X Fab Silicon Foundries EV
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Earnings Call Transcript

Earnings Call Transcript
2021-Q4

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Operator

Good day, and thank you for standing by, and welcome to the X-FAB fourth quarter conference call. [Operator Instructions] Please be advised that today's conference is being recorded. And I would like to hand the conference now to your first speaker today, Mr. Rudi De Winter. Please go ahead, sir.

R
Rudi De Winter
MD. CEO & Representative Director

Thank you very much. Welcome, everyone, to the fourth quarter and full year reporting. We have today also Alba Morganti, CFO, in the conference room.The revenues for the fourth quarter came in at $172 million, within the guidance and up 27% year-on-year and 2% quarter-on-quarter. The full year revenues were $658 million, up 38% against the previous year. We realized a new annual and quarterly sales record following 5 quarters of consecutive growth.Upon digging deeper in the business, the quarterly revenues in our core markets, namely automotive, industrial and medical, amounted $138 million, up 32% year-on-year. For the full year, revenues in the core markets totaled $525 million, up 43% compared to 2020.The ongoing electrification in automotive and industrial markets was a major growth driver in 2021, pushing the demand for our silicon carbide technologies as well as supporting applications required in electric vehicles. Our medical business benefited from the general trend of more point-of-care devices and lab-on-a-chip applications recorded also strong growth.Our CCC revenue was up 10% year-on-year in the fourth quarter and 19% year-on-year for the full year. While the CCC legacy business, manufacturer of X-FAB France, gradually decreased in line with the expectations over the course in 2021, interest in our X-FAB RF SOI technology picked up significantly supporting 5G applications.The year 2021 was marked by tremendous demand with fourth quarter booking reaching an all-time high of $250 million, up 31% year-on-year and 25% quarter-on-quarter. Demand remained strong across all end markets, with automotive bookings recording a particularly steep increase in the fourth quarter. This was driven not only by the acceleration of car electrification, but also by the pressure resulting from ongoing chip shortage.Due to the high order intake, which significantly exceeded short-term production capacities, X-FAB continued to allocate capacity to customers and backlog kept rising. As long as capacity will have to be allocated, it remains of our utmost importance to ensure customers receive the minimum quantities necessary to avoid disrupting supply chains.Supported by strong demand, efforts to move business to X-FAB France brought the site's share of revenues based on X-FAB Technologies up to 48%. The process of converting the French site capacity to manufacture X-FAB core technologies is ongoing with new equipment being delivered and installed regularly. This will contribute positively to meeting the higher demand, in particularly for our 180-nanometer technology.The prototyping revenues in the fourth quarter were $24 million, up 9% year-on-year. For the full year 2021, the prototyping revenues were $89 million, up 32% compared to 2020.On the operations side, in the fourth quarter, all factories continued to run fully on maximum speed. The productivity improvements remained the top priority to further increase wafer output while ensuring an excellent execution of all orders. The most important measures include eliminating production bottlenecks and recruiting additional staff.Silicon carbide business further accelerated. For the full year, the SiC revenues came in at $34 million, which was 61% increase over the previous year. In the fourth quarter, SiC revenues set a new record at $10.6 million, up 70% year-on-year and 7% quarter-on-quarter. Quarterly SiC bookings amounted to $17 million, up 141% year-on-year.In line with the strong demand, we kicked off investment to significantly expand our SiC manufacturing capacity as well as the in-house silicon carbide epitaxy capacity to be available by the end of this year. We get very positive feedback from our customers with respect to quality, die yield of the X-FAB silicon carbide production line. While there is a lot of interest coming from new customers, the current main focus is on supporting existing accounts and help them move to production, and to further ramp up production quantities.In 2021, we invested across all sites to expand capacities in response to the strong demand and the expected growth going forward. The CapEx in the fourth quarter amounted to $21 million. And for the full year, the CapEx totaled $67 million, up 74% compared to previous year. Apart from the maintenance CapEx, these were mainly prepayments for new equipment orders in 2021, as part of our capacity expansion programs. Most of these new tools are expected to be delivered in the course of the current year and will have to be paid in full after delivery and installation.The reported CapEx does, therefore, not reflect the total volume of investment projects, which amounted approximately $190 million of CapEx that was initiated in 2021. As the new equipment becomes available, it will contribute positively to increase of the wafer output. And the main portion of the investment relates to conversion of the French site capacity for production of X-FAB technology and the expansion in our Malaysian FAB as well as expansions on silicon carbide in X-FAB Texas.And with this, I would like to pass the word to Alba.

