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

Good afternoon, everyone. Welcome to day 1 of Citi Global TMT Conference. My name is Atif Malik. I cover U.S. semiconductors, semiconductor equipment and networking equipment stocks here at Citi. It's my pleasure to welcome Gregg Lowe, CEO of Wolfspeed as well as Neill Reynolds, CFO. We also have Tyler Gronbach, our friendly neighborhood IR in the back. I'm going to kick it off with my questions first and then open it up to audience questions. If you have a question, please raise your hand, and the mic will come to you and you can ask your question. Welcome, guys.

Gregg, if I can start with the kind of the big question investors have, why do you think your stock price has underperformed by so much this year? What are the investors missing?

Well, a couple of things I would say. Obviously, one of the things we've been working on over the last 6 quarters is getting the operations in better shape. That's been a very, very key focus of me. I've been in Mohawk Valley. I've been in our materials factories pretty consistently during this time. And I think one thing that I think is -- not one thing, but several things have happened. Number one, Mohawk Valley has now turned into a very good asset for us in terms of production quality, yield, et cetera. Feeding Mohawk Valley out of Building 10 has also substantially increased. We announced that we hit 20% utilization in Mohawk Valley and that's because Building 10 was able to deliver the material to them. And we also announced on our last earnings call that Building 10 will actually be able to support a 30% utilization in Mohawk Valley, which is a 50% increase off the same number of growers. So which -- maybe it's not that obvious, but that means our yield out of those growers is 50% better than anticipated. The yields in Mohawk Valley are now ahead of where we intended -- not intended, where we expected them to be at this point, and we still have quite a ways to go to get to what we call entitlement yield. And then finally, I think something that should not be lost on investors is that our cost out of Mohawk Valley is substantially better than our cost out of Durham. All of this confidence that we have now in our 200-millimeter entire supply chain, Building 10, Mohawk Valley, et cetera, has given us the confidence to announce that we would be shutting down our 150-millimeter line in the Durham facility. We don't have more details right now to give on that. We will give you a detailed plan on that at our next earnings call. But that process is underway, I think. So I think there's -- for the last 2 years, there's been a question of, can we get 200-millimeter going? And I think that answer has been -- that question has been answered pretty substantially. And now it's a matter of funding and CHIPS Act funding, and there's a lot of question around that. As we said in our earnings call and as we detailed in our 10-K, we are actively engaged with the CHIPS office. We've got an ongoing conversation with them. It's a positive conversation with them. And we're now down to a few remaining items in the -- in terms of terms for the grant. We're continuing to work with them on that. It's a very good process. I think in hindsight, we were probably a little ambitious as to how fast we could get this thing over the transom. But we're definitely -- every time we meet with them, we're moving forward, and I feel confident that we'll be able to get this thing over the goal line. Now that being said, there's a question of what happens if it doesn't get over the goal line. What other levers do you have? And I think that's something that maybe, Neill, if you want to talk a little bit about that would be good.

Yes. Well, certainly from a funding perspective, Plan A is continuing to work with CHIPS office. And I think, as I've always said, that will inform kind of what our next decision is. One thing with our current lending agreements is that we have about a $1.5 billion carve-out for secured financing from our JP Siler City facility. So I think tapping into that would be an option there. The most obvious one would be to work with our current lenders and leveraging our accordion feature that we've got in that facility moving forward. So there's some leverage. There's some opportunities and some levers we can pull from that perspective kind of as a Plan B. But Plan A continues to be, let's work with the CHIPS office. I think that's the best solution for all parties involved, and that's what we'll continue to focus on.

And then in terms of personal focus. So over the last 6 quarters, a lot of personal time focused on operations and getting Building 10 and moving the Mohawk Valley and so forth, eliminating roadblocks and issues and so forth, sometimes that meant working with CEOs of some of our suppliers to help with some various different things. I think that's -- the work isn't done, but we really have come a long way. And now my personal focus is going to really be on 2 things. One is obviously getting chips over the transom. And the second is a path to profitability. And that's -- those are the 2 key focuses going forward.

