Hello, welcome to the Soitec Q3 sales for fiscal year 2023 conference call. My name is Caroline, and 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'll be connected to an operator. I will now hand it over to your host, Mr. Pierre Barnabé, the CEO, to begin today's conference. Thank you. Hello. Welcome to Soitec's conference call dedicated to the publication of the revenue for the third quarter of our fiscal year 2023. This is a quarter covering the period from the 1st of October and the end of December 2022. I'm Pierre Barnabé, CEO of Soitec. 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 revenue performance. After that, we will open the floor to questions. I'm very pleased to report that we had another strong quarter in line with our full year target. With a revenue of EUR 274 million, Q3 2023 is slightly stronger than an already strong Q2 2023 quarter. This makes Q3 2023 our second-best quarter ever. Compared to Q3 last year, we achieved a strong 32% growth on a reported basis. This is a combination of 25% organic growth and a positive currency impact of 7%. Performance was driven by sustained growth in Mobile Communication and very sharp growth, both in automotive, industrial, and in smart devices. Another source of satisfaction is a strong growth achieved in FD-SOI wafer sales, which confirms the increasing adoption of our product family across our three end markets. Looking now in more detail at our Q3 revenue by end market. Let me start with Mobile Communication, our largest divisions, which accounted for 62% of our revenue in Q3 2023. Revenue in Mobile Communication reached EUR 170 million compared to Q3 2022. This is an 11% increase excluding currency impact. Revenue growth was driven by both higher volume and a positive price mix effect. As you know, our Mobile Communication business leverages the growing adoption of our 5G smartphones and Wi-Fi 6, as well as the deployment of 5G infrastructure. Thanks to our flagship RF-SOI product, we strengthen our strong leadership in RF application for front-end modules. In Q3, we continue to benefit from the significant increase in the footprint of our RF product in every 5G smartphone as compared with 4G smartphones. This increase in RF content was amplified by a growing penetration of 5G high-end smartphones. Our performance has also experienced a tailwind from replenishment at some of our customer. FD-SOI momentum in mobile communication is progressing. In front-end modules, in both sub 6 gigahertz and 5G millimeter wave. As for POI wafers dedicated to RF filters for 5G smartphones, we are delivering wafers to many tier one and tier two customers who have confirmed the value of POI. They are still going through adoption phase, and this process of qualifying different module architectures should last few quarters. All in all, as evidenced by the sustained level of growth achieved, we continued to see tractions in RF application despite a slower smartphone market in terms of total number of units sold. Our long-term agreement and some inventory replenishment allow us to confirm our fiscal year 2023 guidance. Going forward, we anticipate inventory digestions across the RF supply chain through 2023. We are closely monitoring the situation and working on different scenarios to assess the impact on our activity next year. Moving now to automotive and industrial, which represents around 14% of our total revenue in Q3. Revenue in automotive and industrial reached €37 million. This is a sharp 84% revenue growth year-on-year, excluding currency impact. Growth was essentially driven by volumes. We continue to see growing demand for automotive applications driven by the increase in semiconductor content in the new generation of vehicles. Higher content is related to infotainment, to autonomous driving and functional safety, as well as to the shift to electrical and hybrid vehicles. In terms of products, growth in automotive and industrial is mainly coming from a strong surge in FD-SOI wafers, whereas OSOI wafers also delivered sustained growth. Turning now to smart devices, which represent 25% of our total revenue in Q3. Revenue from smart devices reached EUR 67 million. This represents a 50% organic growth compared to Q3 '22, supported by higher volumes and a highly positive price mix effect. Demand is supported by higher connectivity, embedded intelligence, edge computing, cloud computing, more complex sensors, and the need for lower energy consumption. The strong demand for smart devices applies both to consumer products and industrial sectors. The increase in FD-SOI wafers sales was particularly strong, validating the value proposal of the FD-SOI technology for ultra-low power edge AI applications. We also recorded a solid growth in Photonics-SOI wafers used for data transceivers in data centers. Finally, sales of Imager-SOI wafers, which allow improved imager performances for 3D sensing applications, remain at a sustained level. Let me now give you a quick overview of our year-to-date performance. Based on strong dynamics supporting each one of our three end markets, revenue for the first nine months of fiscal year 2023 came at EUR 745 million, up 28% versus the