Wolfspeed, Inc. (WOLF) Earnings Call Transcript & Summary

All right. So good morning, and welcome to Day 2 of the Evercore ISI Semi and Semi Equipment Conference. I'm Matthew Prisco, semiconductor analyst at Evercore ISI. And this morning, we have the pleasure of hosting Gregg Lowe, CEO of Wolfspeed; and Tyler Gronbach, VP of External Affairs. Now Wolfspeed is a company leading the way in silicon carbide materials and devices. And during Gregg's time at the helm for nearly the past 6 years has undergone quite the transformation to make it the silicon carbide pure play that it is today. So thank you, Gregg and Tyler, for joining us.

So I've a list of questions I'd like to run through and then save some time at the end for potential Q&A. With a lot of moving parts that the company discussed, we'd love to just jump right into it. So given its importance today, I think the 200-millimeter material ramp is a great jumping off point for the conversation. And would love any color you could offer on technical metrics of the materials they stand today, bull height, wafer thickness, defense -- defect rate, et cetera, maybe versus Analyst Day expectations or versus the more mature 150-millimeter materials or whatever you think most helpful for investors to get comfortable around the company's material transition and where we stand today.

Okay. Great. We demonstrated our first 200-millimeter wafer actually way back in 2015. And when I jumped into the company in 2017, we began a very intensive program to get that technology into production. In fact, I hosted and chaired a monthly program review for 200-millimeter. So a tremendous amount of effort over the last 6 years developing 200-millimeter technology. Today, the technology is in production in our, what we call, Building 10 on our campus. It is exactly where we want it to be from a defect density perspective, which means -- which is actually better than where we are at 150 millimeters. So the quality of crystal is exceptional. We had about a 6-month delay in putting into production. That delay was caused simply by a supply chain issue with a piece of equipment associated with an electrical substation. That equipment is now in order, is working now and we got certificate of occupancy on Building 10. And our Building 10 will be -- will have the amount of capacity for crystal growth that will allow us to get to 20% utilization in our Mohawk Valley fab. It will feed the Mohawk Valley fab. As of our last investor update. 75% of all of the intended machines are in the building, are functioning and are growing excellent crystals. It's actually more than that today because obviously, we've had a little bit of time going between there and -- then and there. So we feel we're in great shape right now with the crystal growth. Wafering is in good shape as well. Epi is in good shape. So we're actually feeding Mohawk Valley now at a pretty nice rate as we go to ramp the Mohawk Valley fab. So 6-month delay was not caused by any technical problem with the crystals are growing or anything like that. It was simply a substation that we couldn't get a part for. That's completed and crystals are growing, and they're in excellent condition.

Perfect. Very clear. So competitors in the materials market appear to be making progress towards the goal. So as you reflect on that competitive landscape, how have you seen Wolfspeed's positioning evolve over the past 6, 12 months? And do advancements in that merchant market, where are you at all, particularly as it relates to China and the clear strategic prioritization there and capital being deployed?

Well, I think a couple of things. So first off, all of our device competitors are currently wafer customers of ours. So they buy wafers from us and some with epi and so forth. And all of them have stated some specific objective of having their own internal capability to do crystal growth and epi and so forth. And some have stated that they're going to be 100% internal by the end of this calendar year. I think that's been modified to now more than 50% by the end of this calendar year. And I believe that was on semiconductor that has said that ST has stated publicly, I believe, 40% of their supply is intended to be internal and 60% will be external. I think for companies to build an internal capability makes a lot of sense. I would do exactly the same thing if I were them. So -- and we have in our plans and as our revenue outlook and so forth that all of them will be successful to the extent that they publicly stated they would be. So we consider that in our plans that they are going to be successful. I think they'll likely find it more difficult than they originally anticipate. Silicon carbide is not an easy subject to master. It's one that we've spent 35 years on. And just in 200-millimeter, I can personally tell you, it's actually been 6 years because I've been at the company now 6 years, basically 6 years of intensive R&D to get us where we are at 200-millimeter. I can't imagine being the program manager of somebody trying to go from 0 to full capability and, well, I guess, by the next 4 months. So that's going to be a bit of a challenge, I would imagine.

