Soitec SA (SOI) Earnings Call Transcript & Summary

Hello, and welcome to Soitec Half Year Results 2023-2024. 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 '24 Results Conference. I'm Pierre Barnabe, Soitec CEO and I'm very pleased to be with you today, along with Lea Alzingre, our CFO; and Steve Babureck, our SVP Strategy. This presentation contains a disclaimer. Please read it carefully. We have a lot to cover today. I will share the main highlights and drivers behind our H1 '24 performance, and Lea will address the financials. Let's start with the highlights of our first semester. In H1 '24, we delivered a financial performance in line with our expectations. Revenue reached EUR 401 million, down 15% year-on-year, as we had announced at the beginning of the fiscal year. This temporary pause in our strong growth trajectory reflects the inventory digestions across the smartphone value chain. Our 33% EBITDA margin demonstrates the resilience of our operating model in the context of a lower revenue. While we strictly control our cost base, we continue to significantly invest in R&D for new product development and in our capacity expansion. The profile of our operating cash flow translates the lower EBITDA performance and the increase in working capital to secure our significant rebound in H2 and beyond. We delivered on the significant sequential rebound we anticipated as our Q2 revenue was 56% higher than Q1. It translates different dynamics across our 3 strategic end markets. Let's start with our Mobile Communications Division which delivered a very strong 91% sequential revenue growth in Q2 '24. The H1 '24 revenue performance of our Mobile Communications down 24% year-on-year reflects the ongoing inventory digestion across the smartphone value chain, which impacted RF-SOI as anticipated. The temporary weakness in RF-SOI was partially offset by the significant progress we are making on the adoption of new products in 5G smartphones, WI-FI 6, 6E, 7 and Infrastructure. FD-SOI adoption for both Sub-6 gigahertz and millimeter Wave [ mmWave ] continue to progress as all major players have endorsed our products. POI is ramping up very fast as we are now delivering to more than 5 customers. With design wins and accelerating activities in qualification from several other customers, POI value proposition is recognized by the ecosystem. Finally, we continue to make progress on the development of new products for applications beyond handsets such as 5G infrastructure or satellite communications. On the end market side, we now anticipate the smartphone market to be down around 5% in 2023 compared to flattish market anticipated at the beginning of the year. 5G penetration should be slightly higher than the 60% forecast. While the smartphone market is showing signs of rebounds and the inventory digestion across the value chain is easing overall inventories at some of our customers remain high. Let's move to Automotive & Industrial, which delivered a strong 31% revenue growth year-on-year. We continue to see strong demand of our products driven by the increase of infotainment, autonomous driving, functional safety and electrification. This strong performance was essentially driven by a sharp increase in Power-SOI wafer sales, continued strength in automotive FD-SOI and the revenue generated by our SmartSIC technology. During the first semester, we achieved some significant milestones on our SmartSIC road map. In September, we inaugurated our Bernin 4 Plant dedicated to SmartSIC wafers on time with our road maps. We are deploying our SmartSIC program in line with our road map. We are on track on all aspects: technology, manufacturing, supply and commercial. Our activity continues to be driven by