first nine months of fiscal year 2022. On a like-to-like basis, nine months growth stands at 20%. As far as our industrial performance is concerned, our teams continue to deliver an outstanding job. We maintain a very robust industrial execution in Bernin, France, and our 300 millimeter SOI fab in Singapore continues to enjoy a good ramp-up in production following ongoing capacity increase. Looking beyond fiscal year 2023, we are confident in the prospects of our SmartSiC technology and its ability to accelerate the transitions toward electric vehicles. As promised, we announced in December our new cooperation agreement with the leading SiC device maker, STMicroelectronics. We are not stopping there as we continue to deliver wafers to multiple players. With this good performance since the beginning of the year, we are well on track to achieve our guidance for fiscal year 2023. Let me confirm, we continue to expect fiscal year 2023 revenue to grow around 20% organically, we are expecting our fiscal year 2023 EBITDA margin to reach around 36%. This ends my opening remarks. Thank you for your attention. We are now ready to take your questions. Thank you. As a reminder, if you would like to ask a question or make any contribution onto this call, please press star one on your telephone keypad. We will take the first question from line, Aleksander Peterc from SocGen. The line is open now. Please go ahead. Yes. Hi, good morning. This is Alexander from SocGen. First of all, can you come back a little bit on the outlook for the smartphone market? We had a few positive signs with China reopening, also the comps are gonna start to look quite easy for Android markets in general from the middle of this year, calendar year onwards. I'd just like to understand if you now see a road to recovery for smartphone markets as a whole, or should we, on the contrary, be cautious as we model your fiscal year 2024 growth in mobile as the inventory glut works through the food chain down to the demand for your RF-SOI substrates? That's just one thing I'd like to understand. Secondly, on POI, you say that you have further customers that are in the qualification process, and that will take a few quarters. Once all of that is concluded, would you see any need for further capacity expansion in POI, or are you happy with the current, I think it was 750,000? If you could elaborate on that a little bit. Thank you very much. Okay. Thank you, Alexander. I will take the first question around the smartphones inventories, and I will let the floor regarding POI to Bernin. For the, there are 2 elements. There is smartphones visibility towards the volumes for the coming year, and then the inventories. For the smartphones levels and what we consider, as you know, we are analyzing in depth our visions and what we see and we forecast. We're gonna deliver these figures during the Barcelona Mobile World Congress end of February to give you really our view and our visions on the volumes of smartphones, including, of course, the 5G penetrations we consider. Regarding the inventories, as we say, that we are monitoring, after a replenishment period, we are monitoring very cautiously the evolutions towards the all RF supply chains, especially, we anticipate inventory digesters. This is something on which we are still working and working for many months in order to give you our guidance by spring on really the VVP we have and the impact on our RF activities for fiscal year 24. What I suggest is, Bernard, perhaps to complement and to answer the elements on the POI. Yes, Pierre. Hello, everyone. On the POI, you're right that we see traction and the value here is recognized by all the players. We are still on this qualification phase because the process is taking longer than expected. In term of capacity, with the capacity at full fab, of 750,000 wafer per year is the visibility that we have, and this will be enough for mid-term. Then, I want to highlight that we are not yet at this full capacity. This is a key point. If we need to go to a higher volume, it would be more on the long term, and this will be due only with customer commitment. For the moment, with our plan, we have enough capacity. Excellent. Thank you very much. You're welcome. Thank you. We will take the next question from line, Emmanuel Matot from ODDO. The line is open now. Please go ahead. Hello, everyone. Hope you can hear me well. Emmanuel Matot speaking from ODDO BHF. We hear you well, Emmanuel. Thank you. Hello, Pierre. First question, how do you explain that your customers haven't started to reduce their order for RF SOI wafers during Q3, considering the disappointing volumes of smartphones sold in the world? Second, how much of Soitec sales growth next year will depend on the reopening of China? Not an easy question, can you maybe remind us how you are exposed to that country, directly and indirectly? My third question is about your SmartSiC technology. Following the first contract with STMicroelectronics, have you seen more traction? Can we expect new customers in the near term? What's your view on that? Thank you. No, you're welcome, Emmanuel. I will do in the same frame than than for the first bench of