Okay. Perfect. And I guess when you think about that 200-millimeter ramp, given competitors' commentary and plans to kind of ramp their own 200-millimeter in relatively short order, how do you think about your lead in that process specifically? And what have you learned during your ramp that maybe differentiates you from the pack today?

Well, we've spent 6 years perfecting the 200-millimeter technology. The capability that we have right now is exceptional. As I mentioned, it's better than our 150. And we're -- we shipped $1 million last quarter. We'll ship a couple of million dollars this quarter and ramp up the wafer fab. I think the technology is, I think, substantially ahead of everybody. And it's one thing to be shipping wafers and ramping a fab, and it's another thing to plan to be shipping wafers. So I think it'll just have to play out.

All right. Perfect. And then you've previously talked about capacity constraints through the end of the decade. And given the continued advancement in material capacity buildouts and competitors working to increase output through processes such as cold split or smart cut, do you still believe that we will be in a shortage through the end of the decade? And how do you think the supply-demand imbalance normalizes over time?

Yes. I think that will -- that remains the case. I think the growth of the industry is substantially greater than anyone would have imagined certainly 5 years ago. And I've seen everything from 40% to 50% to 60% compounding annual growth rate for silicon carbide over the -- through the end of this decade. And it's just we're going to be really hard to catch up with that. It's a message that I tell all of our customers that the supply is going to be less than the demand for quite some time. But what's going to be different than what happened with silicon over the last couple of years and the crisis of not being able to buy a car or buy a PlayStation or whatever is that during the silicon crisis, the supply did not equal demand, but it was actually less supply this year than they got last year. What's going to be different with silicon carbide is every next year will be substantially more supply than the previous year. So while it won't be great because supply will be under demand, the supply will be substantially higher than the previous year, every year through the end of this decade because of the ramp of the various different capacity plans.

Okay. And then as we think just quickly about these wafer cut technologies, that cold split, that smart cut. What is your interest today in incorporating similar techniques to drive greater efficiencies? Or is there something else that Wolf is doing to drive an output advantage, making adoption of these types of processes less...

Historically, silicon carbide was cut by diamond saws. Silicon carbide, by the way, is the second hardest material on earth. So cutting it isn't for the faint heart. So -- and when I joined the company, 100% of our wafers were cut by diamond saws. As of a couple of years ago, none of them were. So we've already incorporated many techniques that have eliminated curve loss and some of the things that people are talking about implementing it sometime in the future. We don't cut anything with diamond saws anymore, and we haven't for a number of years.

Okay. Interesting.

And Matt, if I can add, I think it's still an emerging market for silicon carbide. And I think that there's going to be a lot of interesting applications and things that come to market. You can rest assured that by being the leader in silicon carbide, we get a chance to kick the tires on everything. But I think, as Gregg kind of outlined here, we're very comfortable with our approach, but we're not -- we're kind of technology agnostic. We'll do what's best for the overall business is the way to think about it.

And I would maybe add to that a little bit. We're in the early phase of the adoption of silicon carbide, and that ramp is going to be an amazing growth opportunity for us. And I believe that there's going to be tremendous amount of innovation on how the technology is used in the application. What applications can use silicon carbide. How you separate a wafer from a bull. There will be more innovation that's happening there. How you grow the bulls and the height of the bulls and the defect density. There's going to be a lot of innovation on that. And over the last 5 years, because we've been supplying wafers to most of the industry, we've had nearly all of the learning cycles in silicon carbide, nearly all. And I think it's a pretty bold step to say without any learning, we're going to go from 0 to 100%, that's just going to -- there's just going to be a lot of challenges. I can tell you, the expression that most people know is what can go wrong, will go wrong. And in silicon carbide, what can't go wrong, sometimes also goes wrong. It's just -- it's a strange technology. It grows at 2,500 degrees C. That is half the temperature of the sun. And a small variation in temperature has an impact over 2,500 degrees C. It's quite astounding. So this is not an easy technology to master. The only time silicon carbide was formed in nature was one time, and it was when a meteorite struck the earth. You can imagine what that environment must have been like. So that's kind of what we're -- what you're doing when you're going silicon carbide. And it's just not an easy technology.

Perfect. So with those challenges, when we look at the JP center ramp, what can investors look to in order to gain confidence in the progress being made? And maybe how has the delay at Durham potentially impacted Wolfspeed's strategic approach to the JP ramp to ensure smooth process?

Sorry, I was at the JP on Friday last week. Construction is going exceptionally well. The building has gone vertical. You can go on campus and go on the campus and look, and you'll see a building is now forming. The roofing will be complete, I think, maybe even this week on something that Phase 1 is going to be 2 million square feet. So you can imagine this thing's going up. It's an amazing facility. Right now, everything is on schedule. And that means that we would be putting -- we would be ready to install crystal growers in the first half of calendar '24, and we would turn those growers on in the second half of '24, most likely in the third quarter of calendar '24 is the target for that. And right now, everything is on schedule. I met with the construction crew, the operations guys and so forth, and that's all on plan. I would say we're also preparing for unexpected problems. And so we're trying to put buffer in the plan. Part of that buffer is doing some things at the JP faster. And part of it is taking our Durham facility and squeezing more than 20% utilization capability out of that. So taking it from 20% to 22% to 24% to 25% or something like that to give us a little bit of buffer. But right now, everything is on plan, everything is on schedule with the JP. We will be building crystal growers in parallel to actually building the building itself. And then when the building is ready for installation, we'll have them. And so it won't be a serial process. And I feel real good about that, too, because although we had a delay in turning on Building 10 when we turned it on, sorry, I'm just going to turn this thing off, maybe too many. Here we go. We had the delay with the substation equipment. When we turned on the building and energize the crystal growers, it took us about a week to fine-tune. We had a week of some troubleshooting that we had to do. But after that week, crystal growers were humming. And so we've demonstrated that we're able to bring up another facility. And so doing the JP should be relatively straightforward. And I would add one other thing, which is really important. The JP is a 40-minute drive from our current campus, and that was very intentional. Same people, same engineers, same scientists, same installation crew that did Building 10 will be doing the JP. It's just another -- it's 40 minutes from campus, but it's probably a 20-minute drive from where people live.

Okay. So a lot of learnings that could be levered from Building 10 to take. Okay.

Absolutely. Very purposeful on where we chose that location.

Perfect. So putting this whole conversation together thus far, materials business, obviously, some interesting developments over the last 12 months, including the delays to ramp on the negative side, but the signing of the Renesas agreement on the positive. So when I think about these moves within the context of your prior material revenue forecast of $700 million by FY '27, first, how is that tracking today? And second, given these moving pieces, what do you think is an appropriate kind of upside-downside band just to put around that $700 million and what will be primary drivers of risk in either direction?

I'll say a couple of different things. So first off, the Renesas deal, Renesas deal was an important thing. And I think it shouldn't be lost on people that this is, to my knowledge, the largest capacity reservation deposit in the history of semiconductors, $2 billion deposit for a capacity reservation. I'm unaware of any deposit that's higher than that. Maybe there is one that wasn't announced, I guess, but I'm unaware of one. So $2 billion capacity reservation deposit. And Renesas is arguably the most respected automotive semiconductor company in the world. It's certainly one of the top 3. I think Infineon, NXP, they're pretty -- ST, pretty good companies. They're in that league of very, very respected automotive semiconductor companies. And presumably, they searched the world for determining who was going to be their silicon carbide wafer supplier. And presumably, the Chinese companies who some people say are ready for prime time today, weren't asking for a $2 billion capacity reservation deposit. And in fact, I'm positive they weren't. So if all of this is going to be easy, why is there a $2 billion capacity reservation deposit. I think that's a pretty legitimate question. And number two, it's a 10-year agreement. So that says we're years ahead. This is my take. And then finally, so to answer specifically your call or your question, obviously, this gives us upside on the $700 million because we weren't banking on that supply agreement. It's also our first opening for 200-millimeter deployment. Now we won't be shipping 200-millimeter until 2027. So we're obviously going into production in '23 ourselves. So it's about a 4-year head-start for anybody else to get into production on our materials for 200-millimeter. And it will be -- it's not going to be a boat load of wafers in '27. It will be a ramp like you would anticipate. And then finally, our $700 million plan had contemplated that all of our device competitors who are building their own internal capability are going to be successful to the extent that they are going to be successful. And I think it's probably a pretty good assumption that not all of them are going to be successful. Some might be, some probably will be. Our plan is that they all will be. But I think the probability that they're all successful to the plans that they have, it's probably a long pipe.

Got you. And how are you thinking about appetite for further 200-millimeter deals, now that the Renesas one is in the books?

Well, what's really important is we have an appetite ourselves to fill the Mohawk Valley fab. So we don't really have any capability to supply anything soon, which is one of the nice things about the deal with Renesas is that it's '27. That will be well after we're nearly fully loaded. In fact, I think it is fully loaded out of Mohawk Valley. So it will be a really nice amount of time for us to refine the process for building or growing crystals and to refine the process for slicing them and epi and all that kind of stuff. And so I think it's -- I think Renesas was a great first customer. I think the capacity reservation deposit, obviously, was a huge positive on that. But right now, it's -- I think we're just focused on filling our own capacity.

Makes sense. Now transitioning over to the device side. You've been very clear on Mohawk Valley hitting 20% utilization in the June 2024 quarter, with revenues flowing through at that level 1 to 2 quarters thereafter.

Yes.

So to start, would love to quickly hit your confidence in achieving that 20% utilization. And then revenues of $1 million in 4Q and then a couple of million more in the 1Q guide, so just a fairly meaningful acceleration thereafter. So why is that growth so incremental early on? And how are you thinking about the steepness of the revenue ramp through calendar '24 and potential challenges?

When you start a fab, you have to dial in the process. Each of the machines have to be dialed in to make sure you're going to yield what you're expecting to yield. That's a very normal process. You never start a fab and you load it up with thousands and thousands of wafer and you just press the button. You'll end up with a lot of low-yielding wafers, scrap wafers, et cetera. So every single piece of equipment has to be kind of dialed in and made sure that we understand what the corner cases are and what the variability is and how is that going to affect yield, et cetera. We're going through that process right now. And that process, you take some amount of wafers, you run them through, you do characterization at each of the different points. And then once you get the process dialed in, then you can actually loaded the factory pretty substantially. Now the hardest thing to do in ramping the Mohawk Valley fab is getting the materials production going. That is finished. And so we are 75%. It's more than 75% now of the capacity for Building 10 is operating and developing crystals or growing crystals and turning them into wafers, et cetera. And we are shipping those wafers up to Mohawk Valley, and they are in place. There's tons of storage. We have overhead tracks that help us with managing the supply and so forth. So once it's ready, turning it on will be relatively straightforward. I will say a couple of other things. We have now qualified a number of products out of Mohawk Valley, a number of MOSFET products. We have qualified our largest device, which is always a great sign. Typically, the largest device has challenges because of the area and contamination and so forth. And we've also qualified our most complicated automotive device that has plating and some metallization and so forth on it. And the results of those qualifications are actually very, very encouraging. When you do a qualification, you characterize the part and then you run it through a bunch of stress tests very high temperatures, cycling of high and low cold temperatures, different kinds of stresses. And then you characterized a part after you've done all that. And what you're looking for is shifts in the parameters of the device. And if you look at our first couple of qualifications that we've succeeded -- successfully qualified on the parts, the variation that we're seeing out of the Mohawk Valley qualifications is smaller or tighter than the variation we saw on the original qualification out of Durham. That's very encouraging. Quite frankly, it's also expected because it's a substantially better wafer fab with cleaner characteristics and so forth. But we're very pleased with that.

That's perfect. And then I'd like to dig a bit into the ramp above and beyond that 20%. So you mentioned already the R&D projects to drive better output and expansion into some other sites to drive capacity. Can you maybe break down your efforts into each of these 2 buckets and what that means for supply potential above the 20% just from Durham alone?

It will be -- well, from Durham, I think we've got a pretty very, very clear line of sight of getting to that 20% number. And then we've got a number of projects to get better efficiency and better productivity out of those machines. And I think there's a pretty good chance that we're going to be able to do that. And so you can kind of think of that as something north of 20% and probably in the ZIP code of 25% is probably where we're going to end up. And it's not reinventing science or anything like that. It's really a productivity kind of effort that we're doing. And we're also doing a lot of things to make sure that the JP stays on track. So we're building the crystal growers in parallel and so forth. So I think as we ramp the facility I think going from 0 to 20% is going to take us a certain amount of time and going from 20% to 40% will likely take less time just because it's just simply increasing what we've already got stabilized.

Okay. So once we get past this, say, 25% utilization, JP is at the epicenter of all growth from there, right? So we've already talked about your efforts to ensure the smoother ramp there. But how are you thinking about the slope of that ramp in terms of servicing Mohawk Valley? Should we be thinking there's a few quarter pause in utilization rate expansion before moving higher, maybe fiscal '26 or something -- is it reasonable to think that the ramp could add a few points of utilization rate even in the back half of '24 as you begin production?

So first off, when you turn on these crystal growers, you don't line them all up and then flip to circuit breaker. These things ramp up to 2,500 degrees C. So there's a process for making sure you don't blow the substation.

That's good.

So now we did that in Building 10, and we're now utilizing 75%. So it's not a long period of time, but you don't just turn them all on at one time. Turn one -- turn one on. A few hours later, turn on another. You're doing a kind of a sequential process, if you will. So I think that process will be sequential, but it won't be a long delay. So I don't think of it as it's going to be some kind of very, very slow process for ramping those. It will be the normal process that we have.

Okay. That's helpful. And based on the ramp plans today, is it still reasonable to think that Mohawk will be running at that full $2 billion run rate in fiscal '27? And then on the demand side of it, how do you think about the ability to fill this fab today based on your current design pipeline and conversion rate expectations?

We are still on track for the fiscal '27 on the full fit-out and production and utilization of Mohawk Valley. Nothing has changed there. And I think the demand that we have is well served by that full output. We have plenty of demand quite frankly that's above that. We do know that not every company that's planning to ramp every single car is going to happen exactly the way that they had planned. So there's -- when we look at our design in to anticipated revenue equation, there's a drop off, a funnel kind of effect, if you will, assuming that not everyone is going to be successful at doing everything in the exact time frame that they anticipate. Maybe it's their cars aren't selling as well. Maybe it's -- they have a supply chain issue with something else, who knows. But I think there's plenty of demand out there to satisfy Mohawk Valley and then some.

Okay. Perfect. So then within this construct, you previously forecast $2.9 billion of power revenues in fiscal '27. So is this still the right way to think about that split $400 million Durham, $2 billion Mohawk and then $500 million from Saarland. And if so, can you offer an update on those Saarland build plans now that the capital has been secured? And when do we need to break ground and what milestones we'll be looking for to ensure that, that $500 million baked into the forecast does come back?