Great. And let's just unpack a little bit. You guys mentioned Mohawk Valley, Durham, CapEx. Let's start with the Mohawk Valley fab. Gregg, you're expecting Mohawk Valley fab to reach 25% utilization in September quarter, which is one quarter ahead of the original plan. What gives you the confidence that you kind of remain on this trajectory of getting to higher utilizations. If you guys just take us to the ground and talk about what changes and improvements have you made where the yields are tracking better and everything?

There are lots of different angles on this. So -- and I don't have the exact numbers, but the number of tools that have a second tool in the factory is substantially higher than we were certainly a year ago. And I believe we're on track to be fully second of a kind tool by the end of this calendar year. I don't remember where we're at right now, it's pretty high. So that used to be pretty substantially low, like 25%. So anytime one of the tools that only had one-of-a-kind tools went down, it just stopped production. So we now have multiple tools across the fab, which is good. I think our ability to understand how the tools are going to respond to 200-millimeter silicon carbide has gone substantially up, and that means our maintenance and R&M processes and things like that have gotten a lot better. Just recall, this is the first 200-millimeter silicon carbide factory. So every single one of those pieces of equipment in this factory saw silicon carbide for the first time, and we had to kind of fine-tune that. And I think that's gone very, very well. If you look at the yields across the products that are going through Mohawk Valley, we've got a very strong kind of up into the right trajectory. And as I said, we're currently ahead of our planned yield on the device in Mohawk Valley. And then the second thing and it's really important is the output out of Building 10. The JP is coming along very well. It's on time, it's on track. But any time you bring on a new facility, there could be some kind of problem. Basically, that hasn't happened. But Building 10 being able to do 30% versus 20% is a huge relief in terms of time that we need to get the JP on board. The JP has initiated first crystal growth. I personally did it on the first machine. The parts are coming out, looking great. They're matching the quality that we're seeing out of Building 10. We fully expected that because the facilities are not too far away from each other, about 45 minutes, plus or minus a little bit. And so the team that started up Building 10 is the exact same team that started up the JP. And recall that Building 10 was a squash board, a basketball court, office space, and we turned that into a crystal growth factory. We certainly expect a grounds-up purpose-built facility at the JP to be a lot easier to bring up because we're not dealing with what used to be a squash court that's now trying to be a factory. So we feel real good about it. So quite confident in that. And again, the confidence should be heard loud and clear because we are cutting the cord to 150. And we're very, very confident in the 200-millimeter.

Right. Neill, over to you. When you had your Investor Day, I remember 3 years ago or something, you guys talked about for the cost to be 40% lower [indiscernible] millimeter maybe utilization rates have to be at 80% or so for the Mohawk Valley fab and correct me if I'm wrong. But -- so how do we look at kind of the cost improvements from here as the utilization improves. Is it kind of a linear function? Or is it more of a step function in terms of how we should expect the margin profile? And is September quarter really the trough in your gross margins.

Yes, I think so. I think from a -- I think that we're following the same path that we've always talked about. You get that 40% cost advantage at the die level when you move from 150-millimeter substrate to 200-millimeter when you put it in the fab. Now we're still at early days, early days of yields and cycle times in the fab, and we're already seeing pretty terrific results in terms of this kind of breakthrough we've talked about and the performance that Gregg is talking about. So we anticipate seeing improvement over time. But even at this early stage, we're seeing significantly lower cost at the die level from our 200-millimeter platform, and we'll continue to see improvement over time. So I think that's essentially what you'll see as utilization rates improve, as yields continue to improve over time, we'll continue to see that cost curve come down for 200-millimeter, which really is what gives us confidence to move over to that platform. So if you think about it, Gregg talked about the path to profitability, that's really what our focus is. And where we're headed is to dramatically simplify our manufacturing footprint, and really pushing it to our new facilities and really get the leverage off of those facilities with that lower cost footprint. And of course, the more we utilize them, the more we leverage at better cost basis, that should improve our cost structure and then margins should come along with that.

Okay. And then moving on to the Durham 150-millimeter fab, you guys talked about pulling that down. And like to Gregg's point, that shows your confidence in the Mohawk Valley fab. But in terms of the handoff between the 2, how do you guys kind of ensure a smooth kind of hand off? And just historically, what was the sales level or the margin level of the Durham fab that we should kind of account for in the model?