questions, and I will ask Bernard Aspar to take over the SmartSiC questions, if you don't mind. For the first question regarding the fact that we are resilient on fiscal year 2023, regarding the smartphone market and the RF business is linked to two elements. First of all, we have benefited from a replenishment of inventory that were quite low few times ago. Second, and it's the most important, for me element, is that we are benefiting from, as you know, our long-term agreements that is giving us visibility in the needs and the deliverables towards major customers that are using our technology that are, as you know, more and more used, because we are extending our footprint in each phones. You give me a good, let's say, a good rebound to the second question regarding the impact of China. Indeed, we are not thinking by countries. We are more thinking by type of phones and smartphones. The more we are 5G and high-end, the more we are selling footprints, the more we are selling, let's say a millimeter square, as you know, from Soitec with more and more features, of course, with a lot of RF, but more and more also FD and more technology to come in the future. The real impact is of economies, including China, is towards the level of quality and functionalities of the phones. It's really the way we need to see. The fact that 5G was at 50% penetration rate in fiscal year 2023 was of course a good rate and will give you the rate of penetration for fiscal year 2024 in 5G during the Barcelona congress. It is this metrics, we need to follow. Bernard, for the SmartSiC? Yes. Hello, Emmanuel. On the SmartSiC, after the announcement of the cooperation of ST, we continue to deliver a lot of wafers to ST and to other customer, as we already highlighted. We deliver wafers to customer around the 4 regions in the world. This is something which is very, very key. Here we are, we are making progress. The value of this product is recognized by everyone and depending of the customer, we are at the evaluation phase or qualification phase. We are on track and I don't know if we will share a few names later, for the moment, many of our customer are working closely with us. Thank you, Bernard. Thank you, Pierre. Thank you. We will take the next question from Jerome Ramel from BNP Paribas. The line is open now. Please go ahead. Yeah. Good morning. A quick one on, could you update us what the current capacity is in Singapore? Bernard, you want to take over this one? Yes. Today we are around 50% capacity. You know that in Singapore we are growing step by step, and we continue to ramp. We talk about 40% of capacity a few months ago. Now we are around 50% capacity in Singapore for our Pasir Ris One building. You know that this Pasir Ris is going up to 1 million wafer. Yeah. Okay. Yeah. Thank you. Second question. There were some articles recently stating that China is looking more closely at FD-SOI ecosystem. Few years ago there was some degree of collaboration, I mean, outside of Simgui, for FD-SOI maybe to be deployed in China. Could you update us on the situation vis-a-vis China and the potential of FD-SOI in China and with the current environment in term of, you know, trade war and so on? Is China still on the table for Soitec or how should we think about it? Thank you. Well, we are working towards China, with China two ways. First of all, as you know, we are subcontracting production of 200 millimeters to a partner called Simgui, okay? That's the first element of our cooperation to China in SOI. Of course, we consider China as a very important, let's say, customer and country in semiconductor industry. We are selling finished goods to Chinese customers as we are selling across the world. There is no specific other element than this one that are quite simple. Okay. Thank you. Perhaps I can add that regarding the FD-SOI ecosystem, what we see today is that this FD-SOI ecosystem is getting stronger and stronger and whatever the region. This is one thing which is very important for us. It's for that that when you when you look at this I want to come back on the capacity that you asked me, Jerome. Pasir Ris One is 1 million wafer, 50% currently ramping. With the visibility that we had on the FD-SOI, we launched the extension of Pasir Ris to go up to 2 million later. Today we are very confident on the progress that we see on FD-SOI. Thank you very much. Just to precise, Jerome, when we sell finished goods afterwards, you have Chinese foundries using our technologies, including FD-SOI, to deliver final products, of course. Yeah. Okay. Okay, yeah. Thank you. Thank you. We will take the next question from line, Adithya Metuku from Credit Suisse. The line is open now. Please go ahead. Yeah. Good morning, guys. I have a few questions. I don't know how many you can answer. Just maybe just quickly, just on the LTAs, I wondered if you might be able to say what proportion of your shipments looking forward are covered by LTAs at the moment. Secondly, you know, given all the uncertainty around the mobile market, and the potential for inventories to be adjusted as we go into your next fiscal year, are you able to say anything at all on how we should think about automotive