the increase in semiconductor content in Automotive. Going forward, the steady increase in electric vehicle penetration will be a significant growth driver. Our Smart Devices division saw a very strong growth in FD-SOI sales in the semester driven by a strong appetite for low-power computing devices and Edge AI applications. This strong performance was offset by lower sales on the Imager-SOI and Photonics-SOI, temporarily impacted by a weaker data center environment. We confirm the solid long-term drivers and outlook for Photonics-SOI, a product fundamental to enable ongoing development in cloud computing, artificial intelligence and machine learning. The division was down 6% year-on-year. We are seeing important developments across our product line. On FD-SOI, our product portfolio continues to expand, supporting new generations and extending beyond general purpose into AI computing. On Imager-SOI, we are sampling second-generation wafers dedicated to higher performance sensing applications. In Photonics, we are accelerating our R&D investment by leading-edge fabless to support AI ML developments and leveraging increasing developments in optical transceivers. Let's talk about our capacity expansion. We continue to invest across all our product lines to address customer demand in SOI and compounds. In H1 '24, we invested EUR 138 million as we are preparing for a strong rebound in H2 '24 and beyond. In Bernin 1, we are managing a slight decline on 200-millimeter by transferring operators to Bernin 3, where the POI activities are strongly picked up with wafer shipped to more than 5 customers. Bernin 2 continues to run at full capacity and we are leveraging technology and automation tools to further improve our industry-leading yields. In September, the inauguration of Bernin 4 of fab dedicated to SmartSIC wafers and 300-millimeter Refresh was fundamental milestones on our road map. We have already produced our first wafers in Bernin 4 and we will ramp up production in fiscal year '25. Our 300-millimeter SOI fab in Singapore continues to ramp up to address strong demand. The extension project is progressing on time. In assets, we are working on samples to prepare the development of gallium nitride for RF and power and smart gas, as we are exploring key specifications with key partners. Finally, our partner, Simgui is adapting to production needs. On a full year basis, we will invest around EUR 290 million, slightly below our EUR 300 million guidance. Let's now have a look at how sustainably we continue to deploy our expansion. Sustainability is at the heart of our innovation process. We continue to deploy renovation, our company-wide initiative to implement ecodesign at Soitec in order to embed sustainability from the very beginning of our design and production processes. Furthermore, the progress on our SmartSIC road map is a strong testimony of our commitment to enabling more sustainable semiconductor industry as the production of SmartSIC wafers divide CO2 emission by 4 compared to conventional mono SAC wafers. We are also progressing well on our climate objectives and our greenhouse gas emission reduction targets by 2030 has been validated by the SBTI. We have -- we also have strong commitments on reducing our water consumption and increasing the use of recycled water. Between 2015 and 2022, we have reduced our water intake per wafer by a factor of 2.5. And we plan to divide it by 2 by 2030. And finally, on Diversity and Inclusion, a critical value creation driver, we keep raising our standards with ever more ambitious objectives to create a more diverse, inclusive and safer work future to attract and retain talent. Let me now hand the microphone to Lea to comment on our financials.

