Soitec SA

PAR:SOI

Earnings Call Transcript 2021-Q3

[Operator]

Hello, and welcome to the Soitec Fiscal Year '21 Q3 Sales Call. [Operator Instructions]I will now hand you over to your host, CEO, Paul Boudre, to begin today's conference. Thank you.

[Paul Boudre, CEO & Director]

Thank you, operator, and welcome to Soitec conference call dedicated to the publications of the third quarter sales of our fiscal year 2021. This is the quarter covering the period from the 1st of October to the end of December 2020. I am Paul Boudre, Soitec's CEO. Together with me on this call are Léa Alzingre, our CFO; and Steve Babureck, our Investor Relations Officer. As usual, we will briefly comment on our sales performance. And after that, we will open the floor for questions.So let's start with a review of our Q3 sales figures. As you can see, we enjoyed another very solid performance. As anticipated, Q3 confirms the solid rebound in revenues that we had already seen in Q2. You may remember that at the beginning of the fiscal year '21, we told you that Q1 was expected to be our lowest quarter and that we would enjoy quarter-over-quarter sequential growth thereafter.After EUR 114 million in Q1 and EUR 141 million in Q2, we achieved EUR 149 million in Q3. This represents a 7 sequential growth -- 7% sequential growth at constant exchange rates in Q3 versus Q2.Overall, our first 9 month sales are up 5% in a like-for-like basis compared to the first 9 months of fiscal year '20. On a reported basis, the performance is slightly lower as we are facing a small negative currency impact. Q3 reported growth stands at plus 10%. And the first 9 months reported growth stand at plus 2.4%.With this performance, we reiterate our full year guidance. To guide you maybe more precisely, I remind you that our fiscal year '21 sales are hedged at an average euro-dollar rate of around 1.15. If we take a closer look at our Q3 performance and look at sales by category and products, the deployment of 4G and 5G continues to be our main growth driver. The RF growth story remains very, very strong. We enjoyed another increase in our RF-SOI products. But as opposed to Q1 and Q2, which were supported by 200-millimeter wafers, in Q3, growth mainly came from an increase in our 300-millimeter wafers. In addition, sales of POI wafers dedicated to RF filters are growing as expected and should continue to increase quarter after quarter.POI is already ramping with multiple product lines and multiple bands. In addition, we are gaining design wins in WiFi 6 for smartphones. We continue to demonstrate that our product road map brings the best performance in a major new standard for connectivity applications. Imager-SOI and Photonics-SOI also recorded a robust performance for this quarter. And on the other hand, both Power-SOI and FD-SOI, were lower than in Q3 '20, essentially because of the economic environment, but they did better in Q3 than in the previous quarter.By revenue type, starting with 150-, 200-millimeter, I would like to say that compared to Q3 last year, a 150-, 200-millimeter sales growth reached 9%, excluding currency effects. Growth in RF-SOI 200-millimeter continued to be driven by the increase in RF-SOI content in every new smartphone, 4G and even more 5G. Lower sales of Power-SOI remain due to the decline of the automotive market in the context of the COVID-19 crisis, but they were higher than in Q2. In addition, we were able to respond to the increasing demand for our 150-millimeter POI wafers for RF filters, and thanks to the ongoing capacity increase and good ramp-up in productions at our Bernin III facility.If we now look at our 300-millimeter business, compared to Q3 '20, 300-millimeter sales increased by 23%, excluding currency effect. We had a strong growth in RF-SOI 300-millimeter sales. Like in 200-millimeter, traction for RF-SOI content comes from the need for more switches, more antenna tuners and more low noise amplifiers in 4G and 5G smartphones.Sales on FD-SOI were lower than in Q3 last year, but much higher than in Q2. As we shared with you last quarter, September quarter was a bottom for FD-SOI. We have seen an increase in tape-out activities of chips built on FD-SOI wafer. We are talking here about tape-outs for applications dedicated to edge computing, automotive and 5G. Regarding Imager-SOI for 3D sensing applications and Photonics-SOI for data centers, sales were higher than in Q3 last year.So let me now give you a quick update on the main events, which took place during the quarter and since the beginning of the calendar year in order to prepare a strong growth in fiscal year '22 and beyond. You may remember that we signed early November a multiyear supply agreement with GlobalFoundries to supply them with RF-SOI 300-millimeter wafers. This is for GF to cope with the increasing demand for the -- for their most advanced front end module, which is built on RF-SOI. Another news, in order to support our future growth, we launched early January, ELEVATE. It's a job creation program designed to attract new talents. Under this plan, we aim to recruit -- at recruiting first 100 new high potentials in Bernin with the next -- within the next coming months. In parallel, a similar program is being deployed in Singapore. Finally, we are very pleased to have recently joined the Gaïa Index. Indeed, we ranked 16th amongst 230-rated companies as part of the Gaïa rating 2020 ESG survey with 70 top rated companies joining the index. To strengthen our commitment on this ESG side, we decided to set ourselves new ambitious climate and sustainability targets that will notably include greenhouse gas emissions. We are very keen to contribute to the objectives set by the COP21 Paris Agreement on climate change through our highly performing and low energy products as well as through the reductions of our own direct carbon footprint. So to conclude these opening remarks, I would like to reconfirm our outlook for both the fiscal year '21 and the fiscal year '22. We confirm expecting our fiscal year '21 sales to be stable at constant exchange rates and perimeter. And to guide you more precisely, I remind you that our fiscal year '21 sales are hedged at an average euro-dollar rate of around 1.15. We also continue to expect our EBITDA margin to reach around 30% in fiscal year '21. And we confirm that we expect our fiscal year '22 sales to reach above $900 million. So this ends our opening remarks. We are now ready to take your questions. Operator, I turn it to you.