and industrial growth, and smart devices growth into 2024? Those two divisions are, you know, are slightly of a black box nature, and it's very difficult for us to model those other than to say that they're just growing very strongly. Can you give us any color there? Just on Silicon Carbide, I just wondered if you could talk a bit about how you see the revenues for you from this agreement, maybe conceptually, you know, just to help us think about how we should model it, and any color on how to think about volumes from this agreement would also be helpful. Thank you. On the first question on LTA, we are not communicating in details on the proportions of LTA. What we can tell you that it is growing significantly because of course it's extremely important in the whole supply chain to increase visibility in a market that on the long run is gonna continue to grow and to be very demanding and we and asking for more and more deliveries. The LTAs, let's say, contract will be spreading out step by step, but we have a significant portion, but without communicating more. What we discussed on the fiscal year 2024, as we said, we are working on different scenarios regarding the mobile phones and then the impact on RF. You understood also that we are very confident in the growing aspect and engine of FD-SOI. Of course, you're gonna see the combinations of all these elements to give you fiscal year guidance by spring as we promised, reflecting all these elements and the scenarios we are working on today. Regarding silicon carbide volumes and information, we will not go further to what is today in the press release and what we have already announced for keeping confidentiality of this market that is under constructions, and for which there are a lot of different elements we keep confidential so far. As soon as we'll be in a position to tell you, we'll tell you. Of course, you know, you know already, what's the Bernin 4 capacity that will be open by spring for first commercial wafers. You know, we have already communicated in the capacity of this factory. For commercial contract, we don't communicate in volumes and value for the moment. Got it. Am I allowed to ask another question? What we say is that 10% in fiscal year 2026, around 10% of our revenue will be related to SmartSiC in fiscal year 2026. Got it. Can I ask an additional question or shall I join the queue again? No, go ahead, Adi. Go ahead. Go Go ahead. Okay. Just one quick question just on FD-SOI and thinking about it, about the geopolitical issues. You know, clearly FD-SOI has use cases in military applications, and given the given the nature and also, you know, if the Chinese were unable to get the tools to move forward, move further down into the smaller node sizes, you know, there is a chance for them to use FD-SOI to get some of the benefits that they couldn't get using, you know, FinFETs and smaller nodes. I just wondered, you know, do you see any risk of FD-SOI, you know, coming into the scope of, you know, potential regulations, et cetera, at a later stage? You know, I don't know, maybe not immediately, but maybe in 1 year or 2 years time, especially given all the news flow around the Chinese, you know, wanting to use more FD-SOI. Any, any thoughts you have around this and how you think about it conceptually would be helpful. Thank you. Well, FD-SOI is not presenting a particularity towards military applications or features compared to any other technologies like AlGaN, GaN or whatever. There is no really particularity regarding that. We are confident that FD-SOI will continue to be sold everywhere in the world. Of course, as we said several times, we're gonna respect, of course, the laws and the limitation, if any, but we don't foresee and forecast for FD-SOI such problematics and sanctions. Got it. Thank you. Thank you. We will take the next question from line. Francois-Xavier Bouvignies from UBS. The line is open now. Please go ahead. Hi. Thank you. Can you hear me okay? It's okay. Okay, thank you. I have two quick questions. The first one, I'm sorry, I joined a bit later the call, but, just, if you look at the release, it mentions some inventory increasing, and I think, Pierre, you mentioned that it was very low. And I mean what's your assessment today? Because the smartphone market is going in a correction at the moment, so you are seeing a different trend. Are you still increasing when the smartphone market is decreasing? I was wondering how we should interpret your comments that it's increasing in a way that for 2024, should we expect some effect of this talking on your product? That's my first question. The second one is on the silicon carbide. We see a number of initiative around the splitting, you know, the silicon carbide wafers. I was wondering, you know, for example, a cold split laser based technology, which is in a way adding a lot of risk to other SmartSiC at the same time. How do you see the combination with other cutting technologies out there on silicon carbide combined, you know, in the market? I mean, is it something that you see both at the same time being adopted or, you know, any impact on your business on silicon carbide would be helpful. Thank