Thank you, Pierre, and good morning, everyone. As expected, FY '24 is a transition year, and our H1 revenue is down year-on-year as we navigate this current complex environment. As we prepare for the ongoing recovery of the smartphone market, we continue to implement strong cost control measures to maintain profitability. Our strategic priorities remain unchanged and preserve investments to extend our technology leadership, accelerate our diversification beyond their FSI products and optimize value creation for all our stakeholders. The main highlights from our H1 FY '24 are: We delivered EUR 401 million in revenue, down 15% year-on-year at constant FX rates. We maintained strong profitability with a 33% EBITDA margin. We invested EUR 138 million of CapEx, mainly for SmartSIC and 300-millimeter SOI capacity. All this while maintaining a healthy balance sheet with a net debt at EUR 21 million. I will not discuss the H1 revenue as it was already commented by Pierre just before. So let's talk now about profitability. We achieved a solid gross margin of 36% slightly up year-on-year, thanks to strong industrial performance with a highly effective cost control, a favorable product mix and a positive currency impact. This is -- this has strong results considering the headwind we faced during our H1 FY '24. As expected, inflation including raw materials price increase embedded in our long-term supply agreements. The higher level of depreciation expenses and the lower revenue as explained earlier. In H1 FY '24, we also maintained a healthy level of capacity utilization with some anticipated inventory build to fulfill H2 FY '24 demand, that is 60% higher than the H1 demand, while at the same time, optimizing capital expenditure. Gross margin management is and will remain a key area of focus for us. Operating income then. Operating income reached EUR 86 million, a 21% margin, 2 points lower than last year of semester. While strictly controlling SG&A costs, we continue to invest to support our strategic priorities and position ourselves to a much stronger from this transition period. To that extent, we continue to significantly invest in innovation, and our net R&D expenses increased by EUR 29 million, a 17% increase versus H1 FY '23. R&D expenses represented 8.4% of our H1 FY '24 revenue. We remain laser focused on strengthening our technological leadership in each of 3 end markets and across multiple product lines, SOI, POI, SIC and taking a longer-term view, we are also increasing our efforts in upstream R&D, hiring top talents and strengthening collaboration with innovation platforms worldwide. SG&A expenses represented 6.3% of our H1 revenue down EUR 3 million, an 11% decrease year-on-year. This is a result of strong cost containment actions started at the beginning of last fiscal year and reinforced during the period. They are mainly related to decrease of the external expenses and very tight control of labor costs. We, however, continue to invest in digitalization and IT project in order to prepare for the future. Let's now take a look at our EBITDA performance. We reached a 33% EBITDA margin, down 2.5 points year-on-year, resulting from higher gross margin, higher depreciation on sales, offset by higher R&D on sales. Net income reached EUR 80 million at the end of H1 '24 representing around 20% of revenue, a flat net margin year-on-year. Our financial result is a profit of EUR 2 million compared to a loss of EUR 2 million last year. We benefited from a EUR 9 million increase in financial income from cash investments that have more than offset a EUR 4 million increase in financial expenses related to loans and leases. We also recorded a net FX gain of EUR 3 million compared to EUR 4 million last year. Finally, our income tax continues to benefit from tax loss carryforward. Our effective tax rate moved from 12% to 9% reflecting a higher contribution of our Singapore subsidiary to the group results. Moving on, let's now take a look at cash flow. We generated EUR 45 million net operating cash compared to EUR 126 million last year. This decrease is explained by a lower EBITDA, a higher working capital. The cash outflow from working capital amounted to EUR 69 million compared to EUR 26 million in the first half of FY '23. This mainly reflects a EUR 65 million increase of inventory in anticipation of the H2 deliveries based on customers' visibility. The EUR 105 million decrease in trade payables, including non-recurring down payments to suppliers to secure our supply agent, partially offset by a EUR 106 million decrease in trade receivables, which were much higher at the end of March '23. This high level of working capital mainly explained by the higher seasonality between H1 and H2 this year as well as non-recurring payments to suppliers. Working capital management is and will remain a key focus moving forward. Regarding cash out from investing activities, we invested EUR 138 million. We continued our capacity expansion based on business visibility. We invested mainly in SOI 200 in Bernin, including Refresh capacity, both in France and in Singapore. SIC tools for our new fab, mainly dedicated to SmartSIC and also R&D, IT and sustainability programs. Net cash out from investing activities consist of EUR 137 million CapEx cash out, partly offset by EUR 8 million cash in from cash investments. Financing flows were negative at EUR 45 million, essentially reflecting borrowings repayment during the period. Cash flows used in financing activities decreased by EUR 28 million compared to H1 last year due to higher debt repayments and the absence of new loans over the period compared to EUR 10 million last year. Including a EUR 2 million positive impact of exchange rate fluctuations compared to EUR 26 million in the first half of FY '23. The net cash outflow reached EUR 127 million in the first half of FY '24 leading to a strong cash position of EUR 661 million at the end of September '23. Finally, let's focus on our balance sheet which remain very healthy. Equity is just above EUR 1.4 billion, up EUR 98 million compared to March '23. Thanks to the results from that period. We ended this H1 with a net debt of EUR 21 million due to EUR 127 million cash consumption over H1 FY '24, mainly due to CapEx cash-out. EUR 59 million related to the leaseback contract of our new fab dedicated to SmartSIC starting July '23, leading to an increase of financial debt. To conclude, you can see that we achieved to maintain a strong level of profitability during this H1 while continuing to invest for the future. We are taking actions on things to gain control, such as operating expenses and CapEx, and we are well prepared for the market rebound. I will now hand over to Pierre to conclude on the guidance. Thank you for your attention.

