Hello and welcome to the Soitec Q2 2023 Sales. My name is Caroline. I'll be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen-only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand over the call to your host, Mr. Pierre Barnabé, Chief Executive Officer, to begin today's conference. Thank you. Hello, everyone. Welcome to Soitec's conference call dedicated to the publication of the revenue for the second quarter for fiscal year 2023. This is a quarter covering the period from the first of July to the end of September 2022. I'm Pierre Barnabé, Soitec's CEO, and together with me on this call are Bernard Aspar, our COO, Léa Alzingre, our CFO, and Steve Babureck, our SVP Strategy. As usual, we will briefly comment on our sales performance, and after that, we will open the floor to questions. Before getting into our Q2 performance, let me say that I'm very pleased to be with you today. During my first months, I already had the opportunity to engage with some of you, and I'm looking forward to continuing our open and constructive dialogue and to getting to know more those I will soon have the opportunity to meet. Let's go straight to the second quarter. We performed very well. I'm very pleased to report that Q2 2023 was our second-best quarter ever with a revenue of EUR 268 million. This represents a strong 39% growth on a reported basis versus Q2 last year. It breaks down between 28% organic growth and a positive currency impact of 11%. Our performance was driven by sustained growth across the three divisions: Mobile Communication, Automotive & Industrial, and Smart Devices. Beyond the strong dynamic supporting each of our three end markets, we also delivered a very robust industrial execution. Bernin industrial site. One was due to a power outage, and the other was due to a strike action. Back in July, we told you that we were confident in our capacity to progressively make up for the lost production amounting to around 10 days. I'm very pleased to confirm that we have been able to progressively catch up thanks to a strong execution in Bernin. Our 300mm Singapore fab continuing to demonstrate a good ramp-up in production following ongoing capacity increase. Looking now in more details at our Q2 revenue by division and market. I guess that you are now familiar with our new reporting by divisions, which breaks down our revenue by division reflecting our three end markets. Mobile Communication remains our biggest divisions, representing around 70% of our revenue in Q2 2023. Automotive & Industrial, which is bound to be our fastest-growing market over the next few years, represents 13% of our total Q2 revenue. Finally, Smart Devices accounted for 17% of our Q2 revenue. Let me start with Mobile Communications. Revenue in Mobile Comms reached EUR 189 million. Compared to Q2 last year, this is a 22% increase excluding currency impact. Revenue growth was mostly driven by higher volumes. It continues to be supported by the growing adoption of 5G smartphones and Wi-Fi 6, and by the deployment of 5G infrastructure. As you know, we have built a strong leadership in RF applications with our RF-SOI product family for front-end modules, while the RF content in every 5G smartphone is significantly higher than in 4G. In addition, the penetration of 5G and high-end smartphones is increasing despite a slight decline in overall global smartphone market volumes in calendar year 2022. FD-SOI is demonstrating growing adoption with design wins for both sub-6 GHz and 5G millimeter wave. In the millimeter wave space, major players have endorsed FD-SOI. Regarding POI for RF filters in 5G smartphones, several customers have confirmed the value of POI and are going through an adoption phase. The process, slightly longer than expected due to the diversity of module architectures addressed. All in all, we continue to see a good traction in the RF market. Moving now to Automotive & Industrial. Revenue in Automotive & Industrial reached EUR 34 million. This is a sharp 80% revenue growth, excluding currency impact, compared to Q2 2022, and a 40% increase compared with Q1 2023. Growth was essentially driven by higher volume. We continue to see increasing demand for automotive applications related to functional safety and power and battery management for electric and hybrid vehicle, infotainment, autonomous and assisted driving. Growth in Automotive & Industrial comes from a strong performance in FD-SOI and in Power-SOI wafers. Turning now to Smart Devices. Revenue from Smart Devices reached EUR 45 million. This represents a 28% organic growth compared to Q2 2022, supported by a volume increase. Demand is driven by higher connectivity, embedded intelligence in IoT, edge computing, cloud computing, sensors at lower energy consumption. We delivered strong growth