you. Okay. Thank you, François. Perhaps on your second question, Bernard, could you take over right now this, these questions regarding the different technology used for cutting the silicon carbide and comparisons between SmartSiC and the others? Yes, for sure. Hello, Francois. On the SmartSiC, our technology is really able to provide a totally new product that we call the SmartSiC, where is a thin monocrystalline silicon carbide bonded onto highly doped polysilicon carbide wafer. First of all, the product that we are targeting is different that a standard monocrystalline silicon carbide product. This new SmartSiC product is bringing a lot of value. We talk, and I will not come back on it, but on a better performance, faster introduction for the new 200 millimeter generation, better yield, many interests. Now, when you are talking about other splitting technologies, they are mainly used for having a thicker wafer, okay, of monocrystalline silicon carbide. This mean that it's a different technology able to make different products. Our SmartSiC technology is compatible with, I would say, not whatever, but with the different technology available today on monocrystalline silicon carbide. We see that our SmartSiC technology is a Smart Cut technology is compatible with. It's clarifying the point. Very good. Thank you. Pierre, you want to answer to the first one? Yes. On the first question, I will let's say reiterate what we said. We gonna give you during the Mobile World Congress our view for the volumes of smartphone and 5G penetrations for fiscal year 24 and, of course, the evolutions of the different type of phones and smartphones. For the level of inventories, as we said, we're gonna we are starting observing the different level of inventories here and there, and we anticipate inventory digesters. We'll give you the possible impact on our RF during the fiscal year 24 guidance by spring. It's really today under, let's say, monitoring, and we are working on several scenarios, and there are several scenarios and possibilities, to see a possible impact, looking at the trends on the market. Nothing more to say and to do a lot, but to say nothing more. Thank you. I appreciate it. Thank you. We will take the next question from line Florian Seibel from Stifel. The line is open now. Please go ahead. Hey, good morning. Can you hear me? Yes. Yeah. Perfect. Very well. I have two questions. The first question would be how you see the expansion plans of mobile operators for 5G and specifically 5G millimeter wave. Because as I've understood, there have been recently some flowing in the growth. The second question concerns movement in your shareholder structure. Maybe you could comment on NSIG, that they plan to sell around 300,000 shares. Thanks. Okay. Thank you for the question. For millimeter wave, as we already said, we see a penetration around 10%-15% today, okay? Of course, some other countries could shift into millimeter wave that could increase this%. For the moment, looking at the adoptions across the world, we see that the penetration rate will be around 10%-15%. We're gonna update these figures or confirm these figures during the Mobile World Congress, and it is part of the different KPIs we're gonna disclose at this time. Regarding NSIG information we got, first of all, we have no comment on our side. Taking into account that we don't believe it's... I don't know if you, if you can confirm it's not public statement, It's not our intention to comment, on our side, any, let's say, information regarding moves in our, in our, in our shareholdings. Okay, thanks. Thank you. We will take the next line from Robert Sanders from Deutsche Bank. The line is open now. Please go ahead. Hi, good morning. I just had some questions for Bernard on the Smart. On Smart, on the STMicroelectronics deal, can you just confirm that this company has basically committed to design for SmartSiC, and that they are basically all in on 200 millimeter? T hat seems to be what we're picking up, but I just wanted to check that that was the case. The second thing would be, we're hearing that the number of wafers you can split off has increased to 30 from the target of 10. I just wanted to check how that impacts your potential margin. Do you share that benefit if you can increase that number of wafers from the donor wafer, or is that something that would just be shared with a customer? Bernard, you have been called for answering this question. Okay. On the SmartSiC. The first one is regarding the refresh, I will ask. For the refresh is we are really in the range today of 10 times of going to 15 and 15 times splitting the wafer. Here we are moving step by step, but today is a figure that we are sharing and we are confident with. Regarding the deal with ST, I think that we clearly share all the detail on the press release. What we can say is that the plan we are on track to deliver the wafer for the qualification and so on. This is something that on the silicon, on the SmartSiC overall, we are on track regarding the figure that we share for our fiscal year 26 penetration, different customer. We are on track in term of technology development, in term of product