Soitec SA (SOI) Earnings Call Transcript & Summary

Hello, and welcome to the Soitec Full Year 2022 Q4 sales. Please note, this conference is being recorded. [Operator Instructions] I will now hand over to your host, Paul Boudre, CEO, to begin today's conference. Thank you.

Thank you, operator, and welcome to Soitec's conference call dedicated to the publications of the fourth quarter revenue of our fiscal year 2022. This is the quarter covering the period from the first of January to the end of March 2022. I am Paul Boudre. I'm Soitec's CEO. Together with me on this call are Léa Alzingre, our CFO; and Steve Babureck, our SVP, Strategy. As usual, we will briefly comment on our sales performance. And after that, we will open the floor to questions. So thanks to a very strong Q4, we finished our fiscal year '22 above our guidance. I'm very pleased to say that thanks to our strong industrial performance. We generated a full year revenue of more than $1 billion for the very first time, slightly above our guidance of around $975 million. Thanks notably to our record Q4. We are reporting to the full year '22 revenue of EUR 863 million, up 50% growth at constant exchange rates. Our full year revenue is obviously an all-time high and another key milestone in Soitec's growth trajectory. Since we repositioned the group on Electronics in fiscal year '16, we have increased our revenue by almost 4x. Looking now more specifically into Q4 performance, we achieved EUR 282 million in revenue. That is to say the highest quarter in Soitec's history. Q4 revenue was up 56% on a reported basis versus Q4 last year. We had a slight positive currency impact of plus 3%. At constant exchange rates, Q4 growth stood at plus 53%. But this is also representing a strong 35% sequential growth, excluding currency impact over Q3 '22. Sequential growth was mostly driven by 300-millimeter sales, which went up by 50% over Q3 '22. So this is our seventh consecutive quarter of sequential organic growth since the low point achieved in Q1 '21 at the beginning of the COVID-19 crisis. So let's now take a look at the drivers behind this strong performance. We continue to enjoy a strong traction across our 3 end markets. Mobile communications remains our largest end market and the key driver of our performance. Our revenue growth continues to be boosted by the deployment of 5G. And as you know, the transition towards 5G is translating into increase in Soitec's products content in every smartphone. So this is supporting our RF-SOI, POI and the FD-SOI products. We also continue to benefit from a sustained level of activity in the automotive industry, which is positive for both our Power-SOI and FD-SOI products. Finally, our revenue in smart devices also increased, driven by higher sales in FD-SOI and Photonics-SOI wafers. So to match this strong customer demand, we have been able to further increase our production output. While our facilities in Bernin I and Simgui dedicated to 200-millimeter SOI wafers and Bernin II dedicated to 300-millimeter SOI wafers continue to operate at full capacity. These facilities achieved a very strong industrial performance in Q4, allowing to produce more wafers than expected. In the meantime, we enjoyed a good ramp-up in production in Bernin III dedicated to 150-millimeter POI wafers and in Singapore for 300-millimeter SOI wafers, where we have been progressively adding new capacity over the past few years. So looking now in more detail at our Q4 revenue by type of products. Sales of 150/200-millimeter wafers reached EUR 94 million. Compared to Q4 last year, this is an increase of 25% excluding currency impact. Revenue growth was mostly driven by higher volumes but also by a positive price/mix effect. Sales of RF-SOI 200-millimeter and Photonics were much higher than in Q4 last year. In addition, we increased the 150-millimeter POI wafer sales driven by a demand for RF filters requiring for -- required for 4G and 5G smartphones. If we now look at our 300-millimeter business, we recorded sales of EUR 175 million in Q4 '22. This represents a very sharp 81% increase, excluding currency effect compared to Q4 '21. This comes as a result of the strong volume increase in Singapore and obviously, thanks to the increase in capacity; a higher output in Bernin II, thanks to a good industrial performance and a positive price/mix effect. The level of RF-SOI 300-millimeter sales continue to grow very fast. Thanks to our strong leadership in RF applications for front-end modules, we continue to benefit from the market opportunity driven by 5G. We also