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Hello and welcome to the Soitec FY '20 Q3 sales. My name is Val, and I will be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Paul Boudre, CEO, to begin today's conference. Thank you.
Thank you, operator, and welcome to Soitec conference call dedicated to the publication of the third quarter sales of our fiscal year 2020. This is the quarter covering the period from the 1st of October to the end of December 2019. I'm Paul Boudre, Soitec's CEO. With me today are SĂ©bastien Rouge, Soitec's CFO; and Steve Babureck, Soitec's Investor Relation Officer. As usual, we'll briefly comment on our sales performance. And after that, we will open the floor to questions.So let's start with an overall review of our Q3 sales figures. We posted double-digit organic growth this quarter. Indeed, we achieved 11% organic growth in Q3. This is a lower growth than in previous quarters, but in line with our expectations.So at the end of Q3, we stand at 23% organic growth year-to-date. But before -- and perhaps this is the most important for today, we expect a very strong Q4. Indeed, we anticipate a sharp revenue growth in Q4, both sequentially and year-on-year. This is based on a strong order book, which is driven by demand from our Asian-based customers in both RF-SOI and FD-SOI. This means that we reiterate our full year guidance for around 30% organic growth.On a reported basis, we achieved a 16% growth in Q3 '20 compared to Q3 '19. This reflects, as I said, an 11.3% organic growth but also a positive currency impact of 4.1% and a minor scope effect of plus 0.5% related to the integration of EpiGaN.So let's now move to our sales performance by revenue type, starting with 150 and 200 millimeter. So compared to Q3 last year, 150 and 200 millimeter sales went up by 2%, excluding currency FX. We had slightly lower volumes but a more favorable product mix.By type of products, we had a combination of further growth in RF-SOI 200 millimeter and a small decline in Power-SOI. And we're also recording our first volume sales of POI wafers for smartphone RF-SOI filters. As you know, these are 150-millimeter substrate produced in Bernin 3. We decided last September to increase our production capacity there.Demand is driven by the higher number of filters and the enhanced performance needed for smartphones. This is to cope with the increased number of frequency bands used in 4G and 5G filter built on POI, allow a better signal integrity and reliable communication.So if we now look at our 300-millimeter business compared to Q3 last year, 300-millimeter sales have increased by 19%, excluding currency effect. 300-millimeter sales were, however, a bit lower than in Q2. But I would like to remind you that we delivered particularly strong 300-millimeter revenue in Q2.And on the other hand, we experienced some slight year-end inventory management by some clients and changes in the product mix. But as explained before, we expect a very strong Q4 that will be mainly driven by 300-millimeter sales.Going back now to our Q3 300-millimeter sales growth versus Q3 last year, essentially came from RF-SOI 300-millimeter products. We see continuous tractions coming from 4G and 5G is happening. Demand is building up for both network and [indiscernible] and smartphone with more RF-SOI content being required to fulfill the need for more switches, more antenna tuners and more lower noise amplifiers.So regarding FD-SOI, after a strong revenue growth in the last couple of years, we are now in a temporary revenue plateau. Through recent products announcement and design wins, we continue or are able to see further evidence of FD-SOI adoption.Let me give you a couple of examples. Google, for instance, has recently released Nest Mini, the latest generation of its vocal assistant. Nest Mini is using a chip from Synaptics, which is built on 22FDX technology. The chip enables the integration of voice, audio, video, computer vision, machine learning and security for consumer AIoT products.Another example is Lattice, a leading fabless provider of FPGA solutions. FPGA stands for field-programmable gate arrays. Lattice has recently released a new FPGA platform called Nexus, which is built on 28-nanometer FD-SOI technology. With this platform, Lattice is enabling the rapid development of multiple devices that deliver up to 75% lower power consumptions, 2x faster video connectivity and 100x lower soft error rate. This platform is perfectly suitable for AGI (sic) [ AI ], embedded visions and security solutions.So finally, we were also very much encouraged by the outcome of CES 2020 event last week. We saw the confirmations of a massive trend in the deployment of IoT, AI, 5G applications across a large range of consumer goods.And finally, to complete the review of our 300-millimeter sales, we also had a good revenue performance for our Imager-SOI in Q3. For the foreseeable future, Imager-SOI remains the right engineered substrate solutions for some 3D sensing applications for smartphones.So let's now move to Royalties and other revenues. This segment has grown from EUR 5.2 million in Q3 '19 to EUR 8.3 million in Q3 '20. This represents a 41% growth at constant exchange rates and perimeter.So on the one hand, we had a slight increase in Royalties and IP revenues at EUR 1.4 million. On the other hand, we had very good contributions from Dolphin Design. Dolphin's revenues are up 