A
Alba Morganti
Chief Financial Officer

Thanks, Rudi. Good evening, ladies and gentlemen. And now let's talk about the financial update. We are very pleased to share our positive performance of the fourth quarter.As you could have seen, our EBITDA for the fourth quarter reached almost $44 million with an EBITDA margin close to 20%, which fell into the guidance of 19% to 23%. For the full year 2021, EBITDA amounted to $153.3 million with an EBITDA margin of 23.3%. With revenues growing quarter after quarter, as Rudi explained, we ended to almost $658 million of sales, which represents an increase close to 40% compared to last year, with a utilization rate of 82% across the fabs.In Q4 last year, we faced several operational challenges such as a higher absence rate than usual, which caused by either people infected or in quarantine due to COVID. On top of that, the cost of sales increased due to price increases related to mainly raw materials, spare parts, electricity and transportation. The constant higher utilization of the fabs also brought higher maintenance costs.Although unfinished and finished good inventory recorded an increase of almost $8 million, its contribution to profitability was limited. This is mainly driven by the SiC activity. Actually, as we started a high number of silicon carbide wafers, the main portion of this increase relates to the SiC substrate value. Cash and cash equivalents at the end of the fourth quarter were slightly above $290 million, which represents an increase of 28% compared to the end of the previous quarter. Compared to the end of 2020, our cash position remained very strong and even increased by 41%, driven by the positive cash flow generated by operating activity, but also from our financing activities. With a total of $109.3 million cash flow from operating activities, recorded almost a 50% increase compared to 2020. These positive results enabled us to fully cover all the CapEx expenditures of 2021.Our sales in Europe recorded in Q4 reached a portion of 41%, which is in line with the level of cost incurred in Europe. As a consequence, this natural hedging of our business makes our profitability development largely independent of exchange rate fluctuations. The actual U.S. dollar/euro exchange rate for the fourth quarter of '21 was $1.14, leading to an EBITDA margin of 19.7%. At a constant exchange rate of $1.19, as experienced in the fourth quarter 2020, the EBITDA margin would have been 19.4%.I would like to conclude the financial section by saying that our Q1 revenue is expected to come in, in the range of $175 million to $185 million with an EBITDA margin in the range of 19% to 23%. The aforesaid estimations have been made based on an average exchange rate of USD 1.14 to EUR. And for the full year 2022, based on current market trends, we expect our sales to be in the range of $750 million up to $815 million. And we expect our full year EBITDA margin to reach a level between 21% and 25%.And now I would like to give the word back to Rudi.

R
Rudi De Winter
MD. CEO & Representative Director

Thank you, Alba. Well, I'm very excited about the strong business development and how well we are positioned to benefit from the transition to green energy in automotive and industrial as well as the increasing deployment of medical testing at point of care. The ever-growing need for semiconductor-based innovative solution will ensure healthy demand for our specialty technologies in the long term. In the short term, it is key to manage the challenges arising from the tremendous demand requiring full attention and commitment of all X-FAB teams.Our key focus has been and will be on execution excellence and productivity improvements for the best possible supply to our customers. The installation and qualification of new tools to remove bottlenecks will particularly contribute to an increase of wafer output. While it is currently not clear how semiconductor industry and in the light of all the uncertainties in the world economy will evolve, I'm very confident that X-FAB is perfectly placed to achieve its growth targets for 2022 and beyond.And with this, I would like to finish the introduction. And operator, we are ready to take questions.

Operator

[Operator Instructions] Okay. We will now take our first question.

R
Ruben Devos
Senior Financial Analyst

Hello, do you hear me?

A
Alba Morganti
Chief Financial Officer

Yes.

R
Rudi De Winter
MD. CEO & Representative Director

Yes, we hear you.

R
Ruben Devos
Senior Financial Analyst

Okay. All right. It's Ruben Devos from KBC Securities. I've had a question related to cost inflation. Obviously, there's been quite some concerns on the risk of cost inflation. And in the press release, you mentioned rising cost of sales.Curious to hear your thinking on the various cost buckets, so purchases, transportation, production and how it may -- how it may affect margin going forward. And obviously, how would you expect to offset some of these through price increases? That's my first question.