Thank you, Lea. To conclude, we confirm our strong recovery in the second half of fiscal year '24 against the backdrop of a weaker-than-expected smartphone market. The extent of the inventory correction at our customers is greater than anticipated. We confirm the strong traction for automotive and industrial as well as Smart Devices divisions. We now anticipate our fiscal year '24 revenue to slightly decline by around a mid-single-digit percentage compared to fiscal year '23 at constant exchange rate and perimeter. As a result, fiscal year '24 EBITDA margin is now expected to be around 35% of revenue. We'll continue to implement cost control measures while continuing to invest significantly in R&D. Capital expenditures will be around EUR 290 million, slightly lower than our initial EUR 300 million guidance. They are mainly related to capacity investments as well as innovation, sustainability and IT. Our growth outlook remains very strong. While the SOI content within end devices continue to increase, the ongoing penetration of our products across all 3 end markets and the successful deployment of our expansion into compound semiconductors with POI and SmartSIC are becoming new significant growth drivers. This concludes our remarks. Thank you for your attention. Now let's please open the Q&A session.

[Operator Instructions] We'll take now our first question from Aleksander Peterc from Societe Generale.

I just have a couple of questions. So to start with, given the lower base in fiscal '24, with today's downgrades to roughly minus 5%, the feel to climb to your 2.1 revenue guidance -- to $1 billion revenue guidance by fiscal '26, which was already quite steep going into this morning, I just got a little bit steeper. So you need to deliver 36% growth in both fiscal '25 and fiscal '26 to get to that number. You haven't actually delivered this kind of growth but took consecutive years in your recent past since 2017. So I'd just like to understand, does this guidance still stand? Or is it up for review or related date? That would be my first question.

And as you know, we have a robust process each year. We are entering into this process right now by taking the assumptions from analysts, observation from our teams and also discussions with partners, customers and so on, to assess our business plan for the years and this process will drive -- will bring us to give you an update on the years to come guidances by spring time as we are doing usually. There is just my standpoint that is the mobile work congress where we give our view on the smartphone market for the calendar years and it will be -- we're going to follow the same process. Then on spring, you're going to -- we're going to tell you the update of our guidance for the years to come.

Okay. So I understand it's up for review then in the spring. Then my second question would be just to understand what's changed and brought this cuts along to your fiscal 2024 outlook? It seems to me that actually the smartphone market is a bit better, I think Qualcomm has slightly upgraded their outlook but basically saying that the decline is not quite as few as it was before. So is your downgrade really reflecting just a misjudgment of what happens in terms of inventory to your customers? Is it just the inventory digestion, which is worse? Or is it also the market that doesn't help?

Well, indeed, you remember the assumptions we made to build the first fiscal year view. It was on the smartphone market that was supposed to be flattish for the calendar year '23. And as you know, everyone is converging on the minus 5% decline then this minus 5% decline has an impact on the reasons of digestions of inventories within the full supply chain, starting with our immediate customer. This is the reason why we revised to a single mid-digit decline in the fiscal year '24 revenue. This is a simple reason. And it is impacted, as you know, as you understood, mainly the RF-SOI activity.

We take now our next question from Sebastien Sztabowicz from Kepler Cheuvreux.

On RF-SOI, could you please help us understand where the inventories are standing right now the level of inventory that your main customers? Do you have any kind of visibility and given your discussion with your main customers, when do you expect the inventory correction on RF-SOI to be completed? Is it by the end of the fiscal year or even beyond that? And I've got a follow-up.