Yes, maybe I'll start, and you can follow-up. So first off, the -- all of the automotive powertrain parts that we work with and sell to customers are qualified in Mohawk Valley. That's a really important piece because it's going to be a strong growth component of that. And we will be giving a broader amount of detail in terms of how we're going to transition the rest of the revenue potential up to Mohawk Valley. We'll do that during the earnings call. I would add though, an important little factoid, nearly all, in fact, all except one of the automotive parts that we attempted to qualify in Mohawk Valley passed qualification on its first pass. The only one that didn't pass on its second pass. And that is a -- that is not normal for a new fab and it's certainly not normal for a new fab with a new substrate with a new technology and so forth. So I think that gives us very high confidence in our ability to qualify the industrial parts up there as well. Industrial parts tend to be less complex or definitely less complex than automotive parts. They're simpler. And I think the impact on margin for our industrial business should be very positive as well. The wafer diameter is going to give us 70% more die per wafer, there's going to be an increase in yield as well as we move up to Mohawk Valley as well.

And then from a capacity perspective, the Durham fab was achieving roughly about $100 million of revenue per quarter as early as last year, primarily industrial energy revenue they have been running through that fab. We had to run some more automotive revenue or EV revenue through that over a period of time. But as Gregg said, now with all of this qualification work that's been done at Mohawk Valley, we can transition a lot of that over to the 200-millimeter Mohawk Valley fab. What that leaves us with then is that industrial energy markets are weaker right now, and the Durham fab has been primarily an industrial energy facility, and that's really what it was planned for. This also gives us a good opportunity to close the fab to bring at a lower level of utilization where it's already at and make this transition now and really leverage the benefit of 200 millimeter. That's really what it's about. If we're seeing lower levels of utilization now, it makes a good time to transition the factory footprint, simplify things and then move everything over to 200-millimeter. And we believe that over time the new fab in Mohawk Valley should be able to absorb most of that capacity just because, as Gregg said, the trade-off, if you think about the incremental amount of revenue per wafer that you get going to 200-millimeter is so much more beneficial. So it should be able to absorb that nicely over time, not just bring more capacity online and absorb the revenue side, but do it at better margins.

But I&E will remain a focus for you guys or are you guys even looking at exiting...

No, we definitely will keep it as a focus. We're winning a lot of industrial business. It's down right now. It will come back, and it will be a good business for us. And the industrial businesses tend to be quite fragmented and fragmentation is really good in the semiconductor industry because you typically are selling a smaller number of units to a customer that tends to drive the price up and so margin profile tends to be, what doesn't tend is always better in a fragmented industrial type market. So absolutely continue to focus on that market. And -- but it's just -- it's down right now. And I think what happened was a classical semiconductor cycle where the demand for industrial products was higher than the supply that amplified the amount of purchasing that was going on in the industrial side of business. The market went down, then there was a big gap between inventory and how much product they needed. So I think we're going through an inventory correction right now. It's hard to say when it's going to come back. I would say our thinking is we're not anticipating it coming back in this calendar year.

Okay. So that kind of helps on the supply side of the equation. You guys are starting to just try it in Mohawk Valley fab and transitioning Durham. So on the demand side, the EV market growth appears to be slowing down. And you guys are optimistic that the market will at least continue to grow for you guys, maybe a bit slower than before and a very strong design and activity still. Can you talk about your outlook on the EV market broadly next year and 3 years out?