in revenue across all product lines. FD-SOI, confirming a unique value proposition for ultra-low power edge AI application. Imager-SOI wafers, which allows improved image performance for 3D sensing. Photonics-SOI wafers for data transceivers in data centers. Strong demand for IoT and edge computing devices across both consumer and industrial sectors. Let me now give you a quick overview of our performance year to date. H1 2023 revenue came at EUR 471 million, up 26% versus H1 2022. On a like-for-like basis, H1 growth stands at 18%, thanks to the outstanding performance achieved by the team in Q2. With this good performance in H1, we are confident to reiterate both our top line guidance and our EBITDA guidance for fiscal year 2023. Let me confirm, we continue to expect fiscal year 2023 revenue to grow around 20% organically, and we are expecting our fiscal year 2023 EBITDA margin to reach around 36%. This guidance takes into account the current macroeconomic context. This ends my opening remarks. Thank you for your attention. We are now ready to take your question. Thank you. As a reminder, if you would like to ask a question or make a contribution onto this call, please press star one on your telephone keypad. To withdraw your questions, you may press star two. We will take the first question from line Aleksander from Société. The line is open now. Please go ahead. Yes. Hi, good morning, and thanks for taking my question. Congratulations on the strong sales you've just reported here. Just for us to understand fully, should we now assume that everything that was missed in Q1 because of industrial action and power cuts is now caught up with this strong second quarter and now you're on a smooth sailing for the rest of the year? Or is there still any catch up to do here? Secondly, if you could share your assumptions for the smartphone market and for 5G units for the current year and for next year, so we understand how market trends tie with your guidance overall. A third one, if I may. Could you explain in more detail what's going on in POI? Why it's taking so much longer than you and us expected for you to validate it and to onboard more clients beyond Qualcomm? I'd just like to understand what exactly is at play there. Thank you. Thank you, Aleksander. Let's look across your three questions. First of all, we are fully caught up the two difficulties we had in Q1 due to the electricity outage and to the strike. Now it is totally covered, and it has been done thanks to a very active work and determination by the team. Regarding the 5G units, we are not communicating for next year, and we still remain, sorry, in the range of EUR 650 million-EUR 700 million. This is what we see for this year. Next year is not something we are communicating on. Regarding the POI, it's back to what I said, but I would like to ask Bernard perhaps to complement what I've already said. Tell you during the outlooks I've presented. Bernard, if you can complement. Yes. On POI, first of all, the value is recognized by the different players, and this is one of the thing, and we are working with many players for different kind of application. However, we are still in this penetration phase. The penetration phase means also that it's not smooth, but we are more on a bumpy growth. Why that is because the process for qualification is longer than expected, and mainly due to the diversity of module architecture that can be addressed with our POI structure. Thank you very much. Thank you. We will take the next question from line Emmanuel from ODDO. The line is open now. Please go ahead. Hello, everyone. Thank you for taking my questions. First, do you think there are some risk related to inventories from your key customers? Do you consider that some of them could revise negatively their orders for your wafers in the coming quarters in a very challenging macro context? That's my first question. Second, what about commercial negotiations for your silicon carbide technology? Anything to say new about that? Third question. Have you seen some members of the management team leaving the company following the departure of the previous CEO? My last question is about your edging for this year. I know you are fully edged on a euro-dollar rate of 1.18, but what about next year? Thank you. Okay, thank you. Thank you, Emmanuel. Regarding the inventory, we have seen replenished but healthy inventories with our direct foundries. After a very difficult and very tense year before, we see now inventory that is in line with what is expected for answering the different demands. This is really our observation so far. Regarding the silicon carbide, we cannot disclose as we told you. We expect to disclose commercial names before end of this year. But what we can tell you is that our ecosystem is building up step by step. We are making SmartSiC technology becoming a standard. It's something that of course takes time, but we are connected with all the stakeholders and players in this racing world and in the electric vehicles world to be sure that we're gonna take the maximum value when the market will take off very soon. Regarding the executive members' presence, no one left. Some of them are exactly at some meters from me right now. The team is fully dedicated. You know, we cannot deliver the Q2 result we have delivered if they were not totally involved and dedicated. More than that, we are pleased to welcome new ones with Caroline Sasia, who joined us from the automotive industry to take over the communication for the whole group. Regarding the hedge and the currency coverage, I would like, Léa, if you don't mind to give some explanation and points. Léa? Hello, Emmanuel, and hello, everyone. For FY 2024, we are only partially hedged. I would say a third of our net exposure at a rate around 1.12. Okay, that's very useful. Thank you very much. Thank you. We will take the next question from line, Jerome from BNP Paribas. The line is open now. Please go ahead. Yeah, good morning. Thank you for taking my question. Two quick question. What is the current capacity in Singapore? The second question, can you address the situation in terms of price and cost? How much of price increase are you passing to your customer? What kind of inflation costs are you seeing, in Europe and in Singapore? Thank you. Jerome, for the Singapore capacity, we'll give you the answer. Sorry, for the second part of your question, I missed the main point, so sorry about that. Could you repeat the second part? Yeah. In terms of price increase on your side to your customers and in terms of cost inflation, both in Europe and in Singapore. Yeah. For the Singapore capacities, Bernard, I will let you answer. Before, on the price increase, as we already explained, we are working actively on containing the cost. Thanks to long-term agreement with suppliers, thanks to long-term agreement with energy providers. We are monitoring the inflation cost while we are working, of course, with the sales teams and with our customer to reflect a part of it. For this year, it's something we are monitoring, helping you of course to confirm our 36% EBITDA guidance. Regarding Singapore, perhaps, Bernard, you can comment. Yes. Hello, Jerome. In Singapore, we continue our ramp as the ramp is very aggressive to deliver the number of wafer that we need to have. We are delivering as per plan. Today we are in the range of 50%, but changing every day. Overall, we are in this range. Thank you. Thank you. We will take the next question from line, Sébastien from Kepler. The line is open now. Please go ahead. Yeah. Hi, everyone. Thanks for taking the question. What kind of visibility do you have on your business for the coming quarters, given the weaker macroeconomic environment and the weak smartphone volumes? That would be the first question. Second one, do you see any potential implication from the U.S. semiconductor export restrictions in China? Directly, I guess not, but indirectly, is there any specific implication? The last one would be on the margin for each one. Should we expect any negative implication on the margin side from the production interruptions that happen in H1 or any kind of exceptional item that we need to be aware of before modeling margin in H1? Thank you. Thank you, Sébastien. Regarding the forecast for the coming quarters, this is what we told you. We have already anticipated a smoother development in the smartphone industry and especially in the higher smartphone segments where we are, as you know, very strong. We have a quite good visibility. We are confirming the range of EUR 650 million-EUR 700 million in 5G smartphone high-end. This is really something we see for the automotive electric, especially electric vehicles and what we are providing with the SOI and Power-SOI technologies. We see also a good visibility. All in all, this is helping us again to confirm our around 20% increase for the full year, thanks to these key elements and the solidity of our demand from our customers. Regarding the recent bans by the US on some technological elements to China, we have no impact on our side, directly or even indirectly for the moment. We are monitoring, of course, cautiously, but as far as we see, there is no impact at all from this perspective. Regarding the impact of the two incidents we had on Q1 on the margin, as I said, and same thing for the revenue, it has been totally absorbed and caught up. This is something we have behind us and again, helping us to confirm the around 36% EBITDA. For the fiscal year 2024, what part of this fiscal year is already covered by