Soitec SA (SOI) Earnings Call Transcript & Summary

Hello, and welcome to the Soitec Q1 '23 Sales Disclosure Conference Call. My name is Ben, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] We now hand you over to your host, Mr. Paul Boudre, CEO, to begin today's conference. Thank you.

Thank you, Ben, and welcome to Soitec's conference call dedicated to the publications of the first quarter revenue of our fiscal year 2023. This is the quarter covering the period from the 1st of April to the end of June '22. I am Paul Boudre, Soitec's CEO. Together with me on this call are Lea 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 in short, we had a solid start to our fiscal year '23. I'm very pleased to report that Q1 '23 was our highest first quarter ever with a revenue of EUR 203 million. So this represents a 12% growth on a reported basis. This performance breaks down between a 6% organic growth and a positive currency impact of plus 6%. Performance was driven by sustained growth in mobile communications revenue and by a strong increase in automotive and industrial revenue. This quarter's growth was impacted by two major nonscheduled interruptions at our Bernin industrial site. The first one took place early April and lasted around four days. It was due to a power outage. Production went back to normal shortly after the power supply was restored. The second one took place towards the end of June and lasted around six days, it was due to strike actions. But as always, at Soitec, we had a productive social dialogue, which allowed us to resume production quickly. So we will be able to progressively make up for the incurred delay, and these two events will not impact our fiscal year '23 guidance. In the meantime, our 300-millimeter Singapore fab continues to enjoy a strong ramp-up in production obviously supporting ongoing capacity increase. So before diving into our Q1 performance, let me give you an important information about our financial communication. As indicated during our fiscal year '22 annual results presentations, we have started to report our revenue by end market to better reflect the way we conduct and monitor our activity. Mobile communication is our biggest segment, representing 75% of our revenue in Q1 '23. Automotive and industrial, which is bound to be our fastest growing divisions over the next 4 years, today represents 11% of our total revenue. And finally, smart devices today account for 14% of our total revenue. You will find in the appendix of our press release the historical breakdown of our fiscal year '22 revenue by end market and per quarter. So looking now in more detail at our Q1 revenue by end market. Starting with mobile communications. Revenue in mobile communications reached EUR 153 million. Compared to Q1 last year, this is a 6% increase, excluding currency impact. Revenue growth was mostly driven by higher volumes. It continues to be supported by the adoptions of 5G smartphone, both sub-6 gigahertz and 5G-millimeter wave, by the adoption of Wi-Fi 6 and by the deployment of 5G infrastructure. This has a positive impact on the level of RF-SOI wafer sales particularly in 300 millimeter. We continue to enjoy a strong leadership in RF applications for front-end modules. Indeed, our RF-SOI continues to benefit from the increase in RF content, every 5G smartphone as well as higher penetrations of high-end smartphones. In the meantime, the adoption of POI dedicated to RF filters for 5G smartphone space continue to be under qualifications by several customers and still in progress. A number of new qualifications are expected in the coming quarters for POI. FD-SOI wafer sales confirmed adoptions of FD-SOI for 5G-millimeter wave for several -- by several players. Moving now to automotive and industrial. Revenue in automotive and industrial reached EUR 23 million. It is a strong 37% increase excluding currency impact compared to Q1 '22. Revenue growth was driven by higher volumes, but also a slightly positive price/mix effect. As you are well aware, the automotive industry is undergoing a deep transformation, which translates into an increasing demand for all types of applications either related to infotainment, to ADAS and functional safety or to power management for electrical vehicles. Growth in automotive and industrial is mainly coming from Power-SOI. It also came from a strong surge in FD-SOI wafers, which moved from a minimal contributions of automotive and industrial revenue in Q1 '22 to a substantial part in Q1 '23. Regarding silicon carbide, we continue to sell prototypes, and qualifications on customer side are progressing very well across all regions. Finally, turning to smart devices, our third end quarter -- end market, sorry. Revenue from smart devices reached EUR 28 million. This is less than EUR 2 million decline compared to Q1 '22. Lower volumes, mostly due to PD-SOI were partially offset by a positive price/mix effect. Sales of Imager-SOI, which allow improved -- improved the major performance in near-infrared for 3D sensing applications and Photonics-SOI wafers for data transceivers in data centers remain at a solid level. Sales of FD-SOI wafers recording a strong increase compared to Q1 '22, confirming a strong demand for IoT and edge-computing devices across both customer and industrial sector. So as indicated earlier, we are confirming both our top line and our EBITDA guidance for fiscal year '23. We continue to expect fiscal year '23 revenue to grow around 20% organically, and we confirm expecting our fiscal year '23 EBITDA margin to reach around 36%. So let me now highlight a couple of great news that took place since we spoke in April. Last month's leading RF fabless, MediaTek in Taiwan, announced that it will use FD-SOI-based module for 5G-millimeter wave and other confirmations of the adoptions of FD-SOI for 5G-millimeter wave. As you may remember, we announced last April a new collaboration with CEA, ST and GF aimed at defining the industry's next-generation road map for FD-SOI technology. In line with this agreement on July 11, STMicro and GF announced a new jointly operated 300-millimeter manufacturing facility. The facility will be adjacent to ST's existing site in Crolles, not far from our own operation in Bernin. This is particularly significant to us as this facility will be largely dedicated to FD-SOI. The new facility will support both GF's FDX technology and ST's, comprehensive FD-SOI technology road map down to 18 nanometer. The facility is targeted to ramp up at full capacity by 2026 with up to 620,000 wafers per year. So that will be the capacity at full build-out. So these 2 announcements formalize FD-SOI capacity and road map with a multi-sourcing approach at foundry level. Among the fabless customers supporting the announcement, Qualcomm reiterated the value of FD-SOI as part of their 5G-millimeter wave road map. So it is clear now, Soitec is indispensable across its 3 strategic end markets. Our products are standard in mobile communications and are progressively becoming indispensable in automotive and industrial and smart devices. So now this ends our opening remarks. We are now ready to take your questions. Ben, the floor is yours.

