Soitec SA

PAR:SOI

Earnings Call Transcript 2021-Q1

[Operator]

Hello, and welcome to the Soitec Full Year '21 Q1 Sales Results Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions] And I will now hand you over to your host, Paul Boudre, Chief Executive Officer, to begin today's conference. Thank you.

[Paul Boudre, CEO & Director]

Thank you, operator, and welcome to Soitec conference call dedicated to the publication of the first quarter sales of our fiscal year '21. This is the quarter covering the period from the 1st of April to the end of June 2020. I am Paul Boudre, Soitec's CEO. Together with me on this call, Léa Alzingre, our new CFO; and Steve Babureck, our Investor Relations Officer. So as usual, we will briefly comment on our sales performance, and then we will open the floor to questions. So before going into the details of our Q1 performance, let me say a few words about this challenging macro and sanitary environment related to the COVID-19 crisis. So from the beginning of this pandemic, our priority has been to focus on our employee safety. And I'm very pleased to report that in doing so, we have been able to ensure business continuity.On the business side, as expected, we have seen a slowdown in the semiconductor market demand. Regarding smartphones, which, as you know, is our #1 end market, global shipments of smartphones have declined double digits in the first part of this calendar year. And we continue to anticipate around 10% shipment decline of global smartphones in 2020, followed by a 12% rebound in calendar year 2021. Bear in mind that 5G penetration is rising fast. We continue to anticipate around 200 million 5G smartphone shipments in 2020 and around 450 million units in 2021. This is an important criteria for us since 5G smartphones contain, on average, 60% more content than 4G smartphones. The weak macro environment has also negatively impacted the automotive and the consumer electronics end markets. Both markets are expected to rebound significantly on 2021 on the back of macro improvement. So despite this current challenging environment, we achieved a limited decline in revenue of minus 5% in our fiscal Q1 '21 versus Q1 '20. The level of sales achieved in Q1 is expected to be the bottom of our fiscal year '21. Indeed, our revenue will increase sequentially from 1 quarter to another throughout the year, and we expect a strong seasonal rebound in the second half of the year. Last, we also confirm our full year flat growth revenue guidance for fiscal year '21 as well as our EUR 800 million revenue targets for fiscal year '22. Going back to our Q1 figures. We reached EUR 114 million in revenues. This reflects a mixed performance. On the one hand, despite the lower volume of smartphone sales, we enjoyed a positive year-on-year growth in our RF products. On RF-SOI, this growth has mainly supported this quarter by 200-millimeter wafers. In fact, last quarter, market shares changed a little bit at the RF fabless foundry levels, which had a positive effect on our 200-millimeter RF-SOI business. In addition, with our POI substrate, POI stands for Piezo-on-insulator, we are expanding our RF footprint within smartphones with new filter applications. We are very pleased to report that sales of POI wafers were growing as expected and should continue to increase quarter after quarter. Demand for the new POI products is driven by the higher number of filters and the enhanced performance needed for smartphones in order to cope with the increased number of frequency bands used by 4G and 5G. On the other hand, we have seen lower sales of Power-SOI and FD-SOI wafers, which were impacted by the weak automotive and consumer markets. So let's now move to our sales performance by revenue type, starting with 150/200-millimeter. Compared to Q1 last year, 150/200-millimeter sales went up by 13% excluding currency effects and reached EUR 67 million. This is essentially the result of a more favorable product mix. We had a combination of further sharp growth in RF-SOI 200-millimeter and lower sales of Power-SOI, which is due to the decline of the automotive market in the context of the COVID crisis. Although this is still early days, we also benefited from the ramp-up of the production of our 150-millimeter POI wafers at our Bernin 3 facility. If we now look at our 300-millimeter business. Compared to Q1 last