Then we have visibility, thanks to discussions, of course, with some of our -- many of our customers. It's really -- it depends on dynamics for each of these customers. And we do believe that we have to wait for another couple of quarters before seeing these inventories on RF-SOI to become to with healthy positions. But again, it really depends on the customer and then on what is behind the supply chain for each of them. But overall, we believe that another couple of quarters is expected for seeing these inventories in a healthy position as an overall view.

Okay. And the second question is not a short-term one, but what do you see your business trending in fiscal year 2025, given that we have plus and minus, macro conditions are getting weaker and deteriorating. But on the other hand, as Alex mentioned, smartphone market is bottoming, inventory correction is being mostly behind us and you have new product ramping up, POI, SmartSIC and so on. Can you help us understand how do you see the business accelerating into 2025 -- fiscal year 2025?

As I said to Alex, the update will be given to you by spring, looking at the process we used to have on a regular basis with all the stakeholders. But clearly, what we see is that we have reached the bottom for this market. We can imagine a growth for next year in smartphone business. That will help in the inventory digestion as I said for RF-SOI but keep in mind that all the other growth drivers are intact, and I would like to say, are very healthy for this year and for the coming years. You mentioned POI, that is doing very well. FD-SOI also in all the -- across all the divisions, we see also a very, very interesting tractions on the SmartSIC even if it is the beginning, of course, this year, but next year will be very promising. And we have to keep in mind that Photonics, at POI, SOI also are giving a lot of very good ideas for growth as growth drivers for the company. And this is very important to keep in mind that the diversity and the diversification of our product is going on and it has been accelerated during this transition year, and it gives us, as I said, a very strong view on the growth drivers for the future.

We'll take now our next question from Francois Bouvignies from UBS.

I wanted to ask you about, first, your 5G penetration estimates for Canada '23 and '24 after all the moving parts. And what is your view today of the 5G penetration specifically as we are closing to '23 and your expectation in '24 and that would be very helpful. The second question is on the silicon carbide. So I understand that you are expecting some new customers by the end of the year. I'm just wondering from a timing perspective with your guidance of silicon carbide reaching 10% of your revenue by fiscal year '26. Obviously, it takes time to qualify the new customers and then you have to see some execution risk ramp-up as the silicon carbide industry showed with Wolfspeed, for example, sometimes it takes much longer than expected. So I'm wondering if there is any timing you know that basically, you need at least to have 1 month lead time or -- my point being is, is there a risk that it takes some time for a customer to sign this contract that may be the revenue that you're expecting might take a bit longer. I'm not questioning the fact that you're going to find your customers, I'm just questioning the timing, is what I mean. And thirdly, if I really -- a quick one on POI. You talked about the strong contribution, if you can share maybe quantify the contribution of POI or the growth rate, anything around the quantification here would be very helpful. Sorry for the third question.

No, you have not to apology for the third question. Thank you very much. On the first aspect, the 5G, as I said, on the penetration for this year, we are -- we should be slightly above 60% of penetration that is a bit better than what we were believing but in a market that is declining by 5%, while we were betting on a flattish market. Then -- of course, we see this penetration to continue growing in the coming years. But again, we'll give you an update during the mobile work congress by compiling different data and information from stakeholders, analysts and so on. But we see, of course, 5G continue to penetrate the smartphone market overall. And at the end of the day, it's, of course, a good driver and growth driver for us because the content of what we are selling in the different smartphones and the new milestones to come, continue to increase. Then of course, it's a very important topic for us. Regarding the SmartSIC, we are on track with our plan. Yes, it takes time for customers because we are entering into prospections then afterwards samples, then prototyping and qualification. Then it's a process. I do confirm that before end of fiscal year '24, we're going to announce another customer into qualification process, a design win. But we have other customers in the pipe, then we don't see any headwinds and drawbacks on this plan because, first of all, we are barred and sustained by a good operation reasons from an innovation point of view, manufacturing point of view, supply chain point of view. And the customers, let's say, activities we have is quite good. And we don't see particular slowdown in the plan we have in mind for the moment. It's a very dynamic market. And SmartSIC step-by-step should become and will become a standard. Regarding the POI, yes, I do confirm it's a very fast growth driver. We don't give any specific details. Today, we have 5 customers. We are working with additional customers for the coming years, and we see more and more adoption of this technology again, as a standard in some parts of the POI, I would like to say, market, but it's clear that it is becoming step-by-step a key driver for the Mobile Communication Division without giving you for the moment in more detail.

