Weebit Nano Limited (WBT.AX) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Weebit Nano Meet the CEO Investor Briefing. My name is Danny Younis, and I handle Investor Relations for Weebit Nano. With me today, I have the CEO of Weebit, Coby Hanoch. Good morning, Coby.

Hi, Danny.

Before I hand over to Coby, just to note that we will be having a Q&A session at the end. [Operator Instructions]. We are expecting a lot of questions to come through. So obviously, preference will be given to those questions that are named rather than anonymously, but we'll try to get to all questions in the 1 hour we have. And where necessary, I will also pull the questions where there is overlap. I would now like to hand the webinar over to Coby. Please go ahead.

Thanks, Danny. So we had yet another good quarter of progress. We're focused on commercializing, as everyone knows, and pushing the deals forward. We have obviously DB HiTek that we're moving forward with them. We had some issue when they were using a different tool and had some requests from customers that caused a little change in plan, but we're still definitely on track to do the qualification before the end of this year. So that's progressing well. We actually are already talking to customers that want to work at DB HiTek. And interest there. DB HiTek demonstrated a chip with our ReRAM in it at the PCIM Summit -- at the PCIM conference in Germany this quarter and got very good feedback. So overall, I think things are progressing very nicely, very well with -- on the DB HiTek side. With onsemi, things are moving well. Also, we're moving forward with our technology transfer there. As I said, I believe in previous times, they're very, very cooperative and moving really fast on this, and there's great cooperation there. So things are progressing nicely on that front. Additional foundries and IDMs. There's a lot going on in the background, talking, analyzing, et cetera. We are committed to get additional deals done this year, and I believe we will get them. So we're working very hard on that front. We're also committed to get product companies. The fabs, it's manufacturing license agreements that we do with them. With product companies, it's a design license agreement where they can actually put our ReRAM into their chip, embed it into their chip and go manufacture. So I'm glad to announce that we have the first design license agreement signed. And we have several in the pipeline now. So this is starting to move forward. We added it -- it's post quarter end. So it wasn't in last quarter. It's actually recent now that we signed that agreement, but we are expecting to sign more. And following kind of the industry standard since product companies will end up having a lot more than manufacturing, we'll just be announcing them in our quarterlies from now on as we move forward, the new deals that we do. So that's more or less it is. It's really exciting times. I think you can see also in the 4C and the cash reports and at the end of this quarter -- at the end of this month in the yearly report, you'll be able to see the cash progress, the revenue progress, et cetera. It's a lot of hard work, but we're finally seeing the fruits of this hard work, and there's a lot happening and a lot more to do before the end of this year.

Okay. Thank you, Coby. We will now move to the Q&A session. [Operator Instructions]. We do have several questions coming through. We will maybe start with the new announcement about the product company. How would you describe Weebit's first customer signing mentioned in the quarterly? Are they a big, well-known name or smaller? And are they linked to SkyWater?

So it's not a very big name company. It's an important customer for us. In Australia, people don't know even names like onsemi. So I guess I probably wouldn't expect people to know this company's name, but it's definitely an important customer for us. They are a security company in the U.S. We can't really mention the name. And right now, the details around this deal are still confidential, including the fab that we're using, which one of them we're working with. But it is an important deal, and it will -- it is already actually starting to run and the schedule there is pretty tight. So we'll be moving forward with them rather quickly and getting into this project. And it's great to have this first one. As I said, we already have several in the pipeline that are coming. So it's -- it happened to be that this company was the first and not another one, but we're now starting to see that movement with product companies as well.

And the next question is a follow-up in terms of where is the new customer going to make their chip? Is it SkyWater, DB HiTek, onsemi?

Yes. So as I said, right now, I can't answer that yet. So I apologize for the secrecy and everything, but some of the details are not always easy to make public. We will make it public when we can.

Yes. And the follow-up question from another investor is probably one you can't answer either, Coby, but I'll ask it anyway in the interest of asking the question. Are you able to indicate when revenues start flowing from this product company?