year, 300-millimeter sales have decreased by 23% excluding currency effect and reached EUR 41 million. We recorded stable RF-SOI 300-millimeter sales. And on the other hand, sales of FD-SOI were lower than in Q1 last year due to the difficult macro environment. However, the design and tape-out activities of chips built on FD-SOI wafers continue to be very strong. So we remain confident in further adoptions of FD-SOI due to its unique positioning in market segments like edge computing, automotive, wearables, 5G applications, across a large range of consumer electronics and connected devices. Finally, sales of the other 300-millimeter products remained stable in '21. I'm referring here to the Imager-SOI for 3D sensing applications dedicated to smartphones and Photonics-SOI wafers for new generations of data centers. So let's now move to Royalties and other revenues. This segment has declined from EUR 6.1 million in Q1 '20 to EUR 5 million in Q1 '21. This represents a 22% decline at constant exchange rates and perimeter. So let me now give you a quick update on the main events which took place during the quarter or just after the closing. First of all, we signed in early July a significant strategic business agreement with Qualcomm Technologies to supply them with POI substrate for 4G and 5G RF filters. We have been cooperating with Qualcomm for many years. We will supply Qualcomm with high-volume POI substrate for their new generations of RF filters going to smartphones RF front-end modules. This agreement confirms the strong value propositions that POI brings to the smartphone 4G/5G filters for mass market. We also view this agreement as an evidence for the success of our beyond SOI strategy. Based on customer demand, we will, therefore, increase the production capacity of our POI substrate at our 150-millimeter industrial facility in Bernin. Second, over the quarter, we made an extensive presentation of our portfolio of substrates dedicated to the automotive and 5G market. I just want to remember here that you can find these very comprehensive packages on our website. On the innovation side, at the end of June, the French institute for industrial property published its 2019 annual ranking based on the number of patents filed. With 35 patents filed in 2019, I'm very pleased to report that Soitec is ranked 39th, up from last year 46th in the global table. So we also ranked #2 amongst French medium-sized companies. We see this as a further evidence of our relentless efforts to be at the forefront of technological innovations in the semiconductor industry and of our capacity to bring them to the market, new advanced engineered substrates that will shape tomorrow's electronics.Early July, Mobi-SiC, the collaborative innovation project that we jointly lead with Valeo and CEA-Leti, was selected by the French government as one of the projects designed to support innovation for automotive and green mobility. This confirms the strategic interest for our silicon carbide engineered substrate to improve the efficiency of electrical vehicles in a competitive manner. It will support the development of our silicon carbide pilot line at CEA-Leti in Grenoble. As part of this project, Valeo-Siemens eAutomotive will integrate our silicon carbide wafers in a prototype of bidirectional on-board charger.A word about the appointment of our new CFO. Sébastien Rouge is leaving the company for personal reasons. And before he goes, I would like to thank him for his strong contributions over the past year. Léa Alzingre is replacing Sébastien as our new CFO. I'm very pleased that joining Soitec as the right hand of the CFO, she was promoted at this positions, which demonstrates the fantastic talent that we have in the company. So to conclude this opening remarks, I would like to confirm our outlook for the fiscal year '21. We confirm expecting our fiscal year '21 sales to remain stable at constant exchange rates and perimeter. As I said earlier, we see the level of our sales to progressively increase throughout the year. To be clear, this Q1 '21 quarter is the bottom of our sales. And as usual, we expect a strong H2 versus H1. And we also continue to expect our EBITDA margin to reach around 30% in fiscal year '21. So this ends our opening remarks. We are now ready to answer your questions, and I will turn back to the operator for questions.