achieved another strong quarter with FD-SOI. The FD-SOI technology is expanding across our 3 end markets, i.e., smart devices, automotive and industrials as well as mobile communication. Sales of Imager-SOI for 3D sensing applications were also at a higher level than in Q4 '21. Finally, sales of Photonics-SOI for data centers were much higher than in Q4 '21, confirming the solid trend that we have achieved over the past few quarters. To complete the review of our sales revenue from royalties and other revenues went up also from EUR 12 million in Q4 '21 to EUR 13 million in Q4 '22. As already mentioned in my introduction, this record level in Q4 brings our full year '22 revenue to EUR 863 million above the $1 billion mark which is also an all-time record in Soitec's history. Full year '22 revenue was up 48% on a reported basis or up 50% at constant exchange rates compared to fiscal year '21. 150/200-millimeter wafer sales were up 26% at constant exchange rates. 300-millimeter wafer sales were up by 79%, also at constant exchange rate. So on the back of this strong performance, we are now aiming for the top end of our EBITDA guidance for fiscal year '22. Our previous guidance was to reach around 34%, with the potential upside to reach 35%. Thanks in particular to the higher revenue level in Q4 '22, fiscal year '22 EBITDA margin is now expected around 35.5%. We also anticipate fiscal year '23 revenue up around 20% at constant exchange rates and perimeter and our EBITDA margin at least at the level of fiscal year '22 EBITDA margin. So regarding our financial model for fiscal year '26, we are now anticipating significant growth on each of our 3 end markets, and we are managing our business to reach a revenue target around $2.3 billion and an EBITDA margin targets around 40% at 1.20 euros/U.S. dollar exchange rate. Just to remind everyone, this is compared to a revenue of 2 billion with high case around 2.4 billion and to a 35% EBITDA margin communicating during the Capital Market Day in June '21. So we will obviously share more details after the disclosure of our fiscal year '22 results on June 8. So let me now highlight a few key events which took place since our last call in January. On March 11, we announced the launch of a new fabrication facility in Bernin. Bernin IV will allow us to expand our manufacturing footprint with [ RF ] 300-millimeter SOI capacity and the ability to produce SmartSiC engineered wafers. As you know, we have developed these SmartSiC wafers at the Substrate Innovation Center located at CEA-Leti in Grenoble and we have already been supplying customers with samples produced by our pilot line. As the electronic chips built on SmartSiC wafers offer compelling performance and energy efficiency gains to power supply System, our SmartSiC wafers are addressing the key challenges of the electric vehicle and industrial markets. The new facility could lead to the creation of up to 400 direct new jobs. We target to generate first revenue in the second half of calendar year '23. By fiscal year '26, we expect the capacity of up to 500,000 wafer per year, with SmartSiC contributing to around 10% of our fiscal year '26 revenue. The groundbreaking ceremony took place on March 31 and the constructions of the fab is running as planned. On April 5, a fire broke out at an electricity supply in facility outside of our site in Bernin leading to the power outage of our production plants. Safety protocols were immediately activated to protect people, equipment while waiting for the restoration of the power supply. Our plants were progressively back in operation as of April 5, in the evening, and the production went fully back to normal on April 9. So we expect this power outage to have only a very limited impact on our fiscal year '23 and financial performance and it is included in our fiscal year '23 guidance. Finally, on April 8, we joined forces with other leading semiconductor players to announce the new collaboration designed to define the industry's next-generation road map for FD-SOI technology. These other players include CEA, GLOBALFOUNDRIES and ST Microelectronics. Semiconductors and FD-SOI innovations are of strategic value to France and the EU as well as to customers globally. FD-SOI offers a substantial benefit for designers and customer systems, including lower power consumption as well as easier integration of additional features such as connectivity and security. This is obviously key for automotive, IoT and mobile applications. So this now ends our opening remarks. We are now ready to take your questions.