some long-term agreement, take-up contract or a strong commitment from your customer? As you know, Sébastien, we are not communicating beyond the end of this fiscal year, but we have a good visibility, as I told you, and we see you know the trends as you can expect on the three end markets, we are very active. Okay. Thank you. Thank you. We will take the next question from Didier from Bank of America. The line is open now. Please go ahead. Yes, good morning. A couple of questions. One is a follow-up to Alex's question on POI. I just wondered if you could maybe help us on the filter side. When you look at your sort of design win pipeline or engagement with customers that are currently the major players in filters, how much of the market do you think you can eventually address with what you have already in the bag? And then the second question, if you could perhaps help us on the top line, the first half, you know, in mobile devices or Mobile Communication, give us the pricing benefit that you have baked in there. Thank you. For the POI and the filter, I propose Bernard to continue answering on this specific question. I will come back on the price for smartphone. Bernard. On this POI today, we are working with many different players on that. Again, the POI value is recognized. What we are addressing in terms of band is in the range of 1.5GHz -5 GHz. This is the game on which POI can bring value. Depending on the players, they can use POI for addressing a different band. This is also a link to the module architecture that everyone is choosing. It's for that that the complexity when you are integrating the filter in the module is here. Here we are working closely. Today, many wafers on the qualification for the different months. Thank you, Bernard. Regarding the smartphones performance, it's essentially due to the volume effect on each one. As you remember, we are benefiting from extending our contracts and then our millimeter wave footprint in any new smartphone or new generation smartphones that are put on the market, especially in the 5G mode. Okay. Thank you very much. Thank you. We will take the next question from line, François from UBS. The line is open now. Please go ahead. Hi. Thank you very much. Can you hear me? Yeah, very well. All right. Thank you. I have a couple of follow-ups to the previous questions. The first one is on silicon carbide. Can you provide a bit more, a timing, you know, when we should expect, you know, some responses from your customers? I mean, should we wait maybe for 2023 now as we entering the end of the year? Just to have an idea of when we should expect some announcements, whether it's by the end of the year or maybe more in 2023, given the activity. Just would be interesting to have this view. The second one is that, Pierre, you talked in your remark about the EBITDA target that takes into account macroeconomic context. I was just wondering what you mean by that. What did you take into account in your EBITDA to reflect that? Finally, your millimeter wave penetration, what do you assume for this year would be helpful. Thank you. Okay, François. Thank you very much for your question. I will ask Bernard to answer on the silicon carbide in line with what I already said, but just with giving some precisions and as well as for millimeter wave. Regarding the context, the macroeconomic context, it's we see and we observe, of course, impact on the inflation, and so on. Despite this macroeconomics, we do confirm the 36% EBITDA target and guidance. This is just the clarity on the fact that this target are reiterated and guidance are reiterated despite the macroeconomic environment, including the inflation, for which I say that we are monitoring very closely the impact. Bernard? Hello. On the SmartSiC, the first thing is we are on time. This is the key thing. We are on time comparing to what we disclosed. We are on time on the timing that we share with you and both with the progress with the customer and both on our manufacturing site in order to be ready to really be able to ramp beginning of 2024. This is the key thing. On the announcement, we are still two months to be at the end of the year, and we are confident that we will disclose some name before the end of the year. The millimeter wave, it was a question was on The question was on the. Penetration. on the penetration and the Okay. On the penetration of millimeter wave, we are in the range. Millimeter wave is just at the beginning, and the adoption is just starting. For us, we are in the range of 10%-15% max of millimeter wave penetration overall. For 5G smartphone, yes. Millimeter wave is for 5G. Thank you very much. Very clear. Thank you. Thank you. you. Thank you. We will take the next question from line, Ben from New Street Research. Line is open now. Please go ahead. Thanks for taking the questions. A couple of follow-ups on questions that have already been asked. First, how is adoption of FD-SOI millimeter wave progressing? Of course, a number of companies are using millimeter wave modules, but FD-SOI still has relatively low penetration today. How are your discussions with your leading companies in the field progressing? Are they likely to move to FD-SOI soon? Based on your 2026 guidance, do you expect FD-SOI to be the industry standard for millimeter wave? Just on SmartSiC, we're of course seeing demand for silicon carbide accelerate every quarter. Are you seeing prospective customers ask you to ramp Bernin faster than you've already outlined? In your discussions, are they looking to use SmartSiC as their primary source for wafers? Okay, Ben. Thank you very much for your questions. For the millimeter wave adoption, as Bernard said, we are in a process of clear adoption. 10%-15% of the 5G smartphones are today equipped with this technology. We see, of course, a trend that is very positive. FD-SOI is the standard for supporting millimeter wave. This is clearly what we observe, and then we see a clear trend of growth in this domain. Regarding the situation, of course, depending on the regions. There are some regions more advanced in millimeter wave adoption than others. Regarding the silicon carbide, let's say, steps and the way forward, the market is, as you have just underlined, is blossoming. For sure, we are in a phase of technology adoptions with many players. As I said in the introduction, answering to a former question, we are creating a very strong ecosystem thanks to our smart technologies that is enhancing the SiC technologies from many reasons, in terms of power consumption, in terms of CapEx investment, as you know. We see this technology at a qualification phase ongoing very well at a good path. Then we're gonna enter into phases of product qualification further. The trend we have forecasted formally is on the right way, on the right path. Many thanks. Thank you. We will take the next question from Adithya from Credit Suisse. The line is open now. Please go ahead. Yeah, good morning, guys. A few questions. Firstly, just on the overall smartphone market, can you give us the assumptions you're using in terms of the overall smartphone market as opposed to just 5G units? Secondly, in the release, you talked about 200 mm RF-SOI growth. Where is this growth coming from? Are you deploying additional 200 mm capacity? My understanding was that most of RF-SOI growth was at 300 mm. Thirdly, just on the Imager-SOI growth that you called out in the release, what is driving this? Is this increasing content with your existing customer, or are you seeing new customers adopt Imager-SOI? Finally, just a question for Léa on the FX. I was under the impression that you won't see any tailwinds on revenue given the hedging at 1.18 on the euro dollar. I suspect many on the street did not expect the level of FX headwinds you reported. Can you give us some color on how exactly we should model FX tailwinds on revenue? Any color on the FX rates we would use for modeling revenues would be really helpful. Thank you very much. Thank you, Adithya. On the phones, as I said already, we see an overall smartphone business getting down by a single-digit percentage. As you know, we are focused on the high-end smartphones that is more steady and we are expanding and extending the content we are selling within each generation, next generation of smartphones that allow us to see a stronger revenue and also volumes that are still quite active. This is the vision we see today that we are confirming quarter after quarter. Regarding the customers adoption for the Imager-SOI, we have strong customers, as you know, in this domain. We have no new customers, but the market is active in line with, of course, the expansion of high-end smartphones business and especially the arrival of 5G everywhere. Regarding millimeter wave, I will let Bernard comment on this aspect, and then I will give the floor to Léa for the Edge AI. Thank you. On the 200 mm, you know that we have our partner in China, Tsinghua, which is delivering and that increases capacity. The demand on RF-SOI, as I laid it, was also strong, both in 200 mm and 300 mm. It's true that the new generation of RF-SOI would be mainly on 300 mm, but the demand on 200 mm is still consistent. It's for that the growth is coming mainly through the capacity of our partner, Tsinghua, who has increased in the last months. Léa, for the edge? Yes. As you know, we are hedging our net exposure. On the revenue, our exposure is around 90% of our revenue done in USD, and around half of our costs are in dollars. It means basically that on the FX effect on the top line, we