Our next question from Didier Scemama from Bank of America.

I just want to come back, make sure I understand exactly what you're saying to Alex's point earlier on, are you saying you're no longer committed to your fiscal year '26 revenue guidance? And I've got a follow-up.

No, I didn't say that. I said that we are updating every year our guidance for the years to come, including fiscal year '26. Then if we have to update, we're going to give you this update on -- by spring after having processed the different data from the market as we did last year. That means that by spring time, we're going to be in a position to update, can be a confirmation whatever an update, looking at the market, looking at the customers, looking at inventory digestion, looking at the growth drivers I was mentioning and also the analysts of the market and particularly in the smartphone market, and we're going to give you an update on this guidance. This is what I said.

Okay. And second question is, if you could give us an update your Wi-Fi 6, 7 sort of penetration by end of fiscal year '24, it was 50% last year, would you think you are going to be close to 100% by the end of the fiscal year? Or is it -- do you get still more room to gain share? And then related to that, also if you could ex the mobile device business. Do you feel like you are on track to reach fiscal year '26 guides on the non-smartphone part of the business ahead or below?

Then on the trends, we clearly confirm and this is what I said as an overall comment on the fact that the content versions after versions of the smartphone is increasing for Soitec. If we -- if you look at the iPhone 15 as an example, the iPhone 15 content, we see depending of course of the version that we see between 75 to 78-millimeter square of Soitec content in these phones. This is a big increase compared to the iPhone 14 and compared to other smartphones. And then we see clearly this trend going on. It does include, as you said, of course, the Wi-Fi and the Wi-Fi evolution to 6, 6E and 7, it does include the millimeter wave. It does include satellite connectivities. And we see that RF, FD and of course, POI more and more going to be the key drivers for -- and we're going to look more and more Soitec content in the smartphone. Then I can clearly confirm these trends because we are observing it right now. Giving you more details will be part of the spring date and because, of course, we're going to give you a guidance based and sustained by data, figures, and, of course, the translation into or as the divisions of, what does it mean regarding top lines and profitability.

Our next question from Olivia Honychurch from Jefferies.

Firstly, I just wanted to ask about the H2 outlook. Your new full year guidance would imply above 50% sequential growth in revenues in the second half. How can we think about that being split between Q3 and Q4? And then my second question was around silicon carbide SmartSIC. There have been some concerns in the market that there's a challenge to source 8-inch wafers at automotive grade. How can we get confidence that you'll have enough wafers at the 8-inch sizing to ramp up when you're aiming to both on the polySiC and the monoSiC side?

I propose Lea to take the first question, and I'm going to take the second one. Is that okay?

Yes. Of course. So our growth will not be linear in our H2. We are expecting Q3 quite flattish as compared to Q2. So we can do the math to have the Q4.

For the second question, it's of course, very important question, but it is validating the SmartSIC technology. That's the reason why I'm very confident in the fact that this technology is going to become a standard, which will take time necessary, but it will become a standard because we are able -- you remember, to cut 10x at minimum monoSiC wafers. You're right to mention that scarcity on 8 inches is coming because there are more and more demand. Our ability to cut 10x going to reduce significantly the discount. And I believe this is one of the key drivers that makes prospect, prototyping, sampling customers we have today in appetite. And we don't see this issue as a problem for us because of this particularity of the SmartSIC, let's say, technology. And this is clearly a big, big driver for us.

We'll take now our next question from Robert Sanders from Deutsche Bank.