[Operator]

[Operator Instructions] Our first question is coming from the line of Aleksander Peterc from Societe Generale.

[Aleksander Peterc, Equity Analyst]

I just have a couple of questions here. So first, your guidance is obviously reiterated for the year. And given the strong third quarter, this would then imply a decline year-on-year in the current quarter. So maybe you could just explain a little bit the drivers around that? Presumably, you had a very easy comp for the third quarter and a much higher comp for the fourth quarter, which was very strong last year. But is there anything else here at play? My second question would be regarding Piezo-on-insulator. So you indicated an acceleration in demand in your first half report. Is that continuing at the same pace in the current quarter? And regarding your midterm plan for POI, do you need further design wins beyond Qualcomm to fill your plant fab in Bernin II? Or are you going to reach that even if you don't have any sizable additional wins in Piezo-on-insulator?

[Paul Boudre, CEO & Director]

Thanks. Maybe I'll start with the first question that is basically on the trend quarter-after-quarter. As we said, I mean, we are enjoying now a sequential growth quarter-after-quarter. And yes at the -- if you look at -- basically, if you compare the trend, last year versus this year, basically, the shape on the trend is slightly different this year. It's a continuous growth on the quarter-after-quarter. We -- as you mentioned, I mean, last year, our Q4 was gigantic numbers, but we are still very, very confident now that with our Q3 under the belt, I would say, our Q4 will be clearly significant, also an improvement and to reach the flattish year as we were expecting from the beginning of the year. So one of the comments here is that we are extremely pleased to see that there is not only a strong momentum, but it's a regular momentum quarter-after-quarter. It's very well shaped, and we like this -- the trend that we see as it is clearly on the right directions, and it doesn't look like a bumpy road. Yes. But what we -- and this is obviously driven by, as you can expect, the clear drivers, obviously, 5G, but not only as I explained during the call, we see now automotive backup. We see also the second wave of FD-SOI product coming to reality. So we do expect all these drivers coming together across the next fiscal year. Regarding POI, I hope that I got all the questions, but maybe what I will say is that extremely pleased also when we've entered into this market[Audio Gap]several companies behind the -- behind Qualcomm. The good news is that we -- this mid-band, we have already, I mean, several product targeting several bands, and this is clearly a very, very good start because this is aggressive start, if you look at it this way. So we are looking at also the expansions of our balance sheet. And the manufacturing is clearly -- the executions will be the main focus for next year. But I don't know if I missed a part of your question on POI. I don't know.

[Aleksander Peterc, Equity Analyst]

Yes. I just wanted to clarify. You obviously have a solid win with Qualcomm backing this technology. And the question is, do you need additional major manufacturers of filters coming on board to fill your mid-term plan for POI?

[Paul Boudre, CEO & Director]

Clearly, we have -- with the driver, I mean, the main customers that we have today, I mean this is clearly securing a lot of what we expect to deliver in the coming quarters. And -- but as you said, I mean, the ambitions that we have on POI is much bigger than that. I mean we are now under discussions and other qualifications with other companies. We have also a strategy to attack the mid-bands and to expand our footprints with several bands in this mid-band range. But we have also a product road map that will obviously get us into the lower band and also in the higher band. So if you try to vision what the ambition is on POI, it's clearly to bring this product -- these products into a standard for POI, for filters in the year to come. So we have big ambitions. And we clearly based our ambitions on our product road map and the intimacy with our customers, who are also driving us in these directions.