Well, I can't give an exact answer. I will remind everyone that these deals include a license fee. In this case, it's a design license fee, but it's a license fee that's normally paid upfront. As with other deals that we do, the initial deals, you don't get the full amount upfront. It's -- they want to hit some milestones, et cetera. So it kind of happens over time. But I think you can see already from deals that we did with DB HiTek and onsemi, how cash is coming in every quarter. And well, revenue isn't reported every quarter. It will be reported at the end of August, but you will see also how the revenue flows. And it's going to be similar with the product companies. There will be -- each company here, the deals are even more different, but there's a license fee. In some cases, there can be an NRE or other elements. And of course, at the end, the real thing is when they hit mass production and you start seeing the royalties. But the license fee and NRE, if it exists, those kinds of things, you start seeing pretty quickly, the initial payments at least.

Yes. Thanks, Coby. The investors are pressing on here. So is part of the reason you can't talk about it is where the chip is being manufactured because Weebit is working with a new undisclosed fab?

I won't go into the details of that. We are working with undisclosed fabs. I think I've stated that several times. We are working with additional fabs that we're trying to push over the fence and get an official agreement and everything done. But at this point, it's just something that for different reasons, we can't really talk about it yet.

I fully understand. You've confirmed you are in discussions with multiple other parties. How many of those discussions could be classified as commercial negotiations?

They're all commercial. Right now, those are the discussions that we have. They include, of course, a lot of technical parts, but the reason we're engaged is for commercial reasons. Everyone knows that. We know it. The fabs know it. So it's definitely -- and there's different discussions. I mean, in these contacts, we do talk about dollars. So it's not just technology.

Okay. We'll maybe change tack a little bit, Coby. Maybe go to a financial question here. So Andrew Johnston from MST has a question. Can we assume that cash receipts for the quarter were license fee payments from onsemi and DB HiTek? And was there any NRE in this amount?

I would say, of course, these are the 2 customers that are paying us right now. So that's where cash is coming in general in these quarters, you get paid from the customers that you already have agreements with. And as I mentioned, without going into the details, I don't think it's specified in the 4C, but there's license fee and NRE and yes, those kinds of elements are definitely in there.

Okay. Moving to a broader question, Coby. So as more contracts are signed, how significantly will the qualification times reduce?

Qualification is something that actually is very hard to reduce. You can try to automate a little bit and improve a little bit on different things. But at the end of the day -- and I'll look at the big picture. It's not just the qualification. It's the whole technology transfer. So I think that's what people are referring to. From the moment we sign an agreement until we're qualified. The process that we go through today of transferring the technology to the fab, teaching them how to manufacture, adopting the recipe to their specific tools, et cetera. That's something that really cannot change much. We're trying to document better and automate a little bit, but there's a lot of just simple hard work that needs to be done there. Then you need to go and manufacture the first wafers. And again, those wafers manufacturing time, you can push to get faster turnaround. But at the end of the day, it's the 4-, 6-month time frame that you have normally. It really depends on the fab how much they want to give you very high priority and rush it through. It's normally in fabs, just so you know, there's the standard manufacturing time and then you can pay for rushing it through. Now in this case, we're not paying. So we are working with the fab. They have the interest to rush it through and they rush it through many times. But -- so what I'm trying to say is, overall, the total time will not really change a lot. And by the way, the qualification time, as I mentioned in the past, the Israeli joke about not being able to have a baby with 9 women in 1 month. You need to put these wafers into ovens for a certain period of time and just wait. And there's no way around it. You just have to go through a certain number of hours for each wafer in the oven. And so those times definitely can't be shortened either.

Okay. A question has come through on text for me. So it's basically seeking a clarification, Coby. So what does the following mean? And the quote is, "Alongside commercial progress, we continue to make significant technical advancements and are constantly enhancing the baseline parameters of our ReRAM." Can you give me the details of the enhancing the baseline parameters and the significant technical advancements?