57% compared to Q3 '19.So this shows how much the performance was improved since we acquired Dolphin's assets at the end of Q2 '19. As a reminder, Dolphin Design is one of the leading IP provider for -- of power management solution for IoT, automotive and smartphone semiconductor chips. So for example, Dolphin has already commercialized body bias solutions for FD-SOI-based chips where we will be soon on the market.As indicated at the beginning of this call, we confirm our guidance for fiscal year '20. Q4 sales will be very strong, and we will achieve around 30% organic sales growth in fiscal year '20. Q4 growth is based on our order book with sharp increase from our Asian customers and especially in our 300-millimeter but also FD-SOI.And as you know, we have done some anticipated manufacturing over the past few quarters. So there will be no capacity issues to deliver this strong expected growth. In the meantime, we continue to anticipate fiscal year '20 Electronics EBITDA margins to reach around 30%.So regarding fiscal year '21, as you know, we are still in the middle of our budgeting process for the fiscal year '21. And we will share our guidance next June when we release our fiscal year '20 financial figures.However, given the multiple questions following the release of H1 figures last November and our CapEx reductions for fiscal year '20, we can share with you that we are currently expecting an organic growth in the range of 10% to 15% for fiscal year '21. But again, our final guidance will be discussed next June. Of course, as discussed in our Capital Market Day last June, we are also reiterating our midterm revenue target around EUR 900 million for our fiscal year '22.So before moving to Q&A session, I wanted to quickly remind you on the announcement we made during the quarter in silicon carbide. Indeed, we announced mid-November the launch of a joint development program with the Applied Materials on next-generation silicon carbide substrates.To give you some follow-up on this, as planned, silicon carbide engineered substrate pilot line is currently being installed at the Substrate Innovation Center located at CEA-Leti. We benefit from Applied Materials' expertise in process technology and equipment. We continue to expect this pilot line to be operational by the first half of calendar 2020. And we confirm that our goal is to produce silicon carbide wafer samples in the second half of 2020. Silicon carbide is part of our broader strategy to expand beyond our SOI core business.So this ends our opening remarks. We are now ready to answer your questions. Operator, please, I leave it to you.
[Operator Instructions] We currently have -- apologies. We do have a first question, and it comes from the line of Robert Sanders from Deutsche Bank.
Just on the commentary on 10% to 15% growth for fiscal year '21. I think that implies something like low-30s growth in fiscal year '22. So can you just give us a bit more characterization of what is happening beneath the different segments, FD-SOI, RF-SOI? Is the rebound in '22 driven by FD-SOI coming back and POI and RF-SOI kind of grows in a linear fashion? Or is there something else happening?
Yes. Thanks, Rob. I mean -- clearly, I mean, it is too early for details on these questions, and I really invite you to come in June. I think it's very important that we give you more color on that in June. But it's -- overall, I mean, we have really get -- FD-SOI a great success in the first wave of adoptions, and we are still continuing to look at broader adoptions.The tailwind is clearly 5G, and we see a lot of accelerations in the 4G-5G transition. So we'll give you more color, but it's -- I mean there is a lot of positive things happening.
Got it. But on the sort of -- on the range of EUR 1 million to EUR 3 million per year that you've talked about FD-SOI, I think EUR 1 million was related to China and EUR 1 million was related to maybe TSMC moving into FD-SOI. It sounds like with the GF Chengdu fab being empty and TSMC not adopting FD-SOI that you're more leaning towards the EUR 1 million per year target for -- as your kind of medium-range target for FD-SOI? Is that right?
No. We cannot really comment on our clients. And clearly, there is a lot of new innovations coming. So I think what we should really look at is the current adoption profiles and the new design wins that we are getting. It will be really visible, I mean, during the course of this year.And clearly, we are not only looking at the opportunity of this EUR 1.4 million TAM that we discussed during the Capital Market Day. And this TAM will normally continue to improve to the EUR 3 million as we go into the fiscal year 2025, and we are still on the same path.
Got it. And on the POI opportunity, this is, as I understand, related to something called thin film SO. So is that a direct connection to thin film SO or POI? And is the fact that Broadcom is now putting its FBAR business for sale a kind of sign that Qualcomm's SO technology is becoming much more competitive and other companies are more sort of eating into the opportunity that [ BO ] currently occupies? Is that how you think about your POI opportunity as -- looking forward?
Yes. Again, I mean, no comment on the clients and the names of customers. But for us, I mean, POI is thin-film SO filters. And the time that we are really looking at is 1 million wafer within the next 5 years. This is really what we are targeting.
