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

Great. Thank you, everybody. I'm Joe Moore, Morgan Stanley's semiconductor research. Very happy to have with us today the executive team of Wolfspeed, Gregg Lowe, President and CEO; and Neill Reynolds, CFO. So I normally don't like to make this about me or my views, but Tyler actually asked me, we put out kind of a cautionary report on silicon carbide supply demand. And that's informed by the view of our auto analysts who's cautious on EVs and the view of our China analysts who are bullish on silicon carbide. So -- and we actually -- it wasn't intended to be negative on Wolfspeed. In fact, we're not negative on Wolfspeed as a stock.

But I think give you guys kind of an opportunity to just talk about the environment in that context. Do you -- when you look at EV, maybe slowing down a little bit, you look at China progress, just to kind of put that into perspective of what it means for you guys.

Sounds good. Thanks a lot, Joe. So thanks for the report. Appreciate it. And what I'd like to do is kind of give you maybe a framework to kind of think about the adoption of EVs and silicon carbide and what we're doing and so forth. First off, the transition from the internal combustion engine to electric vehicles is the biggest change in the history of the automobile, and it is the most disruptive change in the history of the automobile. There are going to be winners, there are going to be losers. There are going to be -- there's going to be fits of -- it's ramping like this, and then there's going to be fits where it's ramping like that. But my viewpoint is the transition from the internal combustion engine car to electric vehicles is not stoppable, and it's irreversible. And the reason for that, there are multiple reasons, but the most important reason is the world's largest market for cars is China, and China is using this disruption to erase 100 years of being behind in the internal combustion engine car to race ahead and become the world's biggest exporter of motor vehicles. And I believe that, that is absolutely top of mind. Like I said, there's going to be a lot of disruption. So sit back in the upright position and fasten the seatbelt, there's going to be a lot of disruption. We fully expect that. And like I said, there's going to be winners and losers. Now there is definitely a slowing of the acceleration. It's still growing of EVs, particularly in the U.S. And I would hit a couple of points on that. First off, most of the EVs that are on car lots today were designed 5, 7 years ago and have silicon in them, have a lousy range and so forth. So you're seeing a little bit of a yawn from a customer appetite. The adoption of electric vehicles and using silicon carbide is just at the early phase. The second thing that I would say, though, relative to this change in the adoption rate, is it has no impact on us. The demand for our product is substantially higher than our ability to supply, despite the fact that you're seeing some pullbacks here and some pullbacks there. In fact, this weekend, I was on a call or whether or not a call, but I was communicating with a customer who was very demanding about his 2025 supply and how it needed to be substantially higher than what we're currently forecasting. And what we're planning to ship this same customer in 2024 over 2023 is nearly 5.5x more product. And this isn't going from 20 parts to 100 part. This is millions of units. And so despite the fact that we're going to ship 5.5x more product this year, he's focused on the year after that, it needs to be higher. I'll be in China in beginning of April, and I'll be meeting with OEMs and Tier 1s, and their message to me, I already know what it is. We need more products, we need more products, we need more products. So that's number one. The second thing that I would say is the adoption of silicon carbide was first introduced in electric cars by the Tesla Model 3. And at that time, it was the only car company that was committed to using silicon carbide in the inverter. Today, I cannot name a single car company that is not using silicon carbide, maybe not in every car, but it's -- the adoption is pretty enormous where pretty much everyone is using it. The third point that I think is important is the speculation about what's happening with China substrates, substrate, oversupply, et cetera. As you know, Joe, we do all of our substrate business -- well, not all, but substantially most of our substrate business on long-term supply agreements. We began that process 7 years ago. And what has happened in between now and then is the customers of those supply agreements are attempting to get into their own material business and supply themselves and become very integrated. That is important and a smart thing to do because as Infineon showed in one of their public presentations, the substrate in EPI are greater than 60% of the bill materials for a silicon carbide MOSFET. So having that internal capability is really important. They all have goals, and all of them are off their initial goals. They have not met their initial goals in terms of silicon carbide substrate production. So I think they're finding it hard. So we're now seeing extension and expansion of agreements, most recently with Infineon and with ROHM. And of course, we did the long-term agreement with Renesas as well. The second thing that we've heard from a China substrate perspective is the vast majority of the substrates for China are Schottky substrates. And you don't try to build a Schottky substrate. You try to build a MOSFET substrate because that's substantially more value. And what a Schottky substrate is, is a scrap wafer. And so the notion that China is kind of right next door on MOSFET high-quality wafers seems to not be there. There was also a commentary in the report about deflation of silicon carbide substrates. And what I would tell you is we've just signed and extended agreements, and what is happening is 180 degrees opposite of what is happening. So I think the -- this potential -- we always worry about all of our competitors. China certainly is trying to become independent of the West and everything semiconductor-related, silicon, silicon carbide, analog, digital, leading-edge, lagging edge, all this kind of stuff. So you don't want to write them off. But right now, based on the facts that we see, they're still a long way off. And the final thing that I would mention, and then I'm going to pause and turn it over for some questions, I know I'm covering a lot of ground here, is the notion that our device competitors have broader portfolios and have a track record of delivering to customers. And I think that is exactly correct, but it's about 6 years old. What's happened over the last couple of years is that the supply chain for silicon chips in the automotive market blew up. And always being able to rely on silicon companies, well, that fell out -- that kind of fell off the bandwagon, so to speak. And car companies, we're shipping fewer cars, car factories were down, you guys know the whole story on it. So I think there was a bit of a dent into that armor, if you will, we just need to work with them. And what car companies realize is they needed to understand who is the source of some of these fundamental things. And in the silicon world, kind of a lot of roads led back to TSMC. And in silicon carbide, the roads are leading back to us. So there's a lot of sort of appetite for what we're doing. The second thing that happened in that same time period is that there was pretty significant price increases for silicon chips going to the automobile industry. And some customers kind of felt taking advantage of in that situation. It left a pretty ugly taste in their mouths. So -- and then -- so what were we doing all that time? Well, we were working with customers, getting design-ins. And over that 6-year period, we achieved $22 billion worth of design-ins across numerous OEMs. We talked about in our last earnings report, we've got 128 different car models going into production over the next couple of years, 30 different OEMs. And by the way, of this $22 billion worth of design-ins that we had, just in the last 2 quarters, nearly $5 billion of that is transitioning into production. I think this -- I'll turn it over for a few questions because I know I talked a lot. This transition is really, really disruptive. There are going to be winners and losers. China is doubling down. And this is the West moment. It's their iPhone moment that research and motion and Nokia and Ericsson didn't pay attention to. And that common is happening right now, silicon carbide is at the heart of that, and it's going to be a fascinating transition. So maybe I'll just pause there. And then, Joe, if you have any questions or clarifications.