So actually, that's a very important comment, and I'm glad people notice it. I think I mentioned many times, in our industry, you can't ever stop doing R&D. You can't ever just sit back and relax and say, "Oh, I have a working technology now, it's great. Lean back." You constantly have to keep running forward. Otherwise, you're falling behind. We are constantly working on improving the quality of the technology, what's called the bit error rate, the number of bits that fail out of 1 million. We work on improving the yield. For the fab, the most important criteria is the yield, what percent of dies that are manufactured are actually functional and they can sell them because there are always some defects in the manufacturing. And now the question is, if it's 80% yield or 90% or 95% or 98%. And as you can imagine, those added percent at the end, those are pure revenue for them. So it's very important to keep pushing the yield to higher levels. We're constantly looking for ways to improve the technology to make it a little faster, a little lower power consumption. The test time, I know I'm going into some technical details, but just so people get the feel of things. Every chip that comes out of the fab needs to undergo test. Now if you think about it, adding 1 second to the test time of a chip, now multiply that by the number of chips that they manufacture and everything, that's very costly. And these machines, the testers are very costly. Everything is very expensive. So you want to improve the test time and reduce it. And there are a lot of different parameters that you want to constantly work on and improve. And in that sense, we believe -- and that's the power of Weebit. The fact that we have such a strong R&D team. We have such experienced people, experienced management. They're all working together. They have constant ideas of, oh, maybe we can do this a little bit differently, maybe we can tweak something here, and that will reduce a little bit the error rate or that will change something like that. So this is ongoing and actually a very big and important task that we do. And if anything, it's going to grow.

Okay. Thank you for that. There's a few questions on SkyWater, Coby. So just pulling it together, effectively, can you give an update on SkyWater? And secondly, is SkyWater going to use Weebit's NVM or Infineon's NVM as part of their new agreement with design IP with Infineon?

So first of all, I'd like to congratulate SkyWater for achieving this agreement with Infineon. I think it's an important step forward for SkyWater. This is something that's very new. It was just announced. We are in touch with SkyWater about this, and we are talking about it. But at this point, it's still -- and I really apologize that I have to say that it's confidential, but we just haven't made decisions with them yet on this, and there's ongoing discussions. So next week, there's going to be another -- a meeting about it, and we'll see where this heads. So hopefully, during the quarter, we'll have -- we'll be able to make some announcements. But right now, I just really don't have news.

Yes. That's okay. And moving to DB HiTek. Would you look to secure nonbinding agreements to proceed with work dependent on qualification, that way, you'd be able to give a higher degree of forward planning certainty?

If I understand the question correctly, basically, we are engaged today with customers who want to manufacture at DB HiTek. So on our side, and this was true with SkyWater, and this is true with DB HiTek and in general, we try to parallelize as much as we can. So the normal mode of operation in the industry is you focus on the fab, the foundry in this case, you do the technology transfer, you go through the whole process until you're qualified. And only once you're qualified, you're supposed to go to the customers, the product companies and start working on the design license agreements and so on. However, that's a very long process. And I strongly believe that it can be overlapped. And I think we're managing to get companies to realize that they can overlap. So the design time of the design company is long, and they can actually start working on their design with our ReRAM in it before qualification. And so by the time that they're ready, we'll already be qualified and they'll be ahead of the race. That's what we try to show them and help them gain confidence. Of course, everyone is always afraid, well, if you won't manage to qualify now. I think we've shown that we qualified in several places already. We've done several qualification runs. So I think people can have already a high level of confidence in the fact that we will qualify. And that's what we're seeing now that we're managing to push more and more product companies forward. Even though technically, we're not qualified at DB HiTek or at onsemi yet, but we are managing to get companies to move forward.

How does Nanoveu EMASS work in with your solutions going forward?

So to be very clear about it, we work with them. They're a great company, and we really were very happy to do the demo together with them. However, at this point, they are working -- they need to work at very small geometries, which were not qualified at yet. So at this point, they are not able to use our ReRAM until we'll qualify in a smaller geometry. So we're obviously following up, and I'm sure that as soon as we have something like that. And again, I can't talk about all the stuff that's happening in the background with different fabs. But as soon as we will be able to qualify in such geometry, I'm sure that the good relationships will continue, and we'll be able to work with them on a real product and not just a demo.

Okay. And in terms of progress on discrete and the discrete selector?

That is work that's being done in the background. I think I mentioned in previous calls, right now, we have this amazing opportunity in the embedded space. The embedded market has clearly decided it needs a replacement for flash. I think I can say there's a clear decision that ReRAM is it. And at this point, it's -- except for TSMC and UMC, Weebit is the only qualified ReRAM, and we are the only independent company that has qualified ReRAM. So we have this amazing opportunity in the embedded market. And my directive for the team has been, let's just focus on this. There's a big vacuum here. We need to fill it in as fast as we can before someone else will somehow somewhere -- I don't know where. There's always surprises that you never know where they come from. So we have this opportunity. We need to capitalize on it, and we're pushing very strongly on the embedded side. And as everyone knows, we're expecting to announce more deals this year and moving forward to next year even more. So I believe Weebit has a very, very good chance of being the leader, taking over major market share in the embedded ReRAM space. And I need the team to be focused on this. So right now, that's the big activity. Now we haven't forgotten the discrete. There is work going on in the background. We're even constantly looking at it and seeing what we can do there and having sessions with Leti to brainstorm around it. But it is -- I have to say it is that low priority. It's not the major activity, and it's not what I'm putting the big resources on right now. Once we really feel strong and we know that we took over the embedded space, I'll be shifting gears and putting more effort on the discrete.