Yes. So there's no question there's a slowing of the growth in EVs and that's especially true in the Western economies, there still is growth, but the expectation that were there before are lowered. And what I would say is a couple of different things. Most of the design-ins that we've had over the last couple of years have yet really to enter into production. So we're still going to see that. The second thing that I would say is the adoption of silicon carbide is still very, very strong. There's no going back on that kind of thing. So you're going to see an increasing number of cars on the road that have silicon carbide in them, which will drive longer ranges. And obviously, that's a huge care about. But there's definitely going to -- there is definitely a slowing of the adoption of electric cars. There are a couple of other points that I would make, though, is that there's some talk about plug-in hybrids as being kind of a bridge between the 2. And we've seen some of that. And we're also seeing adoption of silicon carbide and plug-in hybrids. And so it's certainly not the same amount of dollar content because the power is substantially less, but it's another good opportunity for us. So -- and to be honest with you, I think previously we would not have anticipated silicon carbide being used in a hybrid or a plug-in hybrid. So that's a -- that will be something that continues. I think this transition, I've said it many, many times from internal combustion engine to electric is the most disruptive change in the history of the automobile. And there's going to be a lot of pushes and pulls and changes and so forth. We've said that we have 120 different car models being introduced to the market across 30 different OEMs in the next couple of years. And I can guarantee you the ramps of every single one of those car platforms will not be the way it's currently planned. Some will be faster, some will be slower. Some cars will be -- will have great success and people like them, and they're going to buy them a lot, some will not. Some will be completely unsuccessful. Some cars will push out -- some car companies will push out their introduction because of a software issue, some with their supply chain thing. There's going to be a lot of puts and takes on this ramp. But what I'm very convinced of it's still going to be moving up into the right, maybe not exactly at the rate that was anticipated before, but nearly all -- and not nearly all the analyst reports that I've seen show both plug-in hybrids and electric vehicles eating into the internal combustion, and I think that's going to continue.

Then one of the concerns investors have on China competition. To your knowledge, are there projects in China that are doing 200-millimeter substrates. When we talk to the equipment makers that are supplying equipment to China, they talk about maybe 20, 25 different projects on the silicon carbide side, but we're not sure how many of them are 200-millimeter. But can you just talk about the threat of China? And are you seeing any kind of pricing pressure in the market from China?

So I'll start with -- our knowledge and visibility and accuracy is clouded on this. You hear a lot of different things on China and silicon carbide. I would say the growing consensus is that on 150 millimeters, China's quality has gotten better. There is a question as to how much volume and what their yields are of automotive-grade wafers. I've heard it's good. I've heard it's not good, and it's hard to say. But for sure, the consensus is they've done a pretty good job of improving quality. And again, what that means from a capacity standpoint is a little bit cloudy. That's less -- there's less enthusiasm on 200-millimeter. I would say that people have seen 200-millimeter wafers that look good, but there's more of a doubt on their capacity, is this "golden wafer," what have you, there's more of a doubt on that. There's not much we can do about that. So we have to basically have an attitude that says, they're going to eventually be successful. So what do we need to do? We -- need -- we're not standing still. We're driving operational improvements in 200-millimeter, the fact that we've gone from a 50% increase in output per crystal grower is a huge deal. And we have lots of other projects driving our cost down, our utilization -- our output per crystal grower up and so forth. And that's across the entire platform of 200 millimeters. So that's what we can do about it. I think it's clear that the Chinese government is intending to try to be independent from the West across everything semiconductor related, so they're investing in these things, no question about it. They'll be successful in some areas. They'll be unsuccessful in others. And our attitude has to be they're going to eventually be successful. And so what -- the only thing we can do about that is drive our operations faster and better.

Great. Let me pause here and see if any questions in the audience.

So on the CHIPS Act funding, if it comes through, is it going to be one installment? Or is it going to be milestone-based? And how does it actually flow through?

Yes. I'll stay at a high level on it because I don't want to divulge any details. Generally speaking, you can kind of think of it as milestone based. And I don't want to get into any detail on that. And I think it's just the government wants to make sure that if they put in money, it's going to get a result and so forth. So -- and we feel comfortable with that. We -- yes, we're engaged with them pretty heavily in that area.

So a different question. In terms of -- if I try and bridge your year-end cash balance of $2.2 billion to your desired cash balance of $1 billion, there is -- if I take your midpoint of the CapEx and cash interest expense, that's about $1.6 billion of cash usage for fiscal '25. So how are we going to -- what's the bridge to get to $1 billion? You need some cash sources, if the CHIPS Act doesn't come through, I think you've talked about Plan B. Is that how you bridge it?