The first question comes from the line of Aleksander Peterc of Societe Generale.

Congratulations on your again strong report here. I would just like to have a little bit more color on your side. I know we get a full detail at the June event, but if you could just give us the key drivers for your fiscal '26 guidance upgraded, it's quite substantial, both at the revenue and margin level. So what has changed that made you think that these high numbers are now achievable? Which are the key end markets? And what's going on in margin terms for you to be so much more confident at this stage? And then I have a quick follow-up.

Yes. And clearly, obviously, we will get the full details to you guys in June. But from the top, I mean, I will say that our sales are boosted on the 3 markets with basically higher ASPs, better product mix and I will say also new generations of products. And that's really being the drivers on the 3 end markets. On the EBITDA margin, clearly, we are a big focus on our cost control. We have learned a lot over the last -- past 2 years, and you see our improvement quarter after quarter and year after year. So this will continue. So cost control is continuing to drive our operational performance, financials as well, and operating leverage are the 2 contributors for EBITDA margin.

Okay. And then just as a quick follow-up really, you're guiding for next year's constant currency growth of around 20%, if I'm not mistaken. And if I look at the implied compound annual growth rate between your reported '22 number to the '26 $2.2 billion, I derive 22% growth per year. So if you get 20% next year, that means there's going to be an acceleration thereafter. Is that how we should think about you getting to this $2.2 billion?

Yes, it is roughly -- I mean, I will say that it is roughly around 20% as we see it in a linear basis, yes.

The next question comes from the line of Varun Rajwanshi of JPMorgan.

Paul, first question on near-term demand. We are picking up some early signs of demand weakness, particularly from regions such as China. And also, 5G smartphone shipment expectations have recently been sort of downgraded, so to speak, from 750 million units closer to 700 million units today. So Paul, based on your discussions with your end customers, are you picking up any signs of demand weakness? I mean given your upstream position in the supply chain, you may be slightly -- you may pick up signs of demand weakness probably later than some of the other companies. But just based on your discussions with end customers, some color on that would be helpful. And on fiscal year '23 itself, can you outline your growth expectations by different product lines? Some qualitative color here will be useful.

Yes. Maybe on the last questions, I would like to invite you to come to the June meeting because I think this is where we would like to share with you a lot more on what we can really do today. But looking back at your first question, clearly, I told you over the last quarters that on -- specifically on smartphones and for us what is driving our business which is clearly communications and RF, so basically we continue to see very healthy inventories and no sign of clearly slowdown today. That's for sure. I mean, we -- one of the reason is that, as you probably know, we are extremely close to the -- our end users and -- but also we have a global view on the supply chain. What we started with is -- clearly for calendar year '22, we started with low single-digit growth. And from the very beginning, our 5G phones that we were planning to build for the year is very close to the 750 million 5G smartphones, which could be between the 730 million to 750 million. Now what we have seen and what we are seeing today is there is clearly a shift on premium smartphones. And we see it because it's driving us to higher footprint into the phone. So we understand the dynamic of reported in Q1. We were cautious on the overall market from the beginning in our models and in our -- what we were planning to build for this year. I think that now the industry comes to our numbers, so pretty close to our numbers. And we -- the benefit that we see, there is 2. One is clearly, as I said, the shift on the premium smartphone driving us, and you know that our growth is based on content as well. And so that's driving us to higher content. The other signal I will say is that we could have a trend to a healthier inventory level because we -- across the food chain, we were very, very tight. And clearly, I think that now the industry is driving from more crisis situations to adjust in time situations. And so we do not see any major slowdown or whatever situations.

Paul, if I can just squeeze one follow-up. You mentioned a sharp increase in revenue from smart devices and also from Photonics-SOI. Can you just remind us of the level of sales that -- for your Photonics-SOI product line? And is there any commercial update on FD-SOI for smart devices?

Yes. On -- clearly, on smart devices and FD-SOI, I mean, it has been a very strong trend over the -- again, over the last quarters, confirmed by last -- our Q4. You know that for FD-SOI, the platform is to integrate -- it's a platform to integrate different functions on the same day. Clearly, edge computing is one of the key applications that we see. We integrate on this a lot of the applications, and it's a great value for our customers when used as an ecosystem. I mean you see it. I mean I can give you a couple of examples. I mean you see it in iMX for NXP, I mean, Microsoft with the cloud secure options that uses also NXP solutions. You have Lenovo, I mean the X1 laptops will be using Lattice FPGA. So this is clearly, I mean, now confirming that the position of FD-SOI on smart devices, including obviously what we started with IoT. The good news for FD-SOI also, I mean, as reported last quarter, was also the penetrations of this platform into 5G millimeter wave. You have seen that now. Clearly, the Samsung platform, Google Pixel -- Pixel 6, sorry, is now clearly built on our FD-SOI platform. But as a new applications, I mean, we are seeing also coming everything around SatCom all these satellite communications that will be growing in the next years. Sorry, I didn't really complete with Imager and Photonics, yes. So clearly, I mean, Photonics is stable and in line with our visions. We are obviously pursuing the promotion of Silicon Photonics towards the ecosystem. We -- and that's the very good news. We are engaging our qualifications with new foundries across -- around the world. And clearly, what we -- what you can read on Silicon Photonics tractions, I mean, clearly, it's going to be among main digital companies design, demonstrators are being built around the world. So we continue to believe that biosensors will be one of the key drivers for photonics applications in the coming quarters, months and years.