Okay. Moving on to other matters. There's a couple of questions about the release of the quarterly, Coby, about the supposed delay. So it was released later in the day than previous quarterly. Was that intentional? Or was there any issues with the ASX?

No, it wasn't related to the ASX. It was actually more about this notification about the customer that we signed, and we just wanted to do it right. There were different discussions about how we release that information. We ended up deciding to basically follow the standard in the industry. If you look at other semiconductor IP companies, the normal way that they announce design license agreements is in their quarterlies and they just lump it. So they basically come out and state something like in the past quarter, we signed 10 license agreements, and they give some qualifications of which sectors or which geographies or things like that. And now that we're seeing that this was the first one, but we're seeing others that will -- that are getting into the pipe, we just decided to follow that -- the same methodology and just last minute things.

Yes. And there's another question about the ASX from another investor. How is the ASX back and forth over the NDA versus market update situation? And is it likely in the future when you announce product companies, they would be more of a household name?

Well, we definitely plan to have some household names as product companies as well. And when it will be a big name, someone that everyone in Australia will recognize, we'll fight to get a specific release on that. But the majority, as we've already learned and as I've learned, people in Australia don't know a lot of these companies anyway. And I was surprised to see how -- even a name like onsemi was not really known in Australia. So we -- the -- we're expecting to have -- just so you understand, we're expecting to have hundreds of product companies or growing numbers, and it just doesn't make any sense to announce each and every one of them. That's part of the discussion that we had about this. You announced the very big ones, the ones that are very significant because of the company name itself or because of the application or something. So here and there, there will be announcements. It's pretty obvious that every once in a while, we will want to make a special announcement. But the vast majority of the cases, we'll just be releasing it in the quarterly. I have to say the ASX, everyone knows, I have my opinions about all of the regulation and how it needs to be done. Obviously, that was part of the considerations when we made this release. There -- we didn't actually have to negotiate with the ASX. We already knew what they would say and how they would react to things. So it was mostly work that we did with our lawyers to just avoid getting into difficult positions. In Israel, we say that a smart person doesn't get into a situation that a wise person knows how to get out of. So I prefer to be smart and just not get into those situations and find ways in advance to meet the regulation and move on.

Okay. Maybe an update on GlobalFoundry, what's happening there?

At this point, there's not much. They have been trying to develop their version of a ReRAM. They decided that it's very strategic for them. They're making some efforts there. We -- unfortunately, I mean, for me, it's -- I believe it's a big mistake what they're doing, but that's obviously my opinion, and they have a different opinion. So they're trying to make it work, and we don't really have a lot going on with them at this point.

Okay. There's 3 questions around your staffing and your ability to scale up. So how many people are now employed at Weebit, is the first part? How much do you expect this to increase in 2025 as a function of signing more customer deals, is the second part. And the third part is, how many PhDs have you hired additionally?

I think we have roughly 50 people, plus or minus, I don't remember the exact number that we have, about 35 of them, again, roughly in Israel and 15 in France. We have been hiring -- I'm always very cautious about hiring. It's always -- I've seen companies get excited about, wow, we're going to have all these deals and this and that. And then let's just go hire people so we can deal with them and you hire people too early and then you have a lot of expenses before the money starts coming in and deals slip and all kinds of things like that. So we are very cautious about our hiring, and we're monitoring the progress of the negotiations, and we hire people only when we know that we need the people, and we'll need them for that project. So there's been ongoing growth of, I would say, 1, 2 people per month in the recent months towards these new deals and towards these activities, I mean, like this product company also, et cetera. We will be continuing to grow at that kind of rate. Right now, again, I'm very cautious about not hiring a lot of people, but we are hiring. We have hired a few more PhDs. I think today, the number of PhDs in the company is already about 15. So it's -- we're growing but very cautiously.