 in January.

Thank you all, and we hope to talk to you very soon. And for some of you, we may see you during the day.

Thank you very much for joining today's call. You may now disconnect your handsets. Hosts, please stay on the line.