The next question comes from the line of Didier Scemama, Bank of America.

Two quick ones. I think you tried to answer the question, but it's not clear in my mind. So I just wanted to know, in your guidance for fiscal year '23, what's your assumption for 5G unit growth for smartphones? And second, on the wafer supply and demand environment, I mean, do you see any improvement or any signs of improving supply, either this year or in -- either this quarter or in the second half of this year?

Yes. So let me clear. I mean, what we said a couple of quarters ago regarding the number of 5G smartphones, I mean our model has been and still is 750 million units for 5G smartphones. What I just added in my comment today is that we see and continue to see and foresee for the next quarters and for the year a shift on the high-end phones. And by high-end phones, I mean I'm talking about phones that are more than $400 on the market. That's what we classified here at Soitec high-end phones. Sorry, the second question was...

Just on the wafer -- silicon wafer market supply and demand environment. Just give us a sense of your level of comfort on the supply in the second half.

Yes. We -- as you know, I mean, we are really triggering long-term contract and LTAs with all our suppliers. So bulk wafer prices are up, I will say single digit versus fiscal year '21 on average. Calendar year '23, 300-millimeter bulk prices expected to be up more than 10%. And obviously, this is part of our guidance as well.

The next question comes from the line of Sébastien Sztabowicz of Kepler.

One on the guidance for fiscal year '23 because we are seeing a little bit of a macro environment. What kind of visibility you have for the coming quarters for the fiscal year 2023? And do you have any kind of visibility even beyond fiscal year 2023? This would be the first question. The second one is on the ramp of POI. How many customers are you preparing right now with your POI product? And have you been able to qualify or made any progress in the qualification of any additional RF customers for RF filter with POI?

Yes. So back to our visibility in fiscal year '23. I mean we have a very strong visibility because our fiscal year is good by all contracts. So we -- we understand exactly what we have to do. This is a year that is fully committed. And clearly, if we can build lot more during this fiscal year, we could sell more, okay? So this is clearly one of the key elements. And visibility, I mean, goes beyond fiscal year '23 for us because for many customers now we are getting into multiyear contracts. You know that we have to build extra capacity to deliver the demand. So forced to build capacity. We have also commitment, engagement with our customers that gives us now confidence of the long-term contract that we have with them. So visibility is very, very strong and commitments are clearly on the table and we are in the execution phase for fiscal year '23. There is not much that we can say on top of that. On POI, I mean, I would say that major [ RF filters ] customers qualifications continue in Europe, Asia and in the U.S. We are, I mean, clearly progressing step by step because getting from evaluations to qualifications takes -- there is a lead time into this process, because our end customers, they have to tune their product, getting the product to get into the phones. And so we developed several products basically today to address all bands, I mean, the low, the mid, high band for filters.

And one question on the CapEx front, if I can follow on this one. You have slightly updated your sales target for the coming years and probably for fiscal year 2026. Do you expect to change a little bit your CapEx ambition for the coming years? Or you are still maintaining the plans that have been unveiled a year ago?

If you could be a little bit patient, I think that we could give you a great lot of details on this in June, okay? But clearly, this is a very good question. Keep it for Lea in June, she will be happy to answer.

Next question comes from Jerome Ramel with BNP Paribas.

Congratulations. So finally back to the -- beyond the ladder target from 2017 despite everything you went through. So first question concerning the smartphone business. Could you update us on your thoughts on the penetration of millimeter wave going forward? And also on the FD-SOI traction, specifically for smartphone, beyond the envelope tracking, what kind of opportunities do you see for FD-SOI in smartphone?