[Aleksander Peterc, Equity Analyst]

Can I just have a very quick follow-up. You mentioned the second wave for FD-SOI, which was a little bit softer recently. Should we expect FD-SOI coming back more strongly in fiscal year '22 already?

[Paul Boudre, CEO & Director]

Yes. Energy efficiency for edge computing in automotive, and this is basically NXP, ST, Mobileye; and IoT with NXP, Sony, Dialog, Nordic, Lattice [ worksheet ]; and smart home, I will name, Synaptics and Blink. These are the 3 main drivers that we see coming. Again, I repeat, automotive, IoT and smart home. But this is going into these edge AI capabilities that we are seeing in the years -- in the next year, but also the years to come. So you know that we have also an opportunity to get into integrated digital Radio RF with [Technical Difficulty] Today, several companies are qualifying, ramping, but we cannot [Technical Difficulty] today on these applications. So we are extremely strong and solid on the second wave. We are executing and our customers and foundries are executing the best. So we are going to deliver in fiscal year '22 as expected the way we were expecting [Technical Difficulty].

[Operator]

The next question is coming from the line of Varun Rajwanshi from JPMorgan.

[Varun Rajwanshi, Analyst]

I also have a couple of questions. Starting with your demand outlook, Paul, what are you seeing in terms of ordering activity and inventory at your IDM and foundry customers? I guess what I'm trying to understand is, has there been any change in the past 3 months versus your expectations? And as a related question, obviously, you plan for it. This 10% growth in smartphone volumes in calendar year '21 with 5G smartphone shipments reaching 500 million units. Now if there were to be upside to this 5G smartphone shipment number, given your upstream position in the supply chain, at what point do we start to see this upside flow through in Soitec's numbers? And then finally, a clarification on FD-SOI. I remember the last time we had a chat, you mentioned that FD-SOI is likely to see an inflection towards the second half of fiscal year '22. Now you've mentioned that September quarter is a bottom for FD-SOI. So should we see gradual improvement in FD-SOI sales from here? Or is there a sort of hockey stick improvement that you expect towards the later part of fiscal year '22?

[Paul Boudre, CEO & Director]

Okay. So on the inventory, basically, what we have seen over the last 3 months, it's basically a very good news across the board, across all products. So if you think about RF-SOI, I mean we are -- I mean the supply chain is running at the minimum and inventory across the board. If you look at automotive, clearly, we -- you know where we were middle of last year. And you understand, I mean, the turnaround of this market. So here as well, I mean, we are getting out right now of the inventory problem that we were adding last year on automotive. And gradually, I mean, moving to a very, very tight level of inventory across the board. So that's good for next year. And finally, I mean, that's the same situations basically on FD-SOI and POI. I mean, clearly, we are -- everything we can build, we have to ship. So across the board, I will say that yes, the dynamic of all the businesses around have really created a very healthy situation in terms of inventory, and so that's a very positive news. On millimeter wave, yes, we have upgraded our next year target from 450 million to 500 million smartphones. And you know what, I mean, this market seems to be very, very dynamic. So for now, we stick with our 500 million units as the guidance for next fiscal year. But you can read and we can see, I mean, that there is a dynamic that could move this -- above this number very quickly. So that will be obviously a benefit for us, but this is not clearly our guidance right now. We stick with 500 million for now. Back to the FD questions, as you mentioned, and yes, the September quarter has been our bottom. And yes, we are still continuing to see an acceleration towards the second part of our fiscal year '22. But nevertheless, between now and then, we continue to see gradually an improvement on FD based on exactly what I said, I mean, really driven by the edge computing in automotive, the IoT and the evolutions of this IoT going into more complex devices and obviously, smart home. So these are the 3 things that are currently driving. And as I told you already, I mean, we expect in calendar year -- not in fiscal year, but in calendar year '22, to get into this millimeter wave integrated digital radio RF where we know that FD-SOI is also a key player for integrated radio. So that's basically the situation.

[Varun Rajwanshi, Analyst]

Maybe if I can just ask a very small clarification. So you mentioned that 5G smartphones is a very dynamic market, completely understand that. But my question is, at what point do we start seeing that upside in Soitec's numbers if 5G smartphones are indeed shipping better than expected? Because you have a 6-month lead time from wafer shipments to actual end device shipments. So how do we see this flow through the Soitec numbers?

[Paul Boudre, CEO & Director]

Yes. We say that, basically, we say that our fiscal year '22 will be above $900 million and we are -- our fiscal year end in March. So we are still driving all the trends and in our -- part of our strategic planning also. And we will update in June during the fiscal year results. But that's the situation today. But the dynamic is really positive.