Well, I don't -- look, again, I would like to take the focus off of me and or what we wrote because I really want you to be able to talk about...

Questions out there.

But I think just to come back on a couple of those things, just to be clear, we actually don't think China is viable as an automotive supplier today. And so what our Asia team is talking about is 2, 3 years down the road, and I would certainly also agree. When we first met, you said, look, everybody that we sell to has a plan to multisource on the substrate. And I'd say the proof point has on your direction, right? You have seen those renewals. So I certainly would see all that. But that's really China is very resourceful. As you said, this is a major focus, not just semiconductors, not just EVs, but the combination of the 2. And you've not allowed China to innovate in a lot of areas, and so we're hearing they're putting a lot of innovation is. That's kind of the main...

They definitely are. And it's smart that they do that. 75% of all the silicon carbide on earth is produced in the United States. And so they want to become independent of that. I don't blame them. It's just harder to do than most people think. We have several of our device competitors who are our materials customers, really good customers, have found it harder to do. And so original agreements are extended, and extended, and extended again. And we don't do spot business. You can think of these extensions as at least half a decade and some of them are longer. So -- and we're in negotiations with one right now. So I think that the quote I use a lot at work is the famous Mike Tyson quote where everyone has a plan until they get punched in the face. And silicon carbide does that to you. We just caught the last bit of the previous presentation from Warner. I think it was when you were talking about Harry Potter. This is a bit of Hogwarts kind of stuff, if you know what I mean.

I was wondering how you going to connect it to Hogwarts.

It's a very, very different -- technology. Exactly.

Okay. Great. And so maybe shifting to your value proposition where we have been pretty constructive, I mean this vertical integration that you offer, the fact that you do have substrates that you're -- also have devices that you're moving kind of to a neat position on 200-millimeter. You talked to the backlog that, that's creating. But you've also had some fits and starts along the way as you try to ramp that. Has that -- it doesn't seem like that's shaking your customers' confidence at all. But can you just talk generally to that and then we get to specifics.