No change in the $2.9 billion. So that's staying. Saarland, we are -- we have -- still have to get official approval on the funding. We're anticipating that, that will happen relatively soon. It could be as early as this quarter. That's the signals that we're getting from Europe right now. We have a pretty good understanding of how much funding we're going to get, and we're quite pleased with that as well. And if that all goes as planned, then we would begin the permitting process. Now in parallel, the government of Saarland, the state government of Saarland has secured the land. They now own the land. We will be leasing the land from them for 99 years, I think. So they have secured the land, and they have already begun work on the land, tearing down buildings, moving a creek, preparing the land for construction. We've also hired the construction firm. They've done architectural designs. We're very far along in terms of what the building is going to look like. Now obviously, it's a -- there's a lot of learning that we had from New York that's going to be applied to Mohawk -- to the Saarland fab. We've also hired the fab manager for the facility. It's a German national that's been working in the semiconductor industry for many, many years and understands fabs, et cetera. He'll actually start with us in January. He'll come over to the United States working with our teams in Mohawk Valley and Durham because he has his background in silicon fab. So understanding semiconductor fabrication with silicon carbide is a little bit different. So we've secured that as well, which is obviously a positive thing. And then we would anticipate that the permitting process would take about 9 months. which would put us in kind of that July to October time frame where a shovel would go into ground and we begin construction. So all of that's on track to plan. And in terms of building the facility, I would think that since it's our second facility, it will -- we'll be able to ramp -- we'll be able to do the construction faster because we're more experienced. But we also -- well, hopefully, we don't have another COVID lockdown, but our Mohawk Valley fab construction started in March of 2020. That was week 1 of COVID in the United States. And so that entire facility was built during COVID supply chain issues, all the shenanigans we had to deal with. So presumably, that's not going to happen again, too. So I think the probability that we can get the thing up and running faster, I think, it's pretty logical.

And Matt, so to think about that, that means then for fiscal '24, it's ramping Mohawk, ramping Siler. And then as Gregg outlined, then you kind of pivot your focus after you get those things going, you'll then look at Saarland kind of the next opportunity.

All right. That's perfect. So next, I'd like to hit on just customer conversations and in light of some of the recent delays. Acknowledging that you guys have mentioned no loss at first share position at any customers, have you seen any change and requested out your volumes at all as customers maybe look for second, third, the dynamic, which is not unusual in the auto industry at all? And then maybe just help us better understand the customer conversations you're having and the work you are doing to ensure that supply demand alignment.

The -- in some respects, we are seeing a change, and the only changes are positive and more. So that is what's happening. We're getting more traction across the auto industry. We're getting more traction across other modes of transportation, whether that's trains, it's earthmoving equipment, vertical takeoff and landing kind of Uber, drones, kind of things and jet skis and personal watercraft, lot of different applications there. So basically, the demand continues to be very, very high. And in fact, the demand, as everyone probably knows, the demand for silicon semiconductors right now are seeing a downturn. Memory's in the doldrums right now. Industrial markets are down, et cetera. The demand for silicon carbide with one exception is all pulling in and going up. The only exception to that is China industrial. China car companies, automobile is still up and to the right for our silicon carbide technology. The demand for automotive generally across the world, still very, very strong. Someone asked me the other day about what about an auto strike and will that impact everything? Our production ramps are really in the early phase right now for the U.S. auto companies, and it's really going to take off in the coming years. So if a strike last a couple of months, it will have no impact on us. So basically, there's only one area of weakness, and that is China industrials. Everything else is up and to the right, right now. And then for the longer period of time, like I said, the only thing we're seeing is people just want more.

Okay. So I guess just digging in there a bit, can you give up your thoughts on the primary driver of Wolfspeed success, in particular, securing these new wins versus, I guess, how are you thinking about the share of new device wins today? And then what are the most important factors that drive a customer to choose Wolfspeed? And what are potentially some areas of pushback that you may hear?

I think when a customer makes a decision -- a device decision, it's never one thing. So it's kind of a mosaic. They look at a number of different things. They look at the performance of the device in their application, and they compare us with others, et cetera. And we always land in the top category on performance. Sometimes we're there with other people, but we're always in that top category. The second thing they look at is your knowledge of the underlying technology, silicon carbide. We also land in the top tier in that one, and there's nobody else in that tier. We have more knowledge with 35 years of experience, and we're just -- we're alone in that category. Then they look at your experience or their experience with you as a supplier, an automotive supplier. And here, we land in the second tier. We have substantially less experience in the automotive market than ST, Infineon, ROHM, et cetera. So they have just on semi, they have more experience in automotive. So we're definitely in a second tier in that one. What we're doing, by the way to rectify that, is we're hiring people from the semiconductor industry who are automotive people. And we've had hundreds of people join us. So for instance, Lisa Fritz runs our quality organization. She reports to me as a Senior VP. She ran automotive quality for I don't know how many years, but she was 25 years at Texas Instruments. So when an automotive company comes to audit our facility, maybe it's the first time they've seen us, but it's not the first time they've seen her. So there's a trust kind of thing that's been built, and we've been doing that for ever since I've been at the company. So that's a positive thing. They, of course, look at pricing, too, and I have no idea where we land on pricing because they never call you and say you're the lowest price. So you always kind of take it with a grain or salt. I will say to that extent, though, we are no longer bidding on being a second source. Our capacity is very, very precious. We bid on programs to win as the lead source, and that's kind of 70%. We totally understand that there's going to be a second source. We don't have any issue with that. But we tell our customers, if you choose us as a first source, you'll get our full attention. But if you don't choose us as a first source we are not going to bid as being a second source. We don't have the capacity to do that. We're giving all of our capacity to people that have really banked on us. So it's a mosaic of things that customers look at. It's never really one thing. But I would say the other thing that kind of is in the back of their minds is we currently supply 60% of the world's silicon carbide substrates. And the next closest participant in that is Coherent at about 15%. So it's a pretty substantial difference. And we do that 60% out of our Durham campus that we've been talking about. The JP will increase our capacity for wafers by 10x. And so if somebody is not building a scale to at least get to where we are today, which is 60%, the probability they're going to be able to get to 10x at is pretty low, too. So I think they look at that and they say, can I really bank on somebody learning this technology so quickly and ramping so quickly versus somebody that already has 60% and has a building now that has gone vertical that's going to increase the capacity by 10x that, and it's going to be functioning in 1 year from now. That's, I think, is in the back of a lot of people's minds. And all told, we've done $19 billion of design-ins over the last 3 years. I think it is.

4.

4 years. So we've got a pretty healthy backlog of booked business.

Perfect. Then I'll just pause for a moment to see if there are any questions. All right. Perfect. Let's keep running through. So you talked about gross margins of 50% to 54% still being the right target to think about in fiscal '27. Can you maybe walk us through the moving parts to get from the 13% today to that 50% plus over the next few years, primary levers, timing? Anything that can help us get comfortable. And then just how should we think about the ramps of JP and Saarland impacting that trajectory?

The -- maybe I'll kick it off, and you can give a little bit more color on it.

Yes.

But there is no change on the target for 50% to 54% in the time frame that we've talked about. So we're ramping that we're ramping the Mohawk Valley fab. We're ramping the JP and so forth, and all of that is feeding into our plans for 50% to 54% gross margin. Now we had originally non-GAAPed out the underutilization and the start-up costs, and we had targeted that at a 70% utilization. By the time we're in that time frame where we said we'd be 50%, 54%, we'll probably be north of 70% utilization.

Yes. And so the way to think about it is what we talked about on the call, and if you look at the midpoint, we've kind of called the trough for non-GAAP gross margin. And what you would hope to see and what Neill talked about on the call a couple of weeks ago is several points of improvement between now and when we get to 20% utilization. So you're probably looking at something in the low 20s by the time we get to the June quarter of next year? And then what -- even though you have Siler coming on and you're going to have some start-up costs at Siler, the top line is still going to be growing. So that still creates that kind of improvement engine for non-GAAP gross margin over time. So you're just going to continue to watch for improved trajectory on non-GAAP gross margin as we continue to ramp Mohawk.

Perfect, helpful. So capital concerns have largely been put to rest following the $5 billion raised over the last year. So maybe you can walk us through your debt optimization strategy from here, given the company's leverage. And how are you thinking about timing and magnitude of government funding at this point?

So we've had engagement with government funding from Europe and Germany for quite some time. We've got an application going in for CHIPS funding. We feel very confident in the funding from a European perspective. Like I said, that could be coming out really any time and as soon as the end of this month. it certainly will be, I think, before the end of this year. So that's all looking quite positive. I think we are a very, very solid candidate for the CHIPS Act funding. A lot of the things that are in the interest of the U.S. government we're doing, we -- the part of it is about securing the supply chain for semiconductors in the United States. And the U.S. currently has Wolfspeed and Coherent as the 2 leading silicon carbide companies. Between the 2 of us, it's over 80% of the world's silicon carbide is between these 2 companies. And the Chinese are obviously investing in all kinds of semiconductors. They've been on a path to be dominant in memory and logic and silicon carbide and GaN and everything. They've had limited success so far, but they are determined. And so what I think is in the minds of -- certainly in the minds of the CHIPS Act folks is that we currently have a leadership position. And it's a hell of a lot easier to support, maintain and encourage the retention of that leadership than it is to try to regain a leadership in semiconductors and silicon semiconductors. So that is an important aspect, and I think it's important that we do that as well. But investing and maintaining a lead, it really makes sense, I think, from that perspective. The second thing is that silicon carbide is important for the adoption of electric cars. It helps the car go further, 5% to 15% further, and it helps it recharge faster. The 2 most dominant careabouts of anybody buying an electric car. I want it to go far, and I want it to refill fast. And that's what silicon carbide does. When I joined the company 6 years ago, 1 car company was committed to using silicon carbide in the inverter and that was Tesla. Today, I can't think of a car company that's not using silicon carbide. Everybody is using silicon carbide. And some of them are going 100% silicon carbide, and these are big companies like General Motors, high-end companies like Jaguar and Mercedes, start-up companies like Lucid, they're all adopting silicon carbide. And so with the -- certainly, the current administration's drive for green energy initiatives, we're a unicorn. I mean we're U.S.-based companies leading the industry in a growth pattern that's amazing, and it's going to help the adoption of electric cars. I mean, so it's kind of a no-brainer.

Right. So I guess just to round out the conversation a bit, what's your view for trajectory of operating cash flow and free cash flow from Tier 1? When do the metrics turn positive? And how do you think about growth?

Yes. I think, Matt, we've talked about this but operating cash flow, you see that towards the end of fiscal '25, right? And you see that free cash flow generation sometime probably early '27. So the underlying economics have not changed. It's a timing question in terms of ramping Mohawk and bringing that up. That's the way to kind of think about operating cash flow and free cash flow.

And Fiscal.

Fiscal, yes.

All right. Perfect. So with under a minute left, any closing comments or any areas that you think we've missed that investors should be focused on?

I think the hardest thing to do in creating a silicon carbide MOSFET is generating a high-quality crystal, whether that's at 150 millimeters or 200 millimeters and being able to separate it from the bull in a very efficient fashion and to be able to lay a layer of epi on top of that. We've done that for 35 years at the lower diameter numbers. We're 60% of the market in doing just that, and we've now accomplished that in 200-millimeter.

Wonderful. Well, with that, we've unfortunately run out of time. But Gregg, a pleasure chatting with you, Tyler as well. And thank you very much for joining us.

Thank you, Matt.

Thanks, Matt.

Thanks, everyone.