are converting half our top line at the spot rate and the other half at the hedge rate. That's why we have a so big effect on this H1 on the conversion rate. Given the current spot rate, you can work with a 1.10 FX rate conversion. Got it. Thank you. Thank you, too. Thank you. We will take the next question from line, Robert from Deutsche Bank. The line is open now. Please go ahead. Yeah. Hi. Thanks for taking my question. I have a question for you, Pierre, actually, which is, you know, whether you are prepared today to stand behind the long-range business plan, as articulated by the prior management team. That's the EUR 2.3 billion of sales in fiscal 2026 and the 40% EBITDA margin. I guess the reason I'm asking is just, you know, typically a new CEO when they join, they do a strategic review. They scrub the long-range plan. I was just interested to hear whether you were standing behind that plan. Thank you, and have a follow-up. There is no reason why today we should change this, the range of EUR 2 billion-EUR 2.8 billion and the target of 2-3 as a base target. Looking at the market, looking at the divisions and the end market we are targeting. After what we just said, we forecast and we see the EUR 2- EUR 3 billion as a clear target for the fiscal year 2026. Part of the reason I was asking is, you know, millimeter wave adoption in China has been heavily delayed, for example. Seems like they're going with the proprietary standard for a while. I was just, you know, that was one element that could have drove that question. And I guess my second question would just be about the role of LTAs with your foundry customers. How far are they from getting their stock levels back to normal, and are they obliged to take delivery of a minimum amount of wafers as part of your agreements with them, you know, in a kind of sort of like an LTA situation? I was just wondering, you know, if they were to start to see more and more cancellations of their own LTAs with their customers, you know, are you somewhat insulated from the existence of LTAs that you have with those foundries? Thanks. We don't hear any cancellations or any specific slowdown. As I said, the inventories are back to normal after a very tense years formerly. This is something we clearly observe in all of our domains. There is still a steady demand, as I said, on RF, on FD-SOI. That is, as you understood, picking up in all the divisions we are addressed and we are engaged. We have seen, of course, inventory replenishment over the last six months with the direct end customers, but at a reasonable level. This is something we are clearly observing as of today. Thank you. Welcome. Thank you. We will then take the next question from line. Aleksander from Société. The line is open now. Please go ahead. Yes. Hi, guys, and thank you for allowing me back in, just for a very small follow-up. Just a question for Léa. It is my understanding, and you explained this very well, that 1/2 of your revenue is at your hedged rate, which currently is 1.18, the other 1/2 is at the spot rate, and that modeling seems to work quite well. I'm wondering on 2023, when you say 1/3 is hedged at 1.12, is that 1/3 of revenue and then the rest will be spot, or how will it work? How should I model this exactly? Or is it 1/6? I'm not sure now. Thank you. The 1/3 of the revenue is for FY 2024 for the hedging. This is 1/3 of our net exposure for FY 2024. Okay. To be clear, it's 1/3 of your net exposure. Your net exposure is half of your revenue. Yes. The way I should model it for next year is actually 1/6 at 1.12 and the remainder is at the spot rates at present, right? Yes, exactly. Thank you very much. Thank you. We will take the next question from line. Jerome from BNP Paribas. The line is open now. Please go ahead. Yeah. Thank you. A quick follow-up. Just out of curiosity, any implication from the new restriction vis-à-vis China directly or indirectly for you? I know you had some good business with some Chinese customers, with VeriSilicon, for instance, and so on. Curious to know if anything has changed from that perspective for you. Of course, we have analyzed in detail the documentation of this ban. After this analysis, there is no direct or indirect impact so far. We are monitoring, of course, very cautiously. Our operations, I mean, the partners we have with NSIG in China is not impacted by these restrictions. Thank you. Thank you. We currently do not have any question coming through. Thank you. No question? Okay. Thank you. Let's go to the conclusion after this Q&A session. Thank you very much for your interest and all your questions. The next date in our agenda will be the release of our H1 result on the 23rd of November after market close. This ends our call for today. Talk to you very soon. Thank you very much.