Yes. I think step one here is work with the CHIPS office and continue to work down that path. I think that's a good outcome. We're optimistic that we can get something done there. We continue to work with them. As Gregg mentioned, that's been in our filings, and we've talked about that, I think, pretty clearly. In the event that there is a need for additional funding, there's a couple of avenues that we could go down. In the short term, as I mentioned earlier, there's $1.5 billion carve-out for secured financing in our JP Siler City facility. So we could leverage that as part of our deal. So currently, we have senior secured, the first thing lending on the current facility that we've got but with carve-outs with flexibility. So there's a lot of flexibility within that arrangement to do various things. I think if you look at the current lending group, we're actively talking with them, both in terms of how we're thinking about the CHIPS grant potentially but also an alternative case is about how that would work, and we're in advanced discussions with them. So we're, I think, well prepared for a lot of different outcomes right now. I think the second thing to remember is this is not really a chronic challenge. We have -- if you go out beyond this kind of time frame you just mentioned, out beyond fiscal year 2025. When you look out beyond that, we have over $640 million or roughly $640 million of 48D tax credits that will be our receivables for us out in time. That could grow to $1 billion. So there's roughly -- our estimate is about $1 billion of funding coming back from tax credits out in time, a substantial amount of which could come in 2026. In addition to that, we're looking at other government and tax -- government lending and tax programs, which are opportunities for us. And we're out right now sampling 200-millimeter substrates with various customers. We've done -- when we looked at this before, obviously, our supply agreement with Renesas came with a $2 billion capacity reservation deposits. So that would be another option for us down the line as well. So I don't think of this as like a chronic funding challenge, more about kind of a short-term -- what are the short-term levers that we have to pull, depending on how chips plays out. Now as you pointed out, we ended the last fiscal year in June with $2.2 billion of cash, this is not something we have to deal with today or this month, but I think it's important that we continue to move forward with the CHIPS office and in the event that doesn't work out, then we've got kind of other opportunities kind of set forth before us.

And one last question. So roll forward to fiscal '26, when the convertible becomes due, can you -- is there any restrictions in your lending facilities that prevent you from addressing the convert in cash? Or can you talk a little bit about that?

Clearly we have to work with our lenders in terms of paying off debt ahead of different lenders and whatnot, and that's all in the agreements. But again, I would say that our partnership with our lending group has been very positive, very active. You're talking about corporate lending group, who sees the Wolfspeed investment as an important part of their strategic structure. We partner with them very well. They've been very strong advocates for the company and partnering with us and they understand the importance of the investment levels required to get to the other side of some of these investments and see the true strategic value in the assets that we're building out right now.

Just to drill a bit more on that. The credit agreement also has a minimum cash balance covenant. Is it like -- does it go away if you reach a yield? Or is it still there if you...

Yes, it actually declines over time as utilization levels at Mohawk Valley start to come to fruition. So I think as you think about the structure of that, it was really about a belief in our ability to build out this infrastructure to build 200-millimeter capacity over time. Obviously, deep research went into working with these lenders over time. And as we start to build up to 30%-plus utilization and achieve certain revenue levels over time, the minimum cash balances would start to decline.

In that case, I mean, how are we looking at the time line? I mean when does you -- when do you hit the minimum cash flow, will it be -- when does the CHIPS Act you think would come for the $640 million credit receivable. I mean, how are you trying to adjust that, is it a possibility that it can trigger a covenant before as you...

I don't think that there is a -- as I talked to the lending group, I think I said they're supportive here. There isn't a whole lot of discussion around timing of hitting covenants. This is really about investing into these assets over time to ensure we see what's on the other side. The 48D tax credits, once we get some of these bigger assets into service, which we anticipate doing within the fiscal year, that starts to trigger the capability to start to put those into our tax return and collect on them down the line even within 2026. So I think there's a number of levers to get there, and I think that's what we're actively working together on.

And Gregg, just a quick one. On the ASP side, have you guys seen any like decline on the ASP in the market or for you -- for yourself?