development, and in term of capacity ramp. Again, it's we are targeting around 10% of our revenue coming from SmartSiC in fiscal year 26. Got it. Just so I understand on the fiscal 2024 guidance, is that going to be refreshed in April? I mean, or at least announced, or do we have to wait till June for that announcement? Just so I understand what is ahead. Yeah. Rob, remember we haven't given any guidance so far for fiscal 2024, as the next steps, mobile update in Mobile World Congress, and between April and June, we will share the outlook for fiscal year 2024. Okay. Thank you so much. Thank you. We will take the next line from Sandeep Deshpande from J.P. Morgan. The line is open now. Please go ahead. Yeah. Hi. Thanks for having me on. two couple of questions, if I may. Firstly, on the STMicro deal, STMicro itself is going to be a silicon carbide wafer maker. In a way, they are a competitor to you, or are you going to be buying wafers from them that you reprocess and sell back to them as such, really? I want to understand what sort of deal that you plan to have with them. Secondly, on the growth you're seeing in the automotive smart device market, particularly smart devices, are there any particular wins that are causing this very strong growth? And do you expect this growth to continue through 2024? Thank you. Okay. For the first question, as we said, the deal has been announced with the PR that went as far as possible in the details, meaning that we're gonna sell finished SmartSiC wafers, and we're gonna license STMicro, but we don't give more details in the way the supply chain could be articulated. Regarding some details on smart devices divisions wins, we are not also disclosing specific customer deals. You can see, through the different product lines, meaning, of course, FD-SOI, Photonics, Imager and so on, that it is growing up quite rapidly, then, any customers potentially interested by such technologies could be a possible win. We cannot say more. Can I ask a follow-up? I mean, on STMicro. Do you see STMicro purely as a customer or the internal capacity of STMicro is a competitor to your own business? No, I'm really sorry to... We need to respect confidentiality. You know, when you work with a partner, you need to respect confidentiality between first these two partners. As I say, the silicon carbide market is under constructions. We are making SmartSiC to become a standard, and we need really to disclose information step by step. What we said so far is really the maximum we can say. In the coming quarters and years, you will see step by step more details. For the moment, we cannot go more. Thank you. Thank you. We will take the final question from line, Tristan Greset from Allianz GI. The line is open now, please go ahead. Hello. I've got three very simple basic questions. First of all, looking at your first three quarters and your outlook for 20% growth in revenue, can we imply that you only expect growth, revenue growth to slow to 3% here on your last fiscal year quarter? Well, no detail, Tristan. Yes, I can do the math. Steve. S-sorry? Steve? Yeah. No. For fiscal year 2023, you can do the math and no details by market. Anything further for, as we said, for fiscal year 2024 and beyond, we will comment between April and June. Okay. Second question. When you published your last yearly results, you gave a long-term for your outlook, objective of 40% EBITDA margin. Is it still relevant or not? As we said, we're gonna give you, update on, our view, beyond the fiscal year 2024 in the spring, in the spring period. You know, to be consistent, of course, with the fiscal year 2024 guidance. You will see at this time, you will get at this time, an updated answer to your question. Okay. One last question. I'm very surprised that there is no detail about the impact of inflation both on prices and on your costs, especially the energy, and the availability of energy for your European plants. Can you comment on inflation and energy? Yes. We are monitoring inflation effect on our supply chain. First of all, we are working towards LTA contract by our suppliers and also with our customers in order to reflect any possible increase of raw materials and bulks towards customers finished goods we are selling. Second, regarding the energy consumptions, we are covered thanks to contract we negotiated that is guaranteeing a level of prices that is allowing us to limit very seriously the possible inflation of electricity cost. This impact is under control and is monitored. That's the reason why it is not specifically underlined in our publication. Thanks. Thank you. There's no further question at this time. I'll hand it back over to your host to conclude today's conference. Thank you. Okay. Thank you. Thank you all for your interest and for your questions. The next date in our agenda will be the release of our Q4 revenue on the 26th of April after market close. In the meantime, we will be attending the Mobile World Congress in Barcelona at the end of February, where we will share our outlook for the mobile market in 2023 for those of you. This ends our call for today. Thank you again. Thank you for joining today's call. You may now disconnect.