The next question comes from the line of Ken Rumph from Jefferies.
Ken at Jefferies. Firstly, thanks for the early guidance -- I do appreciate that -- on FY '21. Just looking at how the quarters have developed, we've had constant currency organic growth in the 40s dropping to 11%. It looks like it's going to be back up to 40-odd in the fourth quarter. And then at this stage -- and I appreciate early and no doubt cautious -- 10% to 15% next year.Could you say a little bit more about what's happened in the third quarter? You talked about industry -- sorry, inventory adjustment. Just a little bit more on that to understand what's causing these kind of ripples in the growth rate?
Yes. First of all, I mean, on our side, I mean, no surprise because we have contracts, and we knew that the profile of this fiscal year was a little bit bumpy. But clearly, I mean, we do not have the same fiscal year than our customers. And as I said in the call, and there is clearly some slight year-end inventory management by some clients. And we had also to explain some changes in the product mix.As I said, I mean, really, we have seen a trend in our Asian customers moving rapidly over the quarters -- the last quarter. So everything together, I mean, we did anticipate this, as I said, last quarter during the call because we did manufacture ahead of time, some products for this year-end and specifically for Q4 because the Q4 delivery is clearly very, very high. So our strong Q4 is, I mean, specifically driven by RF and FD as well and driven by Asian customers.
Okay. And one other thing, does POI begin to make a more significant effect on the fourth quarter? Or it's still early days for that? You note the first revenue...
No. It is -- we are very proud about this commercial sales because we have been in all the steps, qualifications and working with many customers. So we got the first [indiscernible] purchase order or commercial purchase order. So we are very proud of it, but it's not yet significant. It will start to be during the course of the year.
The next question comes from the line of Jerome Ramel from Exane BNP Paribas.
A quick question, Paul. Could you update us on the capacity plans for Singapore and as well for Bernin 3 for the POI?
So yes, on POI, I mean, as we said during the last quarter, we had to expand capacity, and we are expanding capacity today. We are ramping the factory, and we will have, by this summer, 60,000 capacity available. And on the Singapore, I mean continue to expand our capacity in Singapore.You know that in Singapore, we have SOI capability for FD-SOI, for RF-SOI, but we have also in-sourced epitaxy in Singapore as well as refresh. So we continue to see good progress to qualify -- in the qualification process with all customers in Singapore.And really, I mean, this is really pushed by RF, but also new FD customers. So we are still in the process of qualifying, but we continue to make progress also in capacity in Singapore at a lower speed than what we were expecting to do 1 year ago in terms of the SOI capacity that we continue to increase capacity.
Okay. And maybe one more on silicon photonics. You haven't mentioned what's the dynamic there.
So it's interesting because, yes, we didn't mention. So thank you for catching this one. It's a steady growth, okay? We continue to see photonics really having more and more tractions. And a lot of evaluations going on from Asian customers as well.
[Operator Instructions] And the last question comes from the line of Robert Sanders from at Deutsche Bank.
Just one follow-up was just around product mix. If I remember rightly, FD-SOI has the lowest gross margin of the different 300-millimeter product lines given that you have to price it quite aggressively relative to bulk, whereas in RF-SOI, you have very high share and very high pricing power, same with Imager-SOI.So presumably, if FDSOI is not growing in '21, that will help your mix. So presumably, there should be a tailwind on the mix side before you consider the underloading impact to Singapore? Is that how we should think about the gross margin in FY '21?
I mean, Rob, we don't comment on the forward looking in terms of EBITDA margin. But clearly, we'll continue to invest, and we'll continue to grow our capacity not only in Singapore but in Bernin 3. So we'll give you more color on that in June next year -- sorry, this year.
There are no further questions in the queue, so I'll hand the call back to Mr. Boudre.
Thank you, operator. So -- and thank you for your questions. So I would like to remind you that our Q3 performance was pretty much anticipated and that we have a very solid order book for Q4. We are, therefore, confident enough to reiterate our full year guidance. Soitec's growth is based on the success of our RF products, notably in the context of 4G and 5G as well as the ongoing adoptions of our digital products platform for AIoT and the automotive market.So this ends this call, but let me just give you our next date in the agenda. So in the Mobile World Congress next month in Barcelona, we will be happy to present a dedicated 5G package to explain the value of our engineered substrate. And in the meantime, let me also highlight that the embedded world Conference in Nuremberg, we'll also -- we'll showcase multiple platforms and products based on FD-SOI.So finally, our Q4 '20 sales will be posted on April 22 after the market close. Thank you very much and again, for the one I didn't see. Happy New Year to all of you guys.
Thank you for joining today's call. You may now disconnect your handsets.