For the design-ins that we have predominantly with the automotive customers, there is a kind of a matrix of, here's the volume, here's the price, here's the year, and then as the year goes on and the volume goes up and so forth. And so that's pretty set and not really negotiable. I would say there is more of that right now with China industrial where the market has basically gone away. So there's -- it's a little more aggressive in terms of people trying to pick up business. But from the automotive perspective, I would say no. And from the non-China industrial business, I don't see a whole lot there either.

Well, just on the operational side. You mentioned the design-ins. I defer to you how much you can share. But in terms of when we can see those really start flowing through P&L, how do you think about that in terms of '25, '26, '27? Obviously, it'll be spread out, but in terms of whatever you can share in terms of when those vehicles really start hitting production?

Yes. So a couple of things, and it was a little bit hard for me to hear, I am deaf in one ear, so sorry about that. But so if I don't get it exactly just let me know. But basically, design-ins that we've gotten over the last couple of years are beginning to go into production right now. And there -- some of them are pushing out. We had that happen last quarter. Some of them are pulling in. We had that happen last quarter as well where we were trying to shift as much as we could, focusing on a chip for that customer to moving over to this customer. And we had some pretty good success on that, not total success on that. I anticipate that that's going to be happening quite a bit over the next couple of years, just -- the rollout of EVs, as I said, is going to be very, very disruptive, and it could be because of demand for the EV more than I expected, less than I expected. It could be a software issue, et cetera. There's just going to be a lot of moving around. Now it will end up being a positive up into the right type thing, but it won't be a smooth curve, I don't think. For the designs that we won this past quarter, and it was $2 billion worth of design-ins this past quarter, 70% of those were automotive 800-volt type applications, and we're seeing much more of the 800-volt type applications for EVs happening. Those will ramp in 3 or 4 years, which is pretty traditional. I'm very, very much anticipating what happens with these 120-plus models that were designed into over 30 different OEMs. And like I said, I'm positive they're not going to ramp the way they're currently planned, but there's going to be a lot of new vehicles into the market. I've talked to one customer that said there is multiple different price points that there's going to be entry level, there's going to be high end and so forth. And then we just finished the quarter where we doubled our automotive business year-over-year. And we're anticipating that we'll triple it this quarter. And so we're actually seeing these things starting to play out.

And one small follow-up on the liquidity side. A lot of talk on CHIPS Act, anything on the DOE, Department of Energy and what -- to the extent you can talk about quantum, time line, form, high level, whatever you can divulge?

I think from a government perspective, I think we were maybe a little overambitious in how long it would take to be working with the CHIPS office, we keep working with them. We are actively working on other applications. You mentioned one of them there and some other programs as well. I think from a technology perspective, we rank very, very highly from economic security perspective, national security perspective as kind of a critical technology. And that from a Department of Energy perspective, we're on the critical minerals list. So I think we rank very, very highly from that perspective. So we'll continue to work down the path on those things, as I said earlier, as you think out beyond this fiscal year, there's a lot of different opportunities that could be worked out from a perspective of things like different levers that we could pull as we think about those funding opportunities out in time, both from government, lending and tax programs, but also from leveraging our 200-millimeter technology to do -- potentially do some additional substrate sales at 200-millimeter down the line, which would generate some additional funding. So those are all things that we keep in mind from a bigger picture, I guess, I would say. But as Gregg said, right now, our clear focus is on funding through CHIPS and driving a path to profitability, and that's where our major focus is right now, both from a profitability standpoint but also from a liquidity standpoint.

There's a question in the front.

The first question, I guess, on utilization, you guys are talking about 25% next quarter. And then from your earnings call, you talked about 40% sometime mid next year. The trajectory seems a little slow compared to what we've seen on some other silicon fabs, and I understand silicon carbide. Are you essentially limited by Siler City ramping up or you're doing a slow ramp for some other reason?

Well, a couple of things. So first off, we made the announcement that Building 10 can support 30% utilization. And at the same time, we said we're starting to grow crystals in Siler City and that project is on time. So I think those 2 things are actually very positive for our ability to ramp the fab. We've mentioned that our fab yields are ahead of what our plan is, but we still have ways to go from an entitlement perspective. So having a more modest ramp is going to be helpful in terms of we'll get more out of the chips as our yields continue to improve. And so I think the -- I think we've got a good ramp plan. And I think that plan has been successful over the last 6 quarters where we went from essentially no revenue. I think it was $1 million a year ago last quarter to basically $40-plus million. So I think the ramp has been a very good ramp for us, and I think the plan that we have going forward is good as well.

Got it. Just a quick follow-up on that. How should investors think about risk on utilization ramp like, for example, going from 0% to 20% versus 20% to, let's say, 60%...

Yes. So in terms of the things you need to deal with, 0% to 20% is a lot harder than 20% to 40%. There's no question about it, especially if it's never been done before. And that's what we faced. So all of those machines, as I said, we're seeing silicon carbide for the first time. So we anticipate that it will be a smoother ramp from 20% to 40%. And again, we're in the process of improving yields, improving cycle time. So I think we'll -- I think it will be a good -- I think we've got a good plan.

Got it. Just on the CHIPS Act, is -- there are 2 parts from what I understand. There's a grant, potentially a loan. When it comes to the loan part, is that going to have some sort of a lean secured-type debt? Or is that PVD or how is that shaping up?

Yes, I think we're not allowed to give details on that, so I'll just hold off on that. I can just say we're very satisfied with our engagement with the CHIPS program office. We're satisfied with the scope of what we think we're going to get. We obviously can't guarantee that we'll get over these last couple of things, but we're focused on those. And I think from my perspective, every time that we've met, we're making progress. There's how about this and so forth. So we're down to a couple of terms right now, and that's what we're focused on getting over.

One last thing. It seems like next year, you need funding, which should come from CHIPS Act or the Plan B that you guys talked about. And then your '26, you're potentially $640 million to $1 billion of potential credits that could come in. Is there opportunities to bridge some of this stuff with revenue -- revenue from forward revenues or something like that, what you did with Renesas something like that.

We're looking across all those options. Obviously, with the program is new, from that perspective. So there's a lot of different opportunities out there. So those are things that could be possibilities out in time. There are various different types of tax credits that you have to think about. Some are like tradable and some aren't. I think in the 48D category, they're not necessarily tradable, but there could be other programs you could look at that are emerging to pull some of that forward. But I would call that emerging kind of capability in terms of the capital markets around some of those things. And we're exploring all those opportunities.

Quick question on competitive dynamics. My concern is that there are 2 sources, there is China, and there's non-China. On China, Gregg framed that there is no clarity whether they will be successful or not. The way I see it, they don't have to be successful to make your life very difficult. And the way China, the trajectory of the capacity ramp, they don't have to get high profitability or high yield even if they are -- just sheer presence of them can make it really, really painful for the rest of the industry. And what Infineon is building in Kulim, again, the scale is even larger and because of the lower cost geography, it seems like Wolfspeed would be really at structural disadvantage on that dimension as well.

Yes. I don't know the details of -- I don't sit in their program reviews on what they're doing. What I would say is, we've been at this for a while, and we haven't been standing still from a yield perspective, from a cost perspective, from a quality of substrate perspective. We feel like we have a lead, and we are the first company that's gone into production with 200 millimeter, and we're heading into high volume as we speak. And I don't think there's anybody in our company that's resting and just saying no one's going to catch up with us. We've got dozens of different programs to continue getting output up per crystal grower. Again, this 50% improvement that we've seen just out of Building 10 is an amazing accomplishment. And like I said, we're seeing yields right now in the fab that are better. Our yield of automotive grade products, wafers out of our Building 10 facility and 200-millimeter is very, very, very high. And so that not only lowers our cost, but it helps our CapEx as well because we're not needing more machines for the same thing. And I think with the yield at automotive grade being high, that means what we add value in putting Epion and doing back-grind and then running through the wafer fab will yield higher out of the wafer fab itself. So that's what we're focused on. And we have to be worried about the Chinese competition like you should be, but there is -- we can't stop them from trying to do whatever it is they're trying to do. All we can do is control what's in our own sandbox, and I feel like we've gotten a good handle on that.

Great. We're almost -- we're out of time. On that optimistic note, we can wrap up our fireside chat. Neill and Gregg, thank you for coming to Citi conference.

Thank you.

Appreciate it. Thank you.