They would all love for us to be a lot ramping a lot faster right now. But what they see is they see that back in 2020, we stuck a shovel in the ground on a brand-new factory, and we are now at the early phase of ramping up what is going to be the largest production facility for silicon carbide in the world. And so it's not -- we need to now go do something in the future. They see it's right there. They see kind of the light at the end of the tunnel, so to speak. I'd love for us to have had 0 problems, but we had a bunch of startup things that you deal with. And I'd just remind everybody that we're doing something that no one's ever done before. We are ramping a 200-millimeter silicon carbide wafer fab. And the hardest thing to do to ramp that wafer fab is to get the wafers and the EPI and have that production going. That is the most difficult thing by orders of magnitude. And that challenge we have overcome. Our Building 10 facility, which was a racket ball court, basketball court, it was the head of materials office, is now a factory pumping out 200-millimeter silicon carbide crystals. And it is ramping as nicely as you can imagine. Quality of crystals are fantastic. Quality of the wafers are fantastic. We're shipping them up to Mohawk Valley. Every single piece of equipment in that factory, everyone is seeing a 200-millimeter wafer for the first time -- in silicon carbide, sorry, seeing silicon carbide 200-millimeter wafer for the first time. And there are integration issues that you need to deal with, and we're dealing with those. We mentioned 2 calls ago, we did a couple of million dollars worth of revenue out of the factory. Last quarter, we did $12 million. We talked about $20 million to $30 million this quarter. So that is ramping up. But underlying that is a really important thing. And that is every single MOSFET we've attempted to qualify in that brand new factory with a brand-new wafer diameter, with a brand new EPI capability and everything like that, every single one of the MOSFETs we've attempted to qualify has passed qualification on first pass. That is not normal. And the semiconductor industry, let alone when you're doing all this new kind of stuff, further giving confidence to the customer said, this fab is going to be good. They would absolutely love for us to be doing 5x more than we're doing today, but they see the light at the end of the tunnel, and I think it's encouraging.

Great. You talked about kind of an update on the supply side on the substrate supply. Can you talk about Mohawk Valley? You've talked about the 20% utilization in June and 25% later in the year. Can you talk about the progress towards that and any kind of proof points that you can give us?

Really good shape there. We are on track to hit 20% utilization out of Mohawk Valley in the June period. And 20% is important for multiple different reasons. The first 20% is -- are the hardest 20% when you're ramping a fab, probably from 20% to 40% is substantially easier. And that's because you have more lines, you have more equipment, you have more experience and all of that kind of stuff. So we're ramping up nicely. We've had a very good output for the past several weeks, kind of record output out of the factory. So we've got good line of sight to that 20%. And again, our view is our ability to feed it now is pretty solid with Building 10 humming along very nicely. I was up in the fab multiple times last quarter. I'll be up there again. I don't know exactly when. I think later this quarter. But the team is doing really good work and coming together and dealing with these integration challenges that we have, and we're cranking out more product as we speak. So we're going to continue that ramp. I think everybody would like it to go from that to that. But we're doing something for the first time. We're very, very confident in the capability of the fab and the cost factors that we're going to see in that fab as well.

So you have a couple of things working for you as you ramp that. One is the 150 moving to 200-millimeter wafer. I lost my microphone. And the second would be moving from kind of a low automation factory in Durham into a modern factory in Mohawk Valley? Can you talk to each of those? And how do you think about the relative cost structure as you continue to ramp?

Yes. I'll kick it off, and Neill can talk a little bit about the cost structure. So we're very, very pleased with the fact that we went to 200-millimeter. The quality of our crystals are better at 200-millimeter than they are at 150. So that underlying capability is really, really strong. And obviously, you get 1.7x more die per wafer, and you basically have the same amount of time processing in the wafer fab. So you're getting 70% more chips per unit of time, which is obviously great when you have a supply-demand mismatch in the industry. I think the -- maybe you can hit some of the cost side.