[Operator Instructions] The first question comes from the line of Mr. Aleksander Peterc.

This is Alex Peterc from SocGen. I just have a couple of questions. First of all, if you could share the percentage of your overall production, which is based in Bernin at the moment, so we can assess how much of the impact on your revenue came from those interruptions. And the second would be on the state of the smartphone market. Could you share your underlying assumptions for the market for this calendar year or fiscal year as you prefer and for 5G units? And have these assumptions changed in any way in the recent weeks as we had a couple of negative data points for this market?

Yes. On capacity, I mean, what it -- clearly, the impact on Bernin, this is our largest site. You know that we have 1 million wafer 200-millimeter running in Bernin. We have also more than 700,000 wafer per year running in Bernin. So basically quite easy to make the math. So it was significant and you can understand why. And the second question is about the -- sorry.

Smartphone market.

Yes, yes, yes. So yes, you heard that from the beginning of the year we have this situation in China. And clearly, our overall landing point for fiscal year '23 outlook is 700 million 5G smartphones. We continue to have -- and to see basically 10% to 15% millimeter wave penetrations. So what is important is on this for you to remember, is that we are also having a very aggressive penetration in this market because we are the only company in town capable to respond on the capacity. So everything that comes to 300-millimeter today comes to us since our licensee is running full and the other one has no 300-millimeter capability. And on the high end, I mean, I can -- let's say, again, what I said last time, we continue to foresee a lower demand on this, what we call the low-end smartphone below $400. But we continue to see a very dynamic and very solid trend on the high-end smartphone. So that's the situation today.

The next question comes from the line of Mr. Emmanuel Matot.

Several questions for me, please. Have you seen recently a negative change regarding demand from your key customers? What about also the chip shortage situation in the SME sector? Are you seeing your customers back to normal level of inventories? Or it will take lots of time before it happens? I have also a question regarding the recent announcement of a new large 300-millimeter manufacturing facility in France by ST and GlobalFoundries to support FD-SOI-based semiconductors. I wonder if it could justify a further acceleration of your CapEx program at Soitec. And my last question, what about commercial negotiations regarding our silicon carbide technology? Could we have positive news in the coming months?

Okay. So on the first question, do we see things moving in the environment. So basically, overall, the answer is no. We have seen some shift in part number. As I said, I mean, moving from some of the low-end part numbers to the higher end part numbers for our RF markets. But overall, no change. So that's the reason also we are extremely confident, not only by contract, but by the dynamics that we see on the market today for Soitec. On the shortage, I continue to believe that shortage will continue across 2023. And obviously, I mean, you can read everywhere that this is improving, but it will take another 18 months to get there. And clearly, auto is the most disruptive new market in our supply chain. So basically, in order to be able to sustain the automotive demand over the next 2 to 3 years, it will take time. On STMicro and GF, that's a very, very, very good news. We have been working on this for many years. I mean, we needed a common road map. We needed a critical mass in foundries. We needed stronger collaborations, accelerations in the road map. Everything that you have heard over the last couple of weeks, months is really demonstrating that the value of FD-SOI on the three markets we are talking about is there. It is really supported by our end customers. And the news regarding this capacity dedicated -- for most of it dedicated for FD-SOI is clearly an exciting time. We have been chasing that for many years. Regarding our CapEx, what is true, Emmanuel, and we have said last -- during our fiscal year, I mean, during the announcement of our fiscal year '23 that we were accelerating some decisions in CapEx and specifically in Singapore. It is related to the dynamic of the market. We have also been cautious in terms of saying it's an acceleration. It's not going beyond what we said we will spend, but we need to put in place, and that's the visibility that we have today, we need to put in place our capacity faster. That's clearly the outcome of several good news that you have heard today and potentially there is more to come. More to come because everybody is waiting for silicon carbide, right? And I can tell you that we have -- we continue to have a high level of confidence. I mean it's too early to disclose names, but it will happen shortly. Interest across the industry is very high. I mean, we have delivered wafers to around 10 customers. They recognize the value at system levels. Each of them see a different type of overall value, but they commonly agree and accept the value that we bring to the table. So we are on track with our plan. And clearly, it is, as you can imagine, also an opportunity to -- for accelerations of 200 millimeter if these products come to manufacturing.

I know this is your last conf call with us, so thank you again. All the best for the future.

Thank you, Emmanuel. Thank you. And I will have the last word on this later in the call.

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

Going back to the first question from Alex, could you quantify, there are a lot of sales that you missed due to the interruption of production in Q1, was it around 5%, more than that, lower than that? It will be interesting to have more indication on that. And next to that, should we expect an acceleration of the organic growth moving into the second quarter of the year now that you have production returning to normal level? And lastly, on the fiscal year 2023 guidance, the 20% organic growth, what kind of visibility or confidence do you have in reaching this target, taking into account that you start the year on the flow trends at around 6%?

Yes, the trend is -- and thank you very much for the questions. And the trend is -- clearly, the overall trend is the one that we have budgeted. I mean, we didn't budget these 2 weeks, that was not really scheduled. And by the way, we had a maintenance week also scheduled this quarter. So if you look at -- but was part of our budget. That was part of our overall plan. So I cannot point this as a problem. So if you come back to the 2 weeks, so basically, these 2 weeks where it's -- I mean, you do the math, right, and you will come into high single-digit type of numbers.

Yes. And maybe, Paul, if I can add something. As we said early June when we announced our results, the growth will be higher during H2 than during H1. So it was fully anticipated, except for this [ 2 weeks ].

And should we expect an acceleration in Q2?

Yes. Yes, we can.

So clearly, our fiscal year '23 visibility is very high. I mean you can hear that in the way we take your questions on this. We know that we can recover. We have a plan to recover these 2 weeks, and we know that the target that we gave you at the beginning of the year are the target that we will deliver at the end of the year.

One last question, if I may, on FD-SOI. The announcement that we have seen from ST and GF and also the one from [ Cariad ] from [indiscernible] and ST, is this something that could lead to the reach the high case of the range for your fiscal '23 -- '26 target? Or it is too early to say?

Yes, everybody around me is trying to slow me down, right? But I have the temptation to say, obviously, it's part of the good news, but this is still a long wait. There is still 3 years down the road, but it is part of the good news that we were expecting for that trajectory. Now it's not done yet, but that was a very, very, very important announcement. And what is even better is the motivation behind it. I mean clearly, this is not just two companies having a deal, it's an ecosystem pushed by the end customers who need that deal, okay? The deal was needed by the industry. So that means that it will not be a technology push, but it will be a product push. And you have seen all the names that GF put on his announcement and Qualcomm as well.

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

Most of them have been already asked. I just wanted to double check. In case of electricity rationing in the coming weeks or months, do you have a feel for how you would be treated by the authorities? And related to that, did you use gas -- natural gas at any time in your manufacturing process or any of your suppliers just so we understand the potential risk on the macro side?

Thank you for the question. I think that you probably remember that during COVID-19, we have been one of the few industries that was allowed to continue to work. And so in the same situation today, we are a part of this priority -- company priority industry that are strategic and critical for the, not only for the French people, but for the rest of the industry. So we will be protected on this. And we are obviously working on the administrations to secure the power that we need. On gas, I mean, I would say it's not significant. We do not have any large consumption forecast. So we are pretty clean on this.

Again, many thank you for your amazing service as a CEO of Soitec. All the best.

The next question comes from the line of Mr. Francois Bouvignies calling from UBS.

I have two quick ones, if I may. First one is on the smart devices. Can you elaborate a bit the performance this quarter, a bit more details about the revenue down? I mean is it related to the macro environment, seasonality? Just having a bit more color on this. And the second one is a bit more hypothetical. But if we are thinking about a slowdown in the recession that everybody seems to talk about, how do you plan to manage your CapEx? How much flexibility do you have -- do you want to have with your CapEx plan? Are you in a situation to select, we will be spending CapEx whatever it takes? Or do you think that you will be also pragmatic and adjust accordingly depending on the demand environment?

Yes, again, thanks for the questions. I think they are good questions. And regarding the smart devices, I mean, clearly, Lea, you can probably give a little bit of color on this. But we have a very strong underlying business supported by FD-SOI, and clearly also covering the image sensing business that we have. So clearly, the situations that you see was not really a part of this. But Lea, you want to give some color on PD-SOI, maybe for Q1 last year.

Yes. On PD-SOI, during Q1, we booked one-off sales. So it was nonrecurring. We still see a strong demand for smart devices. And we expect this end market to grow during the FY '23.

Yes, I think it's very reassuring on our side. I mean, we don't see significant situations that will give us the kind of warning, not at all. In terms of the CapEx, the situations for equipment is extremely tight today. I mean if you look at the lead time and everything else, around the world I was in the U.S. a couple of weeks ago, it is clearly one of the things that you have to watch. And we at Soitec, we are watching it very, very closely. So two main reasons. We are not one of the largest company in the world. So it is important for us to stick with our plan. And you know that we have this 5-year plan in front of us. So we are really working in end-to-end with our equipment suppliers. We need this CapEx. We do not manage the company on a quarterly basis. We need this CapEx and because they are part of the fiscal year '24, '25 growth. So we feel extremely comfortable with the communication path that we have with our equipment supplier. And as I said from the very beginning, it is backed up by our customer orders. So we have not moved anything compared to what we said last time. We have, in fact, accelerated Pasir Ris. We are marching on the plan for silicon carbide. And so we have no change compared to last quarter.

The next question comes from the line of Mr. Adithya Metuku calling from Credit Suisse.

I have two. Firstly, Paul, I just wanted to understand how do you think about the indirect impact from chemicals that use natural gas as an input in the manufacture of semiconductors? So I'm talking about companies like Merck, BASF that use natural gas to produce things that are used in semiconductor manufacturing. Have you looked through your supply chain to understand what the impact will be on this front? And if you have, if you could give us any color here? That would be very helpful. And secondly, on the power outage, you're talking about making up as you go along through the rest of the year. But from my understanding, you've always run your production facilities at full capacity. So will you have enough capacity in the later part of this year to make up for the lost production? How do you think about that? Any color there would be super helpful.

Yes, for the chemicals and the supply chains, we are -- I mean it's daily communications with all our supply chains overall, right? I can report today that I have not -- I have not seen any situations where in a short or medium term, there is a situation at risk. So we have basically what we need to deliver in the next 12 months and particularly after that as well. But clearly, it's a long run. So no real situations that we have to manage in a particular way. It's business as usual. When it comes to the recovering of the situations, yes, we will recover. And clearly, we have put in place plans, situations to continue to reinforce our working shift. We also are taking care of what happened during the quarter. You know that the first power outage really put us in trouble and the team -- all the teams have done an incredible job to recover. So we have to do it. And clearly, as they have said a little bit earlier, we see our H1 clearly back in the race for the 20%, but we see also H1 a little bit lower than H2. So we are confident with this trend, particularly that was the trend that we also designed for the year in our budget. But with a little bit of acceleration in Q2, we have the capability potentially to recover in Q2.

Congrats, again. And all the best for the future.

The next question comes from the line of Mr. Jerome Ramel calling from BNP Paribas.

Quick question, Paul. With the new fab of STMicro and GlobalFoundries of roughly 600,000 wafers per year on FD-SOI. Historically, most of the FD-SOI customers were in the range of 20,000 to 40,000 wafer per year. So should we expect many more customers adopting FD-SOI? Or is there any big, new killer application or blockbuster in FD-SOI?

Jerome, thanks for the questions. And my direct answer will be both, okay, we are seeing an increasing number of end customers. This is clearly true in mobile and you see it coming, and this is not yet in high volumes, but the trend is going to be very, very strong. In automotive, clearly, it is already happening. And on IoT, it's a very fragmented market, but you can name it. All the big guys in terms of gas farm have an interest into this. And not to forget the MCU road map supported by NXP and supported by STMicro. It's really driven by the auto market. So yes, we are seeing a lot of new customers engaging in this. I remember you that one of the problems that we had to fix was not only the capacity, but the IP platforms, now we have both. We have everything enhanced for the three markets. And so it is an accelerating phase that we were planning, but that is happening, which is even better.

And one more question, Paul. You said on POI, you were expecting a more qualification on this quarter. What kind of market share do you think POI could get in filters eventually?

It's a very complicated market because it depends what on we are calling -- talking about. So I will say that in the market segment that we are targeting, I mean, it is budgeted, which is the mid-band. We clearly would like to get in the, I will say, 15% to 30% market share very quickly next year and then customer will tell. So what is happening right now, on POI, the value that we are shipping to, not the wafers, but the value that we are shipping inside the wafers are recognized by the customers. We have, as I said, a lot of customer under qualifications. Now it takes time. And I said that last time, it takes time for our direct customers to qualify the POI at their end customer level because they have to tune their process and their device and the design to the performance that their end customer would like to see. So this is where we are basically spending most of the time today. And clearly, we are very confident on the adoptions because all RF companies are engaged today with us, and that's the message. So a bit slow this H1, but because mainly on the qualifications that takes a little bit longer.

Congratulations, Paul, for the fantastic ride at Soitec with you.

[Operator Instructions] Well, there are no further questions. So we'll hand you back to your host to conclude today's conference.

Thank you, Ben, and thank you all for your interest and your questions today. So as you know, I mean, this is my last call as Soitec's CEO. I will be finishing my term at today's AGM. It is with great pride that I leave the reins of Soitec to Pierre Barnabé. While we are celebrating Soitec's 30 years' anniversary, Soitec is extremely well positioned to address the challenges set by our ambitious road map for the years to come. So more than ever, our products are providing an adequate response to meeting the needs of our end markets while being at the cornerstone of a more sustainable and responsible future. So I'm, therefore, fully confident in Soitec's future. I wish all the best to Pierre and the management team and to all my dear colleagues at Soitec. And I also wanted to take this opportunity to thank you all for your deep interest in Soitec along the years and the relationship we have built together. So the next date in our agenda will be released on our Q2 revenue on the 26th of October after market close. And for now, this ends our call for today. Thank you for your attention.

Thank you for joining today's call. You may now disconnect. Host, please stay connected and await further instruction.