[Operator]

[Operator Instructions] Our first question comes in from the line of Aleksander Peterc calling from Societe Generale.

[Aleksander Peterc, Equity Analyst]

So just very quickly on Piezo-on-insulator. Do you expect your Qualcomm agreements to translate into tangible revenue already in the current fiscal year? And should we expect further agreements with other filter leaders? Also, what I'd like to understand in this area is, do other leading filter manufacturers have alternatives? Or is your proposition a very, very strong leading one there, and you're nearly certainly going to land other major manufacturers in this area? And then secondly, you said that Imager and Photonics-SOI for data center was stable in the quarter. How do you see this area of other products developing in the remainder of the year?

[Paul Boudre, CEO & Director]

Yes. So back to the first questions regarding POI impact for the year. Yes, it will start to be significant. I mean, we are talking about a double-digit impact on the fiscal year '21. So what we see, I mean -- and that is very, very important. I mean, you understand our strategy has been always to establish standard for the industry, and we are coming in right now with this new approach. So Qualcomm is the first major customers to ramp in manufacturing. But there is more than one customers that is now getting into the manufacturing ramp, I will say. And this will be seen along the year. Don't forget that we have also aligned our midterm strategy on a 500,000-wafer capacity that we have now the ability to ramp in our Bernin 3 facility in France. So the expectations for this product clearly is pretty high over the next 3 to 4 years. In terms of the trends that we see, as I said during the presentations, the trends that we see for the other products, you have well understood that our RF products overall are continuing to be on a positive trend. The hit that we took on some products really linked to this COVID-19 situation, what we see is that quarter after quarter, I mean, we see that this is coming back to a very nice growth and specifically towards the second part of the year.

[Operator]

The next question comes in from the line of Jerome Ramel calling from Exane BNP Paribas.

[Jerome Ramel, Analyst of IT hardware and Semiconductor]

Yes. Paul, could you share with us where you stand in term of capacity utilization rate for Bernin 2? Because you said the EUR 300 million revenue were -- went down more than 20% year-on-year. And an update on the capacity and CapEx plan for Singapore.

[Paul Boudre, CEO & Director]

Yes. So in terms of utilizations of Bernin 2, we were -- as you remember, we were running full last quarter, and we are still in the 90% type of utilization rate right now in the factory. So we are also benefiting the flexibility that we have 3 sites under the same campus. And so we are basically using our flexibility in terms of resources. And this is extremely efficient right now as we ramp also our Bernin 3 capability. Regarding the CapEx, I mean, we are clearly in line with the spending of the CapEx that we have announced for this year. We basically invest in 2 places starting this quarter: In Pasir Ris in Singapore in order to get prepared for second part of this year and specifically for the beginning of our next fiscal year; and also in Bernin 3, as we have an aggressive ramp that will continue over the next 3 years in France. So we have these 2 activities there.

[Jerome Ramel, Analyst of IT hardware and Semiconductor]

And maybe a follow-up on...

[Paul Boudre, CEO & Director]

And maybe to be a little bit more precise because I didn't give you numbers, I mean, the CapEx overall will be well above EUR 100 million as we -- for fiscal year '21.

[Jerome Ramel, Analyst of IT hardware and Semiconductor]

Okay. And maybe on FD-SOI, so you said you see a strong design activity. When do you expect to see this design and tape-out to be converted in term of revenues? Is it something in the second half of the year or is it more fiscal 2022?

[Paul Boudre, CEO & Director]

Yes. As I said, I mean, this year is really a plateau for FD-SOI, and so no surprises on what we see. So recovery will start in H2 basically this year. But we start to see a dramatic impact on what we are already involved in, which is this tape-out -- new tape-out and new design wins. We see that happening fiscal year '22 and fiscal year '23. And clearly, what is important is that not only we have the opportunity with FD-SOI to continue to really impact the consumer electronics in many ways, but the 5G millimeter wafer will be also, as I said, in fiscal year '22, '23, another big opportunity to -- for FD-SOI. So we are very confident on the progress, and no surprises on what we see today.

[Operator]

[Operator Instructions] We have another question coming through from the line of Aleksander Peterc calling from Societe Generale.