[Operator]

The next question is coming from the line of Sébastien Sztabowicz from Kepler Cheuvreux.

[Sébastien Sztabowicz, Head of Tech]

Have you seen any specific impact from the global component shortage that is impacting the whole semiconductor industry? And if yes, what could be the impact on Soitec? Is it on your top line, prices, raw material costs and so on? So any comments there would be quite helpful. And looking at the guidance for 2022, it seems that it is calling for a strong organic growth, maybe above 30%. Should we expect something rather back-end loaded with an acceleration towards the back half of the year? Or it will be something already quite solid that we enter 2022? And the last one is on the margin dynamic for the fiscal year 2022, I know it is a little bit early in the year. But what are the puts and takes for your EBITDA margin moving into 2022?

[Paul Boudre, CEO & Director]

Okay. So I will let the last questions to Léa, but I can take the first two. I mean, the -- what is the impact on some of the shortage that we see a device shortage. So basically, this is -- I mean, the shortage that you can read right now is really impacting the automotive. But -- and clearly, for us, we are back to what we said. We have -- we are cleaning the inventory situation in automotive, and we are back to this quarter-after-quarter sequential growth again. So there is a positive impact on this for us in fiscal year '22. As I told you last year, we were expecting second part of fiscal year '22 recovery in automobile, so there is an acceleration of this recovery that we start to basically capture in early fiscal year '22 for us. So that's a positive. When it comes to the overall supply chain, and basically what I can say here is that there is -- you know that we are planning our silicon on long-term agreements. So we are pretty well protected on -- in terms of volumes, pricing and we're on the safe side of the road right now, so that's pretty good. We feel fine and good about that. And we don't foresee and we will not put ourselves in -- as a bottleneck for the growth that we see coming on the different markets that we support. The trend in fiscal -- the trend that we see in terms of quarter-by-quarter, yes, we will have -- as I said, we are very pleased to see that we are gradually -- I mean, we are gradually improving every quarter, and we will continue to have basically a strong fiscal year. We don't expect major up and down in the quarters to quarters type of profile, as we could have seen in the past years. Again, driven by this -- a lot of accelerations on the market. Léa, if you want to take this EBITDA margin questions for next...

[Léa Alzingre, Senior Director & Acting CFO]

Yes, of course. So at this stage, it's a little [ folly ]. We don't know to give any indication regarding the FY '22 EBITDA margin. But what I can say is that the 30% EBITDA margin in FY '21 is the floor. And so we are expecting an improvement in the future.

[Sébastien Sztabowicz, Head of Tech]

And you don't see any specific impact from, I would say, the potential higher increasing wafer prices maybe in -- not today, but in the next 6 to 9 months because of the shortage?

[Paul Boudre, CEO & Director]

No. No. We are protected with that. I mean, we have long-term agreement on raw material silicon wafers. So we have agreements that goes over and beyond the fiscal year '22 horizon.

[Operator]

[Operator Instructions] The next question is coming from the line Emmanuel Matot from ODDO.

[Emmanuel Matot, Analyst]

Emmanuel Matot from ODDO. Several questions for me, please, Paul. First, what can you tell us about the way you are addressing the new WiFi 6 product? My understanding is that you have won several promising design wins. Can it be a great growth driver for Soitec in the coming years? What is the size of WiFi 6 RF chip? Second, what are the latest developments regarding your silicon carbide technologies? How long do you think it will take for being qualified by customers? And my last question, maybe it's for Léa, if you can update us on your hedging for the euro-dollar level regarding fiscal year 2022?

[Paul Boudre, CEO & Director]

Yes. On the WiFi 6, basically, I would say that the good news is that we see now that from our product portfolio, we are winning -- we are winning some of the slot right now in this -- for these applications. So that's the good news. It's obviously very early to describe the size of the market. But the size of the chip depends on the architecture around, I would say, a mid-single-digit in millimeter square per smartphone. The second wave will be other than just smartphone devices. So we believe that WiFi 6 can really go above and beyond just smartphones. So this is a new opportunity. And we are trying to also characterize the size of this opportunity. But again, the strategic news, the good news is that this is another demonstration of the performance of our product. And also the impact on the intimacy that we have with our end users in order to really drive very early on the adoptions of our product. And sorry, Emmanuel...

[Emmanuel Matot, Analyst]

Silicon carbide.