I just had a question regarding Huawei in China. I just wanted to understand a bit better the reason why Huawei ramping up against, for example, Oppo, Vivo, Xiaomi is a positive. Is that purely because of your POI position in China? Or is there another reason? Because I'm just trying to understand how that Huawei content compares with what you just mentioned with the iPhone 15?

Thank you, Rob. As you know, we don't give details on -- let's say, the final end smartphone makers. Just as a reflection of what -- of your question. China is an important of those dimension and elements of the recovery of the smartphone market. The fact that apparently, some fundmakers are experiencing a good ramp up, not only the one you are mentioning could be a signal. We need to investigate that's going to be part of our process analyze for the date for years to come. But it's clear that China is a very important engine for the recovery of the smartphone market, and we are observing what is happening in this domain. Regarding the POI, we are not giving details on where POI is getting success. But China is part clearly of the countries that are where we are delivering our products or finished goods as a whole. It's also where we have the partnerships, as you know, with Simgui that is helping us to deliver 200-millimeter SOI solutions to the world.

Just a quick follow-up on SmartSIC. Then just thinking about the Chinese opportunity are you -- is there any reason why you would not license Chinese substrate players, your technology over time? Or is there -- would you prefer to just produce wafers? And I'm just wondering whether you would prefer to play China through Western vendors or whether you would like to play it through Chinese substrate or Chinese IDMs?

It's very simple. We are selling to everyone in the world, okay, as long as, of course, we respect the rules, the laws for selling finished goods. But we are not selling technologies. We are not transferring any technologies to anyone. We are keeping for us, the mastering of our patent IPs. As you know, as you mentioned, we continue to invest a lot in R&D despite lowering -- slightly lowering revenue. We continue to invest massively in research and development innovation, because it is the essence of our activities, and it's a way we can really update our product, versions of product, and also put on the market new products. Then it is very important to give us these technologies, and there is absolutely no project of transfers of technology nowhere.

We'll take now our next question from Ben Harwood from New Street Research.

I just have one on the Photonics business. So you mentioned that's facing some weakness. What are the drivers behind the weakness that you're seeing? And then on the other side of that, are you seeing any momentum in, say, optical data center interconnects given the accelerating demand for AI that we're seeing? And if you could just let us know roughly the size of the Photonics business for us, that would be great.

Yes. Thank you for the questions. For Photonic, there are 2, let's say, 2 times in the photonics evolution. There were the first wave of photonics that is still, of course, very active, where we're going to potentially use for data centers, servers, interconnections and so on. Then this wave is active. But of course, it depends on data centers activities and servers activities that suffered a bit over the last quarter. And there is a second wave that is very important, that is key. And I believe AI will be a big catalyst for the growth of Photonics SOI in the future, for which you have seen big giants gathering all together to prepare the ground for Photonics. And Photonics on SOI for me is a very good solution to first of all, accelerate interconnections between processing unit and mainly graphical proceed units that are essential for artificial intelligence and machine learning calculation and computing. And also that is of other important topics, electricity and power consumption that could become a bottleneck for AI and ML expansions. With Photonics and SOI, we are solving the 2 issues, the 2 problems at the same time and speed of execution of [ posing unit ] at the substrate level and lower power consumption. And I believe that we're going to remove clearly the road blocks for Photonics adoptions within the AI machine learning world by providing our Photonics and SOI wafers. Then a lot of -- a lot to come and more to come on these products.

We'll take now our next question from Florian Sager from Stifel.

I just have a question on inventories because at your mobile customers, they're still at 150 days of inventory. Do you expect this high level to be the new normal, maybe because it used to be more like 100 before the pandemic? Then I have a follow-up on.