[Aleksander Peterc, Equity Analyst]

Yes. Just as a quick follow-up. As you see generally, in the fact, fairly positive news flow, we had Texas saying that the recession is less severe than in 2008. You've got ST upgrading its full year guidance this morning as well. Do you see any scope for an improved outlook as you look at what's going on elsewhere in the sector? Or do you think you're pretty optimistic enough by saying the revenue is going to be flat this year?

[Paul Boudre, CEO & Director]

Yes. What is very clear is that the -- after COVID, I don't know even if we can say the after COVID because there is still a lot of tensions around the world, but what we see is that China is really very, very active and very aggressive overall. We clearly have -- as I've said during the presentations today, we have a very, very strong trend in RF. I mean, 5G is really the -- booming. And specifically in China, I mean, when you have sales on 5G phones that are really taking over even 4G phones right now in China with a phone that is sold at USD 350 in China, the 5G phones, I mean, this really give this accelerations that even we were not expecting 6 months ago. So we see -- and remember that the phone market is really our #1 market. So we see that very positive, and that's the reason we confirm not only our fiscal year '21 guidance but our target for fiscal year '22. So is it going to be better than that? Clearly, I don't know, and we will have to continue to monitor. But with the level of incentives that states and governments are putting on the table, we continue to believe that this recovery plan will be very active towards the second part of the year and next year.

[Aleksander Peterc, Equity Analyst]

And just briefly on CapEx, can you be more specific? You said it's going to be stronger than the EUR 100 million. So just for us in terms of planning assumptions, it's mostly, I suppose, in the second half, where you're going to have a stronger CapEx? And can you be more specific on that more than EUR 100 million figure?

[Paul Boudre, CEO & Director]

Yes. So in fact, yes, we are doing the spending gradually and linearly, in a linear way almost across our fiscal year. And we are -- because we are basically preparing fiscal year '22, right? And you understand that we are very, very aggressive right now in fiscal -- in early -- in H1 to continue to increase Bernin 3 capacity as we start to prepare Pasir Ris for fiscal year '22. It takes 6 to 9 months to get tools ordered and installed. So we are really in the phase of activating ourselves to deliver H2 and to deliver fiscal year '22.

[Operator]

We have another question coming through from the line of Jerome Ramel calling from Exane BNP Paribas.

[Jerome Ramel, Analyst of IT hardware and Semiconductor]

Yes. Paul, could you update us on where you stand today on the silicon carbide and gallium nitride opportunities, the progress you made, what is still need to be done and how you see the agenda, if you could shed some light on this?

[Paul Boudre, CEO & Director]

Yes. Let me start with silicon carbide. I mean, clearly, the objective has always been to finalize the installation of the pilot line to be able to -- that we have in between our factory in France and CEA-Leti's platforms. So -- and due to COVID-19, clearly, the overall work has been a little bit slowed down. But the team have done an unbelievable work. I mean, at the end of the day, we are talking about weeks of delay, not even months. So we should be in line with our plan to ship first wafer basically next quarter for -- that's the first evaluation wafers. But we have a comprehensive road map on this product. And the team have done an incredible job as people could not travel, as tools were not traveling too much also. We have traveled wafers and working with our supplier. I do not see any delays in our original plan. So I'm quite optimistic, and we have no reason to believe that what we expect it to deliver will not happen. So optimistic on this side, but still, again, it is still as part of the innovation program. On the GaN, basically, we have completed the integrations of the company, and that's going very well. We are preparing to ramp. We have made last year investments that we are now qualified, and we are preparing to run these new reactors. We have good tractions from customers. And clearly, this is one of the things we knew last year, but we needed to confirm. And this is in the process of qualifications right now. The focus is on basically 5G RF. This is really for applications that are targeting handsets and base stations. And we will see later on -- I mean, second part of this year, we will start to address power applications as well.

[Operator]

The next question comes in from the line of Frédéric Yoboué calling from Bryan Garnier.

[Frédéric Yoboué, Analyst]

So my first question will be around 5G smartphones. Comments around the 5G smartphones were particularly positive from TSMC, which is actually increasing -- which has increased its forecast for the volume of 5G smartphones sold this year -- to be sold this year. Obviously, you're still at 200 million, I understand. So can we say that you are more conservative than TSMC around this development of 5G smartphones this year? And I have a follow-up.

[Paul Boudre, CEO & Director]

Yes. Clearly, you know that this is an early indicator that is an important one for 5G. And this is an important early indicator for us as well. We are sticking with our 200 million 5G phones right now. But clearly, the trend that we can see and specifically coming from China is very aggressive and very impressive. So we are going to potentially build these 200 million phones for the calendar year 2020. That's for sure. I mean, there is a lot of also work being done to understand what is going to be the -- next calendar year, the 450 million that is already on the table. I mean, we start to see companies and even certain forecast to show a higher number. We continue to stick with this number for now. But the dynamic, and that's the interesting part, I mean, the dynamic is there. China is moving faster than what everybody was expecting. As I said, the incentives to really get into 5G is very good, and we are going now to continue to monitor what's going on in the U.S. and in Europe.

[Operator]

Our final question comes in from the line of Robert Sanders calling from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

My first question is just on POI. So you've announced this partnership with Qualcomm, which was a long-term partner of yours. And -- but so far, the reviews have been a bit mixed in the sense that this ultra sort of technology can't scale at the moment above 2 gigahertz. And so it's still a bit limited. So I was just wondering when the road map, you think, can start to support filters above 2 gigahertz so that they can sort of meet the mid-band. And I have one follow-up.

[Paul Boudre, CEO & Director]

Yes. It's clearly difficult for me to comment on the customer products. What I can tell you is that we have a comprehensive road map, product road map, but also supported by a design approach that we are working with our customer. You remember that we have acquired frequencies several years ago and with a lot of capabilities in terms of design modeling and usage of materials. So we have built a comprehensive road map. What you see today is the first step. And we are going to expand our capability at the product level to be able to reach all the characteristic that are required for sub-6 gigahertz product.

[Robert Duncan Cobban Sanders, Director]

Great. And just my follow-up just would be a bit of housekeeping. On the revenue progression, you said that you're going to increase sequentially from the current quarter through the fiscal year. Is the progression going to be very similar to last year where you had a very large March quarter that was significantly larger than the rest of the 3 quarters individually? Or is it going to be more of a kind of linear, steady growth through the fiscal year?

[Paul Boudre, CEO & Director]

Yes. We don't really guide at this level. But clearly, what I said and I can repeat is we have a very strong H2. And clearly, as part of the recovery of this industry, I mean, we continue to see a very strong end of the calendar, and our Q4 and Q3 will be very strong compared to our Q1 and Q2. That's the same seasonality that most of this industry is looking at right now.

[Operator]

Okay. We do have one last question coming through, and it's again from the line of Frédéric Yoboué from Bryan Garnier.

[Frédéric Yoboué, Analyst]

Yes. I couldn't ask my follow-up previously. Are you still expecting an agreement to be signed with a Chinese foundry by the end of the year?

[Paul Boudre, CEO & Director]

Yes. I say that there is a lot of activities towards this supply chain in China, specifically for digital applications. A lot of work is still being done. And I'm still hoping that before the end of the calendar year, we will get news out.

[Operator]

Okay. That does conclude today's question-and-answer session. So I shall turn the call back across to yourselves for any final closing remarks.

[Paul Boudre, CEO & Director]

And thank you all for your questions. This ends this call, but let me just give you our next date in the agenda. Our Annual Shareholders' Meeting will be held in September this year, and we will publish our Q2 '21 sales on the 21st of October after the market close. Thank you all. Have a great summer holidays. And thank you, operator, for this call. Thank you very much.

[Operator]

Thank you for joining today's call. You may now disconnect your handsets. Host, please stay connected and wait further instruction.