Yes. So for FD-SOI in smartphone, clearly the target is the millimeter wave applications, and you have seen the applications that we are targeting on the Google Pixel 6. This is the first smartphone integrating FD-SOI millimeter wave and being commercialized. What we are looking at is the fully integrated 5G millimeter wave module, which means LNA, PA, switches and transceiver. And the driver is really energy efficiency. There are many design activities underway. I think that FD-SOI 4-millimeter wave could be sold as an ecosystem platform for these applications. So we continue, as I told you, I mean in the past, to see the 2 road map, depending on customers, some will be on RF-SOI and the other one will be on FD-SOI for this block piece -- millimeter wave blocks. What we see in terms of penetrations for millimeter wave, we see 10% to 15% millimeter wave penetrations. And for -- that's what we are planning for, for this year. Still a low level in terms of percentage. And clearly, I mean, maybe to add to it, the inflection point will be driven by China and China take off for millimeter-wave. you remember, I told you that we could see it later in 2023, but I think takeoff in China could be more 2023 to 2024 today.

Okay. And maybe just a follow-up. You gave the guidance assuming your euro/dollar at 1.20 despite it's currently at almost [ 1.06 ]. Any chance you could take the opportunity of a weaker euros in the coming quarter for your hedging?

And I will give the floor to Lea for that answer, yes.

Yes. So for FY '23, as we said before, we are almost hedged now and our hedging is around 1.18. So we don't anticipate any positive effect of the FX rate next year.

[Operator Instructions] Next question comes from the line of Robert Sanders of Deutsche Bank.

I just wanted to check in on your market share assumptions. I think historically, it was around 70%-ish. I just want to understand what you are were anticipating going forward as you look out to fiscal '26? And I have a couple of follow-ups.

Yes. I mean we have basically a model that continued to give us this type of level in terms of market share. And for -- obviously, I mean, you know that an average market share means a lot. But for us, we continue to see it slightly going up in the future. Why? Because you know that our technology leadership gives us access to first markets. And within the couple of years of first applications, we are the drivers, I mean, for this. So we are benefiting from a lot of our innovations in our market share positioning and this will continue with new product coming in the market.

Great. And sorry, I wasn't able to make it to the Bernin visit, but this would have been my question, which would have been on SmartSiC, how many Tier 1s do you expect will be ramping a SmartSiC in volume by the 2026 time line? And then I have one last follow-up after that.

Yes. So it's interesting because we are bringing these innovations to SmartSiC. And I told you we are clearly now evaluating and developing and qualifying our technology with key partners around the world. So today, I'm very pleased to report that basically there is a lot of -- a lot of work being done in Europe, in U.S. and in Asia. And basically, we are touching the key major potential partners. And hopefully, they will become customers soon. So it's a big ambition that we have with this platform, with this technology. We continue to see the value that we bring to the industry. So we are extremely pleased to where we stand and happy to see the tractions that we bring to the market right now.

Got it. And then the last question would just be if you could just update us around the European Chips Act. I mean, there was some more press in February, an additional EUR 15 billion on top of the EUR 30 billion. I mean, I guess, if I was Thierry Breton, I would look up why European differentiates on an FD-SOI would be a big part of that. I was just wondering how you think about potential subsidies to offset your potentially higher CapEx now that you've got a higher growth outlook and how that could come into the P&L as we look forward.

Yes. It's probably a bit early to say too much on this, but you have seen our announcement with CEA, GLOBALFOUNDRIES and ST Micro driving the FD-SOI platform down to basically next generations of products over the next couple of years. There is really a major focus of the Chip Act to give access to players around this platform and this technology and to support it to a greater extent. And as you know, I mean, if you think just about FD-SOI, talking about millimeter wave, talking about Edge AI, talking about IoT, I mean, we know that this is going to be a driver -- a major driver for the change of -- in the coming years. So we are expecting Europe and French [ fund ] it's already obviously included in our plan.

We have no more questions on the line. [Operator Instructions]

So if there is no more questions, I would like to obviously thank you all for your interest and all your questions today. I mean this is great. The next date in our agenda will be the release of our full year results on the 8th of June after market close. We will be hosting an in-person presentation in Paris on the next day, that is to say on the 9th of June. And for now, this ends our call for today, and thank you for your attention. And obviously, I mean, myself and the team are looking forward to seeing all of you very soon.

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