R
Rudi De Winter
MD. CEO & Representative Director

Yes, so indeed -- so we -- the world is getting sophisticated and there are a lot of challenges on the operations side. The costing is 1 thing, but a lot of -- getting sufficient materials on time everywhere when they are needed is another big challenge and the transportation of it sometimes also comes with huge cost increases. So yes, this is very dynamic. We do intend to pass those costs on with -- from time to time when it is required to adapt the prices based on the increases.So -- we are a sole supplier to most of our customers. We have quite a bit of products on order and in the pipeline. So price increases, we did a price increase in August last year across the board that applies for new orders and these new orders since then have run through the factory, and this is starting to come out now in Q1. And we will need to see, going forward, how we deal with further price increases depending on how the markets go. We used the price increases to offset increases of costs. We don't want to -- we need to be in balance with that. We have long-term relationships with our customers. So we don't want to make abuse of this. But we will also -- we are heavily investing, as explained. So we booked for about $190 million tools last year that are now granted, so we will not have any much higher CapEx to record in 2022. And so that will also increase the depreciations. So we put capacity in place for our customers that increases the depreciation, and that will also -- is another element that we will pass on to our customers.

R
Ruben Devos
Senior Financial Analyst

All right. And just sort of to follow up on that. I think you also mentioned that you're allocating capacity in such a way that customers are receiving at least the quantities necessary to avoid disruption in their supply chains. How should we think about this? Are you sort of making the trade-off that such allocation may sometimes be suboptimal and that you're foregoing some profit opportunities for the sake of the long-term relationship with the client, let's say?

R
Rudi De Winter
MD. CEO & Representative Director

Well, we -- you asked us a good question. So all the customers get less than what they ordered. We have sometimes -- it is very rare, but sometimes there are also customers that will cancel orders, because of maybe projects that are delayed, that there is some pockets that become available. And those are then allocated to people with the highest need and with a premium price.

R
Ruben Devos
Senior Financial Analyst

Okay. And you said that some people may delay their orders. I think you've mentioned before that you're sort of introducing take or pay type provisioning contracts with a minimum offtake. Yes, could you talk a bit about how those talks with customers are developing?

R
Rudi De Winter
MD. CEO & Representative Director

Yes. So this is -- these discussions are ongoing, and there is a lot of interest. The interest is higher than the capacities we have available, so -- over the next couple of years. So we are also there seeing how to best allocate that. And -- but these discussions are ongoing. I expect it will take another couple of months.

Operator

Okay. We will now take our next question.

M
Michael Roeg
Analyst

It's Michael Roeg from Degroof Petercam. I have 2 questions. The first one is on above-average sick leave because of infections or quarantines. Did this impact your sales in Q4? Was it held back or did it always have an impact on profits?

R
Rudi De Winter
MD. CEO & Representative Director

Well, it's both. So it -- the -- if there is less staff in the factory, the factories run -- so there's less product that is moved around and then this has an effect on the top line at the end of the quarter and then also the bottom line.

M
Michael Roeg
Analyst

Given the high leverage in your business and every million dollar that you lost because of that was like 80% gross profit. Okay. And how is the situation developing today as we speak in Q1?

R
Rudi De Winter
MD. CEO & Representative Director

Well, actually, the -- Q1 is reasonably well. So you would expect with the Omicron in Europe that -- and in the U.S., but still the absenteeism is kind of okay. It's less than in Q4. And in Malaysia, the Omicron has not yet arrived.

M
Michael Roeg
Analyst

Okay. Well, that's at least reassuring quarter-on-quarter that the impact should be less. Then my second question. Last year, at the Q2 results, you said that in 2022, $750 million should be technically possible. Now we have guidance and $750 million is actually the low end of the guidance.And if I compare that to your last 12 months bookings of $870 million, that is above your entire guidance range. So you are still limited in your capacity to fulfill every order. Could you say something about how the capacity will ramp up throughout 2022? Will be that gradually or will it be back-end loaded?

R
Rudi De Winter
MD. CEO & Representative Director

This will be gradually. So of course, within the fourth quarter, so step after step, we plan to increase the output.

M
Michael Roeg
Analyst

Okay. So in 2021, we've seen a very nice increase in sales from Q1, 2, 3 to Q4. Something similar could happen in this year or is likely to happen this year?

R
Rudi De Winter
MD. CEO & Representative Director

Yes.

M
Michael Roeg
Analyst

Okay. And then on the mix, because you mentioned that especially automotive was strong in the bookings, should we expect stronger growth there in 2022 than in the other segments?

R
Rudi De Winter
MD. CEO & Representative Director

Yes. The -- we see also more and more also gradually of silicon carbide going into automotive. And in particularly, the capacities that we are making available in the factory in France, these expansions, they allow us to catch up on the automotive.

M
Michael Roeg
Analyst

Okay. Yes, we saw, of course, that one of your main customers in automotive had some encouraging sales growth as guidance. So automotