Soitec SA (SOI) Earnings Call Transcript & Summary

Hello, and welcome to the Soitec Half Year Results 2022-2023 Call. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to Pierre Barnabe, Chief Executive Officer, to begin today's conference. Please go ahead.

Good morning, everyone, and welcome to Soitec H1 '23 Results Conference. I'm Pierre Barnabe, Soitec's CEO, and I'm very pleased to be with you today along with Bernard Aspar, our COO; Lea Alzingre, our CFO; and Steve Babureck, our SVP Strategy. Next page, please. This presentation contains a disclaimer. Please read it carefully. Next page. We have a lot to cover today. First of all, our strong performance in H1 '23 in terms of revenue, profitability and cash generation as we continue to grow on our trajectory. Then, we will focus on how we keep expanding across our 3 end markets. On mobile communication, we continue to be supported by the ongoing adoption of 5G, smartphones and WiFi 6 as well as the deployment of 5G infrastructure. On automotive and industrial, we continue to leverage demand for more infotainment, autonomous driving and functional safety as well as by the shift to electric and hybrid engines. On smart devices, our growth is driven by demand for more complex sensors, higher connectivity, functionalities and embedded intelligence leading to more powerful, efficient Edge artificial intelligent chips. Finally, we confirm our guidance for the ongoing fiscal year 2023. We expect our revenue to grow around 20% year-on-year at constant exchange rate and perimeter, EBITDA margin around 36%, adjusted net cash out related to CapEx at around EUR 260 million. Next page, please. Let's start with the highlights of our first semester. Next page, please. In H1 '23, we sustained our growth trajectory and delivered growth on our key financial performances indicators. Revenue reached EUR 471 million, up 18% year-on-year at constant exchange rate and perimeter and 26% on a reported basis. EBITDA grew to EUR 167 million at 36.5% margin, which reflects a higher operating leverage control over our operating expenses and some headwinds coming from inflationary cost increase and a negative currency impact. Our operating cash flow more than doubled to EUR 126 million, driven by a better operating performance and management of our working capital. Next page, please. As you can see, we continue to grow on our 3 dynamics, end markets. Bernard will give you more details on the performance of each of our divisions later on. Next page, please. Just a few words on capacity expansion, which is key for us to grow our business. We continue to invest in capacity to sustain our growth and secure our supply of wafers, equipments and activities through the signature of long-term agreements with our strategic suppliers. In Bernin 1, we delivered a higher operating leverage, driven by Q2 '23 capacity as announced in June. In Bernin 2, continuous improvement methods are driving significant yield improvement. On our Bernin 3 fab, dedicated to POI wafers, continues to serve our customers and have a strong activity on delivering new products, will tune our capacity addition to reflect further customer adoption. The constructions of Bernin 4 is on time. And the cleanroom will be ready to move in early April 2023. In Singapore, we continue to deliver on our ramp-up with tools deliveries secured for the next 18 months, and we expect the groundbreaking of our Pasir Ris extension in December. In Hasselt, our fab dedicated to gallium nitride, we qualified large automated production tools for both 150 and 200 millimeters GaN MOCVD epitaxy. Finally, our partner, Simgui has reached around 450,000 wafers per year as planned. Next page, please. When you start to know me, sustainability is a key dimension for me. It is also a fundamental pillar of Soitec's value creation model. We take into account all of our stakeholders to ensure our growth in sustainable and benefits all partners around us. Accountability is key to us. In September, our Board of Directors decided to create a sustainability committee to monitor our progress on this front. We became the fourth semiconductor company worldwide to have its greenhouse gas emissions reduction targets aligned with the 1.5 degrees ambitions validated by the SBTi. We also have very strict commitments on water, as we keep innovating to reduce our water consumption and increase water reuse and recycling. Last week, we won the 2021 SEMI Industry Leader in Diversity and Inclusion award in recognition of our innovative and pioneering policies and achievements. We have also launched a company-wide initiative to implement eco-design at Soitec in order to embed sustainability from the very beginning of our design and production process. Next page, please. Finally, a few words on the governance and management side. On July 26, I was appointed CEO of Soitec, and I'm proud to be working with the team to continue our ambitious, profitable and sustainable growth story. We have further structured the Executive Committee with the arrival of Caroline Sasia as Head of Communications and Chief of Staff. Our Board of Directors have also strengthened, improving in terms of both independence and diversity through the appointment of new directors. Now that we have reviewed the highlights of our first semester, Bernard will give you more details on the performance of our 3 divisions. Bernard, over to you. Next page, please.

Thank you, Pierre, and hi, everyone. Let's go into more detail about the strong performance across our divisions. Next page, please. Our mobile communications division grew 14% year-on-year organically and 23% on a reported basis. The activity continues to be supported by the ongoing adoption of 5G smartphones and WiFi 6 as well as the deployment of 5G infrastructure. We are leveraging strong growth on our product family portfolio of RF-SOI for 4G and 5G smartphones. We are also progressing on the development and the adoption of new products for 5G. FD-SOI adoption for millimeter wave is progressing as major players have endorsed the technology, and you can now find on the market millimeter wave antenna modules built on our Connect FD-SOI product. POI adoption phase is ongoing. As we told you last month, we have a high level of prototyping activity as we are expanding our spectrum to cover more bands with many key players. Several customers have confirmed the value of our POI wafer, but the adoption might be a bit bumpy as we are addressing the diverse range of module architectures. Finally, we are also making progress on the development of the new product for application beyond [ handsets ] such as 5G infrastructure of satellite communications. On the end market side, we anticipate to end the year around 650 5G smartphone units, lower than initially anticipated, but confirming the 15% 5G penetration. Next page, please. Let's move on to our automotive and industrial division, which delivered a 59% revenue growth year-on-year organically and 72% on a reported basis. Our activity continues to be driven by the increase in semiconductor content in automotive, around 10%-15% this year. Going forward, the steady increase in the electrical vehicle penetration will be a significant growth driver. Demand from the automotive industry is increasingly being supported by infotainment, autonomous driving and functional safety as well as by the shift to electronic and hybrid engines. We delivered a strong growth from FD-SOI and Power-SOI wafers. We continue to progress well on our SmartSiC road map, and we are on track with our plan on technology, industrial and business. Engagement with several leading industry players is progressing well, and we still expect to disclose our first customer before the end of the year. Next page, please. Let's now have a look on our third division, smart devices. Our revenue was up 10% year-on-year organically and 70% on a reported basis. We are leveraging the growing demand for more complex sensors, higher connectivity functionalities and embedded intelligence, leading to more powerful and efficient Edge artificial intelligent chips. Growth in FD-SOI wafer was very strong, confirming structural demand for Internet of Things, IoT, and Edge computing devices across consumer and industrial sectors. We are seeing a strong momentum in FD-SOI adoption across our 3 divisions. The manufacturing collaboration between ST and GlobalFoundries announced in July is one of the numerous recent endorsements as the vast majority of the output will be dedicated to FD-SOI. We also leveraged sustained growth in Photonics-SOI wafers for data transceiver and in image sensor wafers for 3D imaging applications. As a conclusion, each of our 3 divisions delivered a strong performance over the last semester, and we have confidence in our ability to achieve our fiscal year '23 guidance. Now over to Lea to comment on the financial performance of the semester. Next slide, please.

Thank you, Bernard, and hello, everyone. Next page, please. In line with what Pierre has disclosed in his introduction, we are happy to report that we achieved a robust performance during this first semester in terms of revenue, EBITDA and cash flows. We delivered a revenue of EUR 471 million, up by 18% compared to last year at constant FX rates, and our EBITDA margin reached 35.5%, very close to the 35.8% achieved for the full year '22 in a challenging macro environment, which demonstrates the resilience of our business model. The main highlights are: our H1 FY '23 net profit increased by 28% compared to last year, close to EUR 100 million. We invested EUR 126 million in CapEx, mainly for capacity investments in Singapore. And at the same time, we achieved a positive free cash flow of EUR 7 million. We maintained a strong net cash position at the end of September '22, thanks to the cash generated by our activity. Next page, please. We published our H1 revenue in October, so no surprise there. We delivered a 26% growth for first semester. It breaks down between an 18% organic growth and a positive currency impact of 8%. Performance was driven by sustained growth across our 3 divisions. Now let's talk about profitability. Next page, please. Our gross profit reached EUR 168 million, a 35.6% margin. It's a 0.4 point improvement compared with H1 '22 despite some headwinds, the bulk price increase as expected and the margin dilutive impact of foreign exchange due to the difference between the spot rate and the hedging rate. We benefited from a strong operating leverage due to the increase in activity as well as some good industrial performance with highly efficient cost control despite the production shutdowns that occurred in Bernin. Next page, please. From this EUR 168 million of gross profit I just commented, the group generated EUR 110 million of current operating income which represents more than 23% of revenue. Our net R&D expenses remained stable in value. Our gross R&D costs before R&D capitalization increased by EUR 7 million, representing a 14% increase as compared with H1 FY '22 as we continue to invest to strengthen our position in each of our 3 end markets, to maintain our leadership in SOI business, especially for RF-SOI and FD-SOI new products, to continue POI development for the next generation of products and to accelerate on silicon carbide. We invested both in hiring new talents and in collaboration with innovation platforms. Given an increase of EUR 7 million in R&D capitalization due to the silicon carbide development cost and a decrease of EUR 2 million of the [indiscernible], net R&D expenses remained stable as compared to H1 FY '22. SG&A expenses were stable compared to last year at EUR 28 million, but they went down as a percentage of revenue from 7.6% in H1 FY '22 to 6% in H1 FY '23. The increase in the number of staff and in salaries was offset by a decline in share-based compensation in line with the lower share price as well as by a nonrecurring item in H1 '23. We are still focused on talent acquisition and retention and making our group an attractive place to work in. This is key to secure our growth. Next page, please. At the net income level, we also improved profitability. We reached EUR 95 million at the end of H1 '23, representing a 20% net margin. We did not book any other operating income in H1 FY '23, while we recorded the [ reverse start ] of the Singapore plant impairment last year. Our financial result is a loss of EUR 2 million as compared with a loss of EUR 5 million last year. Financial expenses decreased by EUR 1 million, following the OCEANE '23 conversion in October '21. And we recovered the net FX effect of EUR 4 million. Finally, our income tax continues to benefit from tax loss carry-forwards. Next page, please. Let's conclude the P&L chapter with the EBITDA margin, the main profitability indicator of our guidance. EBITDA amounted to EUR 167 million in H1 '23, representing 35.5% of our revenue, that is very close to the EBITDA margin we recorded for the full year FY '22. EBITDA margin benefited from a strong operating leverage and a strong industrial performance, but was affected by the raising inflation and a dilutive effect due to the hedgings. This strong level of profitability, despite the macroeconomic situation and especially the inflation, is reflecting the resilience of our business model. Moving on, let's take a look at cash flows. Next page, please. We were able to generate a EUR 7 million positive free cash flow in H1 '23, while continuing to invest in capital expenditures to support our group expansion and managing the working capital needs. This compares to a EUR 43 million negative free cash flow in FY '22. Overall, net operating cash generated by continuing operations increased from EUR 59 million in H1 '22 to EUR 126 million in H1 '23. We drive our group to monitor strongly the working capital and we contained the increase of the working cap at EUR 26 million. We drove very good cash collection from customers, including down payments. This favorable effect was offset by the seasonality effect for the inventories that increased by EUR 39 million in order to prepare for H2 and the increase of EUR 15 million of other receivables. And we paid off taxes of the last year. Cash out from investing activities reached EUR 120 million compared to EUR 101 million last year. This EUR 120 million do not include tools financed through leasing contracts. And if we include them, total CapEx cash out would amount to EUR 126 million. Capital expenditure was mainly related to capacity investments carried out in Singapore for 300 millimeter SOI wafer production plus additional capacity for epitaxy and refresh and, to a lesser extent, impairment for POI wafer production and renewal investments. We also include investments in R&D, including capitalized earnings. Overall, H1 FY '23 was really good in terms of the cash generation as we managed to generate positive free cash flow at EUR 7 million, while also investing to fulfill our ambitious growth plans. Next page, please. We had a slight increase in our cash position which went from EUR 728 million in March '22 to EUR 743 million at the end of September '22. Financing flows were negative at EUR 37 million, because of [indiscernible] movements during the period. And we did not book any new loan. Next page, please. Let's move directly to our financial structure. Next page, please. Finally, a few KPIs to underline the solidity of our balance sheet. Equity is close to EUR 1.2 billion, up EUR 138 million as compared to March '22, thanks to the results from the period and the positive currency effect related to the conversion of our foreign subsidiaries. We moved from a net cash position of EUR 142 million at the end of March '22 to a positive net cash position of EUR 113 million at the end of September '22. The positive free cash flow generated during the period has been compensated by the increase in the financial debt related to the mark-to-market increase of financial derivatives related to hedging. Without this financial derivative, net cash position would have improved by EUR 19 million, how high level of liquidity is well adapted to our growth strategy. To conclude, you can see that our H1 performance gives us confidence to achieve our FY '23 guide targets. I will now hand over to Pierre to conclude on our guidance. Thank you for your attention. Next page, please.

Thank you, Lea. I'm pleased to conclude by reiterating that our very strong H1 '23 performance allows us to confirm our FY '23 guidance. We expect our revenue to grow around 20% year-on-year at constant exchange rate and perimeter, EBITDA margin around 36%, adjusted net cash out related to CapEx at around EUR 260 million. This concludes our remarks. Now let's please open the Q&A session.

[Operator Instructions] And our first question today comes from Aleksander Peterc of Societe Generale.

I just have 2 questions, please. The first one is related to what's going on in the smartphone markets, particularly in the RF Front-End space, you obviously have seen a number of warnings and guidance downgrades among your clients which are [indiscernible], Qualcomm. We've got revenue outlook being reduced by about 15% to 20% across the board in this space. And you also highlight a softer smartphone market and lower 5G units as well. So what I'd like to understand is, obviously, things are softer than you thought at the beginning of the year. You do maintain your guidance of 20% like-for-like, which is solid, so does that mean that you actually are managing to compensate for some of the weakness in the smartphone space by stronger auto and industry, in particular? Or is there a delayed effect due to the impact of inventory and so on and does that means that you will see this slowdown a little bit later on than your client base? I'd just like to understand what's going on here in terms of timing and the amplitude of the downgrade in the expectations. And the second question, just on SmartSIC, you did confirm to be able to announce an anchor customer before the calendar year-end or is it the fiscal year-end? And also if you could maybe tell us if you're looking at the licensing model or a direct supply or a mix of both with your clients there?

Thank you Alex, for these 2 important questions. And I will take the overall answer for the 2 elements and then I will ask Bernard to complement, if you don't mind. Then first of all, on the smartphone market, as you know, we have observed a decrease in this -- a shrink in this market. We are betting on a volume of 650 million units in 5G for this year, that is a decrease related to what we were expecting early this year. But as we said repeatedly, we are well positioned on premium market that is still active. And we are expanding our footprint, and we are delivering more and more millimeter square, thanks to our advanced technologies in phones that are also looking for more and more functionalities, analog and digital. And in this area, in this vein, we are very active, as you know. And I will let Bernard to complement for the inventories and what we're observing on the market today. Regarding the SmartSIC, it's a very important pillar, as you know. We are on time from technology and industrial point of view. We are very active with many customers in these domains. And we expect to make announcements in the coming months and weeks, and we still believe that by end of this calendar year, we'll be in this position. Then I will leave the floor to Bernard for the complementary answers on funds and SmartSIC.

Yes. Thank you, Alex, for the question. So you need to have in mind also that on the communication part, we have a strong penetration of our product for WiFi 6, which is helping also in this segment. So on the smartphone, the 5G is still in the range of 50% penetration. It's true that the number comparing to the number that we announced and that whole thing at the beginning of the year is a little bit lower, but the penetration of 5G is still here. We see that when we start the year, the level of inventory was very, very low everywhere. And now we -- during this year, there is also a replenishment of RF-SOI inventory across the board. For sure, the level is different depending on the customer, depending on the product. But overall, the level of inventory are at reasonable levels. And yes, on the SmartSIC, as you say, we are on track. We are on track delivering several other products on a regular base to different customer, making -- getting more and more feedback around the value of our product and also on the many discussion on the business side.

And we now move on to our next questioner, which is Sébastien Sztabowicz of Kepler Cheuvreux.

Coming back to the smartphone outlook. I'm just curious, what do you have in your budget for next year, the calendar year 2023, in terms of smartphone volumes or 5G units, given that there are some risks to see kind of the decline in the smartphone market moving into next year because of the weaker macroeconomic environment? And secondly, more generally speaking, regarding your outlook for fiscal year 2024, what kind of visibility do you have on your revenue for next fiscal year?

Thank you, Sébastien. As you know, we have a very robust process in Soitec where we are observing the market through several sources. First of all, so this being also what we see with our customers, the customers of our customers and so on. And of course, all the different publications, analysis and so on. And this is giving us a certain level of confidence in different scenarios in the drivers that are making the business of Soitec for the years to come, okay? Then for the moment, we are in this process to look at the different scenarios because there are different scenarios today in the smartphone industry next year and next years, in the 5G penetration, in the number of high-end products in this penetration, in the -- also the footprint we have within each of these machines that are more and more complex machines. Then today, we are contemplating observing that, and we will be in a position, as usual, by spring to give you our visibility and guidance for fiscal year '24, taking into account what we are seeing and observing. But what is very clear is that 5G adoption is rising up. The penetrations, especially in some countries, is tremendous. I would like to say that when you buy today a high-end smartphone, it is a 5G smartphone by essence and by structure, then it is, of course, sustaining a lot of the market. And as you know, in these domains, looking at WiFi 6, millimeter waves penetration and so on, it is very profitable to Soitec technologies and footprint. This is what we can tell you so far.

Okay. And one follow-up, if I may, on GlobalFoundries, because they just announced the qualification of a large automotive MCU manufacturer for [indiscernible] non-volatile memory. It seems that they are accelerating the ramp on the automotive market. Do you see any acceleration in the adoption of your technology SOI for [indiscernible] today or there is nothing special at this stage?

Bernard?

No, we see clearly an adoption of our product in this automotive. I remind you that on the automotive industry, on the infotainment demand, autonomous driving, smart devices, we see a lot of adoption. And this is -- this automotive industry is one of the -- of our big pillar for the growth of the next year.

We now move on to our next question, which is Didier Scemama of Bank of America.

Yes. Two questions. First one, given your outperformance versus the smartphone semiconductor market, I just wondered if you could give us an update, end of fiscal year '23, where you think you would be in terms of market share in WiFi 6 and in terms of RF filters? And also related to smartphones, on the Android smartphone market in China, the various players in the baseband and RF Front-End market have indicated that December quarter will be the bottom for them. And as inventory replenishment would kick off, the March quarter would go up sequentially from a very low base. Is that something you're seeing? Does that matter to Soitec given your, let's say, greater exposure to the premium segment of the market? And then the last question is on SmartSIC. I appreciate you haven't had the name to be announced today. But can you give us a sense of the timing of the ramp of your silicon carbide solution at your customer? Is that a '23 event, is that a '24 event?

Okay. On the smartphone, this is what already I said regarding the complexity and the more and more functionalities that are serving our RF and, of course, FD-SOI technologies plus also other technologies we are targeting with POI, GaN and so on and further on. But it's clear that we see in some regions the kind of bottom in terms of market shrinking, but it's something we are observing. And as we said, we are in this mode today to gather information and then to look at what the impact is positively or negatively for our future. But it's clear that see in some areas, this bottom coming up, and then we can expect a rebound on the market. It won't be homogeneous everywhere, but it's something we see, and we can clearly upsell. Regarding the SmartSIC, I will leave the floor to Bernard because it's very important. We said that also during the presentation, we are on time from a technology industry point of view, and it's really, I believe, what is key for us. And Bernard will tell you more on the road map today as it is.

So yes, on the SmartSIC, so you see that today, our products are going out of the pilot line that we have built at [indiscernible] but we are totally on track for our industrial plan, where the goal is to have the fab ready at the second half of 2023, with a plant qualify and ramping at the beginning of 2024 for our SmartSIC product. And here, we are delivering on a continuous, on regular base wafer to different customers for evaluation, qualification and so on.

Excellent. And just coming back, can you -- do you want to comment on market share in WiFi 6 or filters or both?

So on the market share, we will not disclose any number. So what we see is really a strong adoption on the WiFi 6 of RF-SOI technology. So this is strong. On the POI for the future, we are still on the adoption phase. So here, the market share is totally different because we are penetrating a new market for different brands. So it would be step-by-step.

[Operator Instructions] We now have a question from Adithya Metuku of Crédit Suisse.

Two questions, please. Firstly, just on the silicon carbide side, there's been more supply coming on board from new players entering this market. I just wondered how you're calibrating your supply and demand side of the equation and share assumptions. And also on the pricing side, they've -- in light of all these new players coming to market, any commentary around that would be helpful. And secondly, just a question for Lea. In terms of the P&L, there were some subsidies in the -- they haven't changed much, but given all the discussions around the European Chips Act, I just wondered if you could give us some color on how we should think about that line going forward. And what sort of grants, et cetera, can we expect, especially given the focus on FD-SOI?

Okay, then on the -- before leaving the floor to Lea on the question you have asked for. Just on silicon carbide, keep in mind that with the SmartSIC technologies, we are indeed at the middle of this market that is ramping up quite rapidly by using mono-SiC, poly-SiC, let's say, both bringing really some added value within this type of new smart wafers that will be more efficient in terms of production point of view, from a features point of view, from an energy consumption point of view. Then we are really at the center of these ecosystems. And the fact that more and more players are addressing this market because, of course, the market -- the final market is raising up with -- you have seen a lot of announcements preparing even of electric cars a bit more than expected in some areas with accelerations. We have an incredible positions in those domains because we are inserting value, and we are inserting specific technologies to make this market, even leveraging and accelerating. And this is where we are. And being on time, as Bernard said, from a business, manufacturing, technological point of view, will make us in a really ideal position. And the more we observe silicon carbide bubble blossoming, expanding, serving a final market that is also sustainable is, of course, pleasing us. And this is where we are. And in the first -- in the next quarters, you will see the concrete progresses coming up. But as Bernard said already, Bernin 4 will be one of these milestones, clear milestones. For Lea?

Yes. So on the growth side, yes, of course, we are working in order to fund as much as possible both our innovation, but also the launch in production for new products, especially the WiFi 6. So we are working on European program, and we are currently finalizing our discussion with [indiscernible] on this topic. So yes, we expect a level of [ runs ] in line with what we had in the past for the innovation and a little bit higher for the first initialization grant side.

[Operator Instructions] We take our next question now, which comes from Robert Sanders of Deutsche Bank.

I just wanted to check in on the raw substrate pricing. I think companies like [indiscernible], they're raising prices annually by 10% over the next 3 years. So I was just wondering if you were going to pass on that sort of pricing increase in a similar fashion to the raw silicon substrate suppliers? And then the other question I had was just around, when should we expect a fiscal '24 guidance? In the past, you've kind of given a soft guidance in December or November. But obviously, you're under a new leadership now so you may have a different view on when to give the guidance on fiscal '24.

For the first question regarding the [indiscernible] and the kind of, let's say, inflation we could observe in the domain. As you know, a few months ago, we signed long-term agreements with these suppliers. First of all, and it's very important to underline that, we secured our deliveries in terms of bulk. And I believe it's very important because whatever the situation on the long run, it's very important to be sure that the quality and the quantity of what we need to deliver to our customers is secured. Then afterwards, we will not enter into the secret of the contracts. But of course, we are working closely with these strategic partners and suppliers to be sure that we are containing some of the inflation cost that could be reflected. Second, of course, we are working with our customers to reflect in some areas, some parts, inflation we could observe in whatever the deliveries, the supplies or even the OpEx we are using. Then this is something that is very important to have a supply chain from the bulk deliveries to the deliveries to our customers that is more and more monitored and mastered on the long run with a certain level of flexibility to fit with some changes, and we have some changes to face in the coming years, for sure. And I believe the [ securing ] of supplies is a priority, and it has been very well managed. For the fiscal year '24 forecast, which I told you already, and I understand that you're impatient, but we need first to really analyze and look at the market contemplating what we observe from our customers, what we monitor from the ecosystems of the semiconductor industry and then we will give you our view for fiscal year 2024, but also the trajectory to fiscal year '26 because we are in a journey to deliver between $2 billion to [ $2.8 billion ] revenue by fiscal year '26.

We're now moving on to Francois Bouvignies of UBS for our next question.

I have a quick one, if I may, it's on pricing. So we saw like pricing increasing across the supply chain, and that's also why you increased your pricing as well to pass on to your customers. If we see a normalization on the pricing side, what are you going to do with your pricing? Are you also going to reflect the pricing down at your customers? What's going to be the strategy here as a normalization of supply-demand across the supply chain is happening?

Thank you very much for your question, Francois. Then perhaps Bernard, you could answer to this specific question?

Yes. Regarding, first of all, it's what we see on the -- everyone is looking also to long-term contracts. It's true that for short term there is a pressure going on, but nobody wants to be a trap in a way of lacking of wafer in the future. So today, there is pressure, but we are in this path to maintain the market dynamic and focusing on the value, okay? We are focusing on the value that we are bringing with introducing new generation of products. When we talk about price increases is also through the introduction of the new generation of products which allow us to maintain this -- the pricing that we have. If you think to that, new generation of products are introduced every time.

We're now moving on to a follow-up question from Aleksander Peterc of Societe Generale.

Just a small item of detail perhaps, but I'd like to understand what exactly you're supplying in satellite communications. Is it RF or FD or what kind of substrate? And also where it goes exactly, is it into the customer premises equipment or into the actual satellites?

Okay. Bernard, perhaps on this one?

Yes. On this, we have a different product, but both RF-SOI and FD-SOI makes sense for this industry.

And is it a meaningful part of your revenue or is it going to be meaningful?

Is -- this market is a small market comparing -- it's increasing, but comparing to the smartphone is still a small market.

Decent volumes growing, but quite limited. The value could be interesting, but in terms of volumes remains quite limited compared to what we expect in the automotives and what we are doing in the smartphone industry, of course.

And up next, we have David O'Connor of BNP Paribas.

Just a quick one. Looking to your consensus for FY '24, it's for over 20% top line growth. Can you talk us through kind of what the drivers are for next year? Maybe if you can rank them in terms of segments, pricing, market share, some of the advantages this year will turn into headwinds next year. So just how we should kind of think about those growth drivers for next year is to kind of hit that consensus number?

Thank you, David, for this question. And we are -- as I told you, we are working on a very robust process. We want to be sure that our guidances are reliable, and we see step-by-step quarter-after-quarter what we can do. And for being reliable, for being robust we have this process that helps us to look at the segments, what we are doing today, what we're going to do tomorrow, looking at the opportunities, looking at the risk opportunities, having a SWOT approach per segment, per divisions. And then we can see and we can -- and we are as impatient as you, to give you what will be our guidance for fiscal year '24 and also giving you the trajectory beyond, that is something we are in the middle of the process today, and this is very important to be concentrated in this market that is full of opportunity, full of uncertainties also.

And we have a further follow-up from Sébastien Sztabowicz of Kepler Cheuvreux.

Regarding the fab loading, what was the fab loading in your different fabs in Bernin or in Singapore at the end of H1? And also could you quantify the cost of energy for this fiscal year, fiscal year 2023, versus last year, the evolution? And where do you see the cost of energy moving for next year, fiscal year 2024?

Thank you. I will open the floor to Bernard for the manufacturing part to give you a description of where we are today. And for the energy cost evolution, I will ask Lea, if you don't mind to comment. Bernard?

Yes. Thank you for the question. So the loading is very high. And in 200-millimeter, we are fully, fully loaded. Even if we can produce more, it would be welcome. So on 300 millimeter, our Bernin is full. Our [indiscernible] is ramping strongly also. And every time to disqualify is [indiscernible]. I think that the loading is very high. On the POI, we are still on this adoption. So it's different, but it's here. Overall, our loading [indiscernible] is very, very high.

Okay. On the energy costs, so energy costs are representing 1 single digit of our COGS. For this first semester, we don't see really a big increase in energy cost because our energy contracts are fully hedged for calendar '22 and calendar 2023. We expect an increase from calendar '22 to calendar '23, but this is fully embedded in our guidance for FY '23.

And we have another follow-up from Didier Scemama of Bank of America.

Two quick ones. One, on the 20% organic growth rate for '23, could you deconstruct that pricing volume and mix? And second, on the LTAs, you said that customers' inventories are now back to a level which is acceptable. Does that make any difference to your LTAs?

Then 2 questions. It's one of the breakdown of the growth between volumes and price increase. And then for the acceptable inventory levels we are observing, that's 2 questions? Then perhaps Lea, can you comment on the...

Yes, yes. And on the 20% organic growth, the main effect is coming from the volumes. The increase in [ ISPs ] would be compensated, offset, if I can say, by the customer mix. So the growth is really coming from volumes. On the inventory, maybe Bernard?

Yes, on the inventory. So we have this long-term agreement with our customer. And this long term was based on the demand. But again, last year, we were not able to deliver as many wafer the market was expecting. So now it's coming to a level of inventory which is reasonable across the different customers.

Does that mean that your customers are maybe less enthusiastic about renewing LTAs as we move into fiscal year '24?

But our LTA are already covering a longer period than only 1 year.

As there are no further questions in the queue, I'd like to hand the call back over to you, Mr. Barnabe for any additional or closing remarks.

Thank you very much. I would like to thank you very much for your attention. It has been a pleasure for me, Lea and Bernard to be with you and to answer to your questions. And we expect to see you very soon and to continue our Soitec growth journey all together. Thanks a lot.

Thank you. That will conclude today's conference call. You may now disconnect.