[Paul Boudre, CEO & Director]

Yes, on silicon carbide. So where do we stand on development? We are, as you know, working on with applied materials to develop the technology under a joint development agreement. Our pilot line is now fully operational. We are now building R&D samples that can be shipped to customers. The value proposition of our new product is better yield, epitaxy simplifications, and that will drive to smaller value to our customers. So as planned, we are delivering evaluations product in calendar Q1 '21. There is no delay on this. But clearly, we don't target customer qualifications during this calendar year, right? And this is not the purpose. What we want to do during this calendar year is clearly to tune the design of our product, it's like the design of device, right? I mean, we have to optimize the design of our product with more complex devices that our customers will be running on the wafers we are going to ship. So there is this year in terms of aligning the performance of the product, the quality of the product to the performance of the device.

[Léa Alzingre, Senior Director & Acting CFO]

And regarding your last question, regarding the FX rate for FY '22. So we are now covered for more than 2/3 of FY '22 net exposure. And we are hedged between 1.13 and the churn spot rate. We will communicate later on the FY '22 revenue in euros.

[Operator]

We currently have one question remaining in the queue, and that's coming from the line of Robert Sanders from Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

I think most of my questions have been answered. But maybe just to dig in a bit on the imaging side. One of your customers had quite a disappointing guidance for 2023. There's a lot of speculation that they may have lost a socket of that for which -- which is using your technology. I was just wondering if you were thinking if that business is stable or potentially at risk? I think it was discussed as being at risk in the past. And then I have a follow-up.

[Paul Boudre, CEO & Director]

Thanks, Rob. So obviously, we are not going to comment. I'm not going to comment on other customers' guidelines. But what is very important, we are very, very confident on the demand regarding these applications. In fact, very strong visibility on what is happening. And as you know, it's a long story, but the story continue, and we are very pleased with what we have today and for the next couple of years.

[Robert Duncan Cobban Sanders, Director]

Got it. And in terms of the -- the other question I just had was on -- I think it was kind of addressed in the past. But on the wafer input pricing, I know you say you have long-term agreements. But I seem to remember you seeing an opportunity to pass-through higher pricing in '17 and '18. Do you think that the relative attraction of SOI versus bulk could mean that you could have an opportunity to increase prices selectively for SOI wafers in the current tight environment?

[Paul Boudre, CEO & Director]

So first of all, yes, I want to confirm that we are clearly secured with all the long-term agreement that we have. And clearly, we feel extremely comfortable in securing the -- not only the volume, but we have also a clear understanding on pricing. And it is also true that we are in a case per case basis. We are also looking at our pricing, and this is obviously something that -- you know the model, right, that we have. The model is that we are bringing innovations to the market. And clearly, we have a model in terms of pricing that really to have a win-win in capturing the value on our side, but also giving our customers the extra performance or -- that is needed for their products. So pricing is always a topic. It's not one size or one moment in the life of our products. It's an ongoing process, and we continue to adapt and adjust our pricing to the value that we deliver to our customers.

[Operator]

We have one more question coming from the line of Aleksander Peterc from Societe Generale.

[Aleksander Peterc, Equity Analyst]

Apologies, I was on mute. I just had a quick follow-up. Given the strong growth that you had in 200-millimeter, maybe you could update us on capacity utilization in your -- Bernin and Singapore sites at larger diameter?

[Paul Boudre, CEO & Director]

Yes. Clearly, the capacity of our sites in France, in Bernin I and Bernin II are full. And we are planning to basically -- now, I mean, we have started, obviously, to ramp, as you raised, our Singapore site. We will, as you probably have seen in the -- in our CapEx profile during the course of this year, we were, end of the year, loaded this year in terms of CapEx. But clearly, it shows the acceleration that we are putting in the factory. All the tools that we are buying right now were already slotted.So that means that we don't have 9 months type of sequence in order to bring the tools and get the tools then and qualify the tools. All the tools that we are buying right now, as I said, they were already slotted at -- with our suppliers. So that means that we are, as we speak, growing our capacity in Singapore. And this will have an impact in H1, fiscal year '22. And obviously, in H2, fiscal year '22, as we continue to expand. But all the capacity that we are going to bring, we expect to feed it as we go into the next fiscal year. And we will be using -- sorry, and we will be using also the leverage that we have with our partner in China, Simgui. That is going to be very, very important also in fiscal year '22 as we need most of the capacity that we have installed there.

[Operator]

There are no further questions. So I will hand you back to your host to conclude today's conference. Thank you.

[Paul Boudre, CEO & Director]

So thank you very much. Thank you very much, operator, and thank you all for your questions. I mean, I think it was a very important update this quarter. And I think the next date in our agenda will be the publication of our Q4 sales figures on the 21st of April after market close. And this ends our call for today. Thank you for attention. I wish you all a great new year, a good health and a lot of fun in this new normality. And hopefully, we will be able to see each other soon face-to-face probably during this summer. Thank you very much.

[Operator]

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