Then indeed, you have inventories in all the value chain, but it's clear that it seems to be less and less the case at the end of the value chain. But we see, as I said, by our customers still a high level of inventories that's going to be digested in the next couple of quarters. But again, it's an overall view, and it depends on the customers. Some customers get quite high inventories other less. Overall, the fact that at the end of the value chain, we see a clear improvement is giving us, of course, view that a couple of quarters will be needed. That said, and again, we're going to -- we are looking at the data that are evolving very fast. What is very important that the bottom has been reached and now we see step-by-step an improvement and this digestion going on. But it's something where we are not giving precise figures, but we are, of course, monitoring the evolution step-by-step in the week-by-week, I would like to say.

Okay. And the next one would be on SmartSIC. Are you worried here about the Chinese competition and maybe potential price was because I mean, Infineon is going very much in the direction of Chinese suppliers, right? Is that a danger in terms of pricing for you?

We are -- we have consolidated our supply chain because we are using 2 type of materials for making SmartSIC. We're using monoSiC and polySiC. The fact that our competitions in this world, whatever it is from China, from U.S. or whatever is a good news for us because we could benefit from this competition. But it takes time to build capacities to make monoSiC or polySiC wafers, particularly when you shift from 6 inches to 8 inches, having -- making in quality 200 millimeters monoSiC wafers. It takes a long time, then competition is fostering the improvement of capacity to deploy and capacity to get technologies. And this competition from our side and for the SmartSIC deployment could be understood as a good news.

We'll take now our next question from Sandeep Deshpande from JPMorgan.

I want to go back to the point Alex made at the beginning of the call. On the future because when you look at the consensus estimates for FY '25 ahead of our last night's report, I mean, market is looking for almost 40% plus growth in FY '25. Clearly, I mean, FY '25 is only 4 months away from here so you have some view of what market -- what your customers want to buy into FY '25. I know you don't want to give guidance into FY '25 here but in directional terms, do you think that you can grow around 40% in FY '25? Or given the kind of inventory correction we are seeing in the market at this point that, that might not be possible. Secondly, on SmartSIC, the question is that you've got this new customer that you're going to announce by the end of the year, are you not giving them too much leverage by saying that you've got a new customer to sign up because on pricing, et cetera, because later you announced that customer, the more leverage that customer has with you in terms of making an announcement.

Then for the first question, Sandeep, as I said to Alex, and [indiscernible]. We are really -- we need to enter -- and it's very important for us to work in a process point of view to give you the best update we can on spring, then you're going to get the views for the coming years looking at the different data as we are collecting. You say 4 month or 4.5 months, but in 4 months, a lot of things happened, then a lot of things could happen. Then it's -- it's not the fact of the 4 months, it's more the fact of having very solid data collection and process to give you the best-in-class update we can by spring. That's very important. It matters to us. And this is really an answer I will continue to confirm. Regarding the SmartSIC -- we are -- again, we are selling value in SmartSIC. It's a product. It has nothing to do with monoSiC, simple monoSiC product. It's a solution. It's a product we are selling with really enhancements and improvements in terms of [ dye ] concentrations, in terms of electricity, let's say, diffusion in terms of power consumption, then it's really value. The price is not a question today looking at this value. Taking into account that there is a real appetite for SIC generally speaking, and clearly for SmartSIC. Then we are not at all at this stage. And generally speaking, even on, let's say, products we are selling for years like RF-SOI, we are really sustaining and defending the value. Again, we are not selling wafers. We are selling engineered substrates that are products in which we are inserting many, many things and more and more things because if you remember the road maps we presented on the different products and the investment we are making in R&D and innovation, we are bringing more and more features within these products. That means that we are really selling values. And these values is more and more recognized by the industry and more and more recognized by our customers. This is the way we operate from a business point of view.

We are not taking further questions. So I will hand it back to Pierre to conclude today's conference.

Well, thank you all for your interest and for your questions. The next date agenda will be the release of our Q3 '24 revenue on the 7th of February after market close. This ends our call for today, and thank you. Thank you very much for your attention. Thank you. See you soon.

Thank you for joining today's call.