As we always say, Joe, that all roads lead to Mohawk Valley, both from a supply perspective and from a cost perspective. And as Gregg pointed out, as you move from 150-millimeter substrate to 200-millimeter substrate, and this is the same math as silicon, you get about a 40% cost advantage at the die level, just for the reasons Gregg pointed out there. So I think we're on track to see that. Again, the substrate, the cost, the quality of the yield is on track for what we would expect at this level of volume. So we should see a nice cost progression there. And as you look in -- as we start to ramp the fab, right now, we're taking some underutilization in those early days of ramping it up. But even with that cost structure with the underutilization fully burdened, we're seeing a very nice die cost to come out of the fab already, and we anticipate seeing that improve. So over time, even with these next few quarters, the more revenue we pushed through Mohawk Valley will certainly help from a supply perspective, but from a cost perspective as well, we'll start to see the benefit of that 200-millimeter substrate. We'll push more volume to the fab, and we anticipate, as we start to see that fab ramp up, to have a very, very good cost position just because we're going to be running a highly automated 200-millimeter facility with great yields, great cost, give us a really, really nice advantage from a device perspective as you think about how things play out into the future.

Automation will do multiple different things. Whereas first off, it will speed up the cycle time of the factory once we're ramped because you're moving materials substantially faster than a human walks. And we're storing the material very close to where it's actually going to be used, and it's overhead storage. So it's not taking up clean room space. And automation also will allow us to detect problems faster, which means scrap events will be smaller. Right now, to -- if there's a problem in the fab, someone has to go down and look at some documentation, figure out what's going on and determine. But when you have an automated fab, it's just you get those signals back a lot faster.

Great. And obviously, the pipeline and a number of OEM wins, which I'm going to ask you about, speaks to the customer acceptance and enthusiasm. But just how have you -- I mean you come from a background in automotive semiconductors from TI and Freescale. There is -- it is a very difficult market to serve, and you need all of the qualifications of [indiscernible] and all that stuff and you need the ability to do advanced packaging and modules for those kinds of cars. Where are you guys in terms of establishing that with your customers?

We've passed all the automotive qual, and they're -- not -- sort of certifications as well. So there are a number of different things you have to go through in terms of customers coming in, companies coming in and kind of auditing the factory and so forth. We passed all of those certifications, which I think is really important. As I mentioned, our devices are passing our own internal qual, and those are now passing qualification or in the process or have already passed qualification at our customer side of things as well. The customers are pretty excited about our module capability as well. Most of the product we sell are dies and chips because some customers want to do their own modules. We're ambivalent on that. So we'll sell them a chip. We'll sell them a module, and we'll sell them a package die. And it's unclear to me how it's all going to play out over time, but they're pretty excited about the module technology we have as well.

Okay. Great. So your December quarter was pretty good in the things that mattered. Obviously, you had issues in industrial, which pretty much everybody has seen. Can you talk about that industrial weakness? Does that give you any flexibility in terms of being able to reallocate that capacity to other things?

Yes, it does. It's not a dramatic change, but we're definitely reallocating capacity out of our Durham factory to service more of the automotive. It won't be a huge uptick, but at this point, every chip counts from these guys. And we're obviously -- the ability to shift Mohawk Valley is substantially easier because it's a giant facility comparatively. And so we're doing that as well. And so the vast majority of the output from Mohawk Valley is focused right now on the automotive parts. It makes it more of a challenge because the parts tend to be bigger and you get less output per wafer, but we're definitely doing that because our customers are counting on us.

And the bottom line here is you're quite confident hitting the milestones from Mohawk Valley for the rest of the year?

Yes, yes I am.

So maybe if we could talk to the demand side a little bit. I think you talked about 28 OEM wins. Obviously, you talked about the pipeline numbers. Those are really big numbers. And I guess, how do you think of those in terms of timing that they go to production timing that you can make announcements around those kind of exclusive wins that you have?

We sort of have a funnel, so to speak, taking the opportunity that we have, the design ins that we have, the design wins that we have and then what the revenue is going to be. And at each of those stages, we take a pretty decent haircut just anticipating that the customer might not make 1 million cars, maybe it's going to be 500,000, or they're taking a brand from a run rate of 100,000 cars to 500,000 cars, and is that really viable. So we take haircuts on that sort of stuff. We do the same thing with our China customers. We have great customers in China, where we've got pretty decent exposure to the auto industry there. But it's sort of in the country's interest to try to foster internal capabilities. So we make an assumption that more of that is going to possibly go away. Despite taking all of those sort of judgments, we still have a demand scenario that is substantially higher than our supply for the foreseeable future. I think there's going to be lots of fits and starts. I think you're going to see surprising winners. You're going to see surprising losers. Like if you look at the top 10 automobile companies in the world today, 2 are Chinese despite the fact that China is the world's largest market for cars. And by the way, they occupy #8 and 10. If you look at battery electric vehicles, they're 5 of the top 10, including 1, 3 and 5. So most likely, if you look at the top 10 car companies in 2030 and you compare it back to 2020, I think there's 5 new names. And maybe they're not all Chinese, but probably one of them will be. Probably one of them is going to be Tesla. There's going to be a lot of change in churn in the auto industry. This is the biggest disruption in the history of the car. Brakes and traction control and power steering and all of that has -- was nothing compared to what's happening.

Yes. And there's definitely the sense that the momentum on EVs has shifted to China a little bit. And in the U.S. and in Europe, you have a lot of companies that are dedicated to EV, spending a lot on EV, and this is where our auto team gets a little bit cautious of like if they focus on internal combustion, the stocks are materially cheaper, right, because they're not making these big investments and questioning some of those investments. So I guess, how do you think -- and again, that's one view. I'm not saying that's right, but how do you guys think about that? And does it matter if we see programs here and there that sort of shift back towards...

First off, it's not going to matter to us because the supply is not meeting the demand right now, so we'll just be able to shift it. There might be a quarter where we're running with this one part and we need to shift it to a different part. We have a lot of fungibility though, so we probably are not going to see that. But I would say a couple of things. First off, you heard me say it earlier. This is the iPhone moment for the Western world. And they're either going to shine or they're going to go away. And I don't think this is a stoppable reversible pattern. Second, most Western car companies got rid of all the people developing anything internal combustion engine technology development wise. So new engine technology, new -- any of this kind of stuff, they stopped developing that 4 or 5 years ago. And it -- you're not going to have the do-over moment, I don't think, for this. They may produce those same cars for a little bit longer, but they're not going to meet any of the EPA guidelines or any of that kind of stuff. So there's going to be a lot of issues. And like I said, they stopped development of that technology and I just don't see a do over possible at all. Yes. It's going to be highly disruptive. Winners, losers. Forecasts are going to be changing. It doesn't really matter to us for the foreseeable future.

Okay. Great. And then, I guess, this time last year, last year, that Tesla started talking about this kind of 75% reduction in silicon carbide, presumably at the low end. And the commentary around that has kind of faded, like that's a mainstream technology at this point. But how do you think about that in terms of when you look at markets like China taking a lead? Do you see a range of outcomes there? Or do you see -- obviously, you've made the kind of comments that the range of these engines is sort of comparable to horsepower in terms of the way we're going to think about these cars. Do you think we'll still continue to focus on that the longer range.

I think that silicon carbide does 3 things for a car. It gives it a longer range. It allows it to charge faster. And it makes the car less expensive. There's tons of reports on the value you get when you put silicon carbide in, makes up for the difference in silicon versus silicon carbide cost at the vehicle level. And the company that first announced -- figured that out was Tesla with the Model 3, which I think is their entry-level vehicle. So it's -- this is a -- I believe it's a $30,000, $40,000 car, what have you. It came out. It had a 350-mile range when it came out. And the next longest range for a non-Tesla vehicle at that time was 125 miles. So today, you're going to see more and more cars come out with silicon carbide. My car has a 516-mile range. I don't have range anxiety. I can travel to and from work for a month without plugging in. I drove it up to Cleveland, Ohio, no issues. So more -- you're going to see more car come out with 400-plus mile ranges. You're going to see cars come out with 500-mile plus ranges. Tesla, I think, has a 600-plus mile range car coming out. It's the Roadster. So that is going to -- I think that's going to keep the momentum for silicon carbide very, very strong. There was a commentary as well, I think, in the report about going back to 400 volts. We don't see that happening at all. Companies are moving to 800 volts because it makes the wiring harness substantially less weight. And I think the wiring harness is one of the heaviest things probably outside of batteries and in electric cars. So it's the second heaviest thing inside an internal combustion engine car. So higher voltage, less weight, more range, higher voltage, faster charging. We don't see that transitioning either.

Okay. I get a lot of feedback from people around me. So we can incorporate it.

No, I think it's good to...

I appreciate your feedback.

No, I think it's good to just have an open dialogue on this. If I might mention of one other thing that I've forgotten is -- again, it kind of gets back to the China substrate issue. We do all of our business in long-term agreements, as I said before. We've done $3 billion worth of long-term agreements with customers in these agreements. And that's -- that's all for 150-millimeter wafers. I don't think we're including the 200-millimeter in that. So that's for 150 millimeter. We have shipped, to date, less than 40% of that. So there's 60% still out there.

[indiscernible].

So if there is going to be an oversupply of silicon carbide, we're not seeing it.

Yes. Okay. Maybe ask a couple of questions on financials and then turn to the audience. Can you talk about the gross margin trajectory, the targets of operating cash flow in fiscal '25, free cash flow '27 based on those targets?

Yes. So from a margin perspective, I said it earlier, Joe, I think it's all going to come down to pushing more revenue through Mohawk Valley, leveraging that, leveraging these facilities that we're investing in and driving more volume through them, using the 200-millimeter substrate, we'll drive more volume through the facility and we'll start to see really nice cost to essentially start to come through the P&L from that perspective. So as you look out to the end of the year, I think we talked about kind of mid- to high teens here as you get into the Q4 quarter and exit our June quarter, which ends our fiscal year. And then as we get into next year, we should just start to see continued improvement. Now from a start-up perspective, we're building these large facilities. I think over time, you'll see them as translated into these really nice cash flow-generating vehicles as we start to bring up the utilization. So we will see a little bit of a drag as we get into fiscal '25 just related to the startup becoming production costs at some point. So I think that's kind of you'll see the trajectory. I think underlying gross margin will continue to improve. We'll start to see a bit of a drag just from start-up as just related to bringing on these new facilities. And what that translates into then from a cash flow perspective, we'll continue to invest in the business over the next years and time to come. As you get into the kind of mid-calendar year '25, we'll look to drive operating cash flow positive based on that ramp and leveraging those facilities. And then as you get into fiscal year '26, we'll start to see some step down in CapEx in '25 and in '26, and you'll start to see that then transition over to free cash flow positive out in that time frame and really start to see the benefits of these facilities, the 200-millimeter substrates, benefit us and not just drive volume for those facilities, but to really start to see the benefits of that in terms of driving cash flow as well.

Great. And then in terms of the CHIPS Act, obviously, I'm sure you can't say too much at this point, but what do you think is the timing? And it does seem like to me, this is going to be an area that is politically very popular to subsidize. You guys are investing aggressively in something where the U.S. is establishing leadership in a green technology. It just seems like it checks...

Yes, maybe I can kick it off...

Yes, Gregg. Go ahead.

And turn it over to you. So a couple of different things. So we've had full engagement, obviously, with the CHIPS program office. We had a number of folks come and join us for a visit to the site 2 weeks ago, I think it was, had some great visits, but there's a couple of things that I think are important. First off, this is a technology where the U.S. has the lead today. And between us and Coherent, it's roughly 75% of all the silicon carbide is produced in the United States. So it's -- it's not lost on the CHIPS program office that investing in something that's currently a leader is way easier than investing and trying to bring it back. And so -- and we've got that direct feedback. The second thing is that our technology, silicon carbide technology, it's considered a critical mineral now by the Department of Energy and a national security interest, and it enables electric cars and charging infrastructure. It also enables better use of solar energy. So this is right down the fairway of what the administration is really trying to support. We're also a company that has done, as you all know, a ton of private investment into this -- into our company. And so this private-public partnership, I think, is something that we've already demonstrated and so forth. And so I think we are almost perfect for what they're looking at. Now we still have to do our work. We're submitting the final application. We've submitted our pre-application, got some good feedback. Our final application will go in, in a couple of weeks, and maybe we can talk a little bit about the timing.

Yes. So from a timing perspective, let me -- if I just take a step back from an overall financing view. If you go back over the last 5 or 6 years, we've done, I think, a very good job of raising non-dilutive capital and managing the capital structure. In fact, in the last 6, 5.5 years, I think we've done about $8 billion of capital raised. In the last year to 1.5 years, we've done about $5 billion raise with very little dilution. So that left us in a nice spot right now. So you've got a little over $2.5 billion of cash on the balance sheet. It does not include, and Gregg mentioned it earlier, the capacity reservation deposit, the second drawdown of $1 billion from Renesas. So we're sitting at a little north of $3.5 billion of cash and liquidity pro forma, which makes it the perfect time to really focus in on the government incentives. And that's really where we're focused now. So from a timing perspective, Gregg mentioned it, we're getting our applications in. We're working closely with the CHIPS program team. What we've heard so far has been positive. But it is important for us to focus on right now -- that right now because it will inform what our next steps are in terms of what's going to happen the balance sheet and how do we fund things going forward. But right now, like I said, I think we're in a very good position from a cash liquidity perspective. We'll let this inform kind of what our decisions will be next, depending on how this all works out. We were also quite pleased to see some of the announcements recently, both for grants and for loans that have come out, and we expect to make continued progress on that.

They're actually going to be here on Thursday, talking about the investment strategy.

Perfect.

So let's open up the audience. I think we've time for 1 or 2 questions, maybe in the back.

My question is related to competition in the 200-millimeter silicon carbide wafer plants. Can you talk about ROHM and the other firms who are ramping 200-millimeter wafer fabs? And after all of these get up and running, what will the -- who will have the cost advantages? Are there -- which -- what companies have any inherent advantages? And maybe if you can just comment on the Chinese firms trying to enter the space?

Yes. So from a wafer fab perspective, a lot of wafer fabs going into the construction or changing and so forth. The real key is supplying that wafer fab with a high-quality, automotive-grade silicon carbide substrate. The 2 companies that first introduced 200-millimeter substrates were us and Coherent, and we both did it around 2015. And from 2015 to today, we're the only one that's actually gone into production with a silicon carbide wafer fab at 200-millimeter. So we're ramping the Mohawk Valley fab today. As I mentioned, in terms of the Chinese suppliers, there's a lot of discussion about China investing. We know they're doing that. We know it's in their interest to do that. We can't stop them from investing in the technology. The technology, though, itself, is a lot tougher than most people imagine. And as I mentioned earlier, at 150, we understand that the vast majority of their output is for Schottky diodes. And again, a Schottky is a scrap MOSFET wafer. It's one you cannot use for a MOSFET. So they're going to need to get 150 up and running before they get 200. How far are they behind? Well, hard to tell. We're not invited to their program reviews, but it took us and Coherent, who are supplying 75% of all of the silicon carbide on earth, it took us from 2015 to today get us up into production. I think speculating that someone that isn't really in the production on high quality wafers today at 150 can somehow pivot to 200 in the next 2 years seems like a pretty long put.

So when you think of your Japanese competitor, who is trying to enter the space, ROHM?

Yes. So ROHM is the third largest fully integrated silicon carbide company. They produce their own wafers and crystals through a German company they bought a number of years ago called SiCrystal. They are a very reputable company. They're also a customer of ours. We've done supply agreements with them and extended those agreements. And most recently, I think, a quarter ago, maybe 2 quarters ago, we extended again a supply agreement with them to supply them with 150-millimeter substrates. So I guess what that's translating to is the third largest fully integrated -- the second largest fully integrated silicon carbide company and the third largest producer of silicon carbide wafers is a customer of ours, and there's probably a reason for that.

We're running out of time. We'll have one more question.

Yes. A similar question from my side with regards to the extension of the agreements. I mean the biggest 2 silicon carbide device makers today, you haven't mentioned and we heard anything about them extending agreements with you guys. So did I miss anything? Or what's...

The largest producer of silicon carbide chips in the world is ST. And we did an original agreement with them back in 2017, maybe 20 -- early '18, something like that. These are all publicly announced. They are a great customer of ours. We have a very good relationship with them. The original supply agreement was for $250 million. Shortly after we announced that supply agreement, they bought Norstel, a crystal growth company. So this is again back in roughly 2018. About 6 months after owning Norstel, they came back to us and doubled their supply agreement with us to $500 million. And then recently, 1.5 years ago, a year ago or something like that, we further extended that agreement to $850 million. They are, by far, our large customer. They're a great customer. But I think what they're finding is what most people find is that silicon carbide is not an easy substance to master. There's all kinds of challenges, and we've been a great partner with them. So they are the largest company, by far, in terms of those substrates. They have publicly stated that they will do about 40% of their substrates internally and about 60% externally. I talked to Jean-Marc about that, and we're understanding that. And I think that's strategically a good move from their end. But I think with the supply agreements extending, and extending, and extending again, and we don't do 1-year extensions. We're not going to be a stop gap. I think what it says is this is more difficult than most people anticipate.

One word on Onsemi, if you can?

We've announced just an agreement with them a while ago. And so we haven't made any further announcements. I believe their target is to be -- I think it's still 100% internally sourced. I actually don't remember.

They exited last year, over 50% in their...

Yes. And GT, I think, is the company that...

Probably less than 100% because they'll source from China as well. But there -- it seems like they're mostly focused on GTAT.

Yes.

All right. I'll have to wrap it up there. We're out of time. Thank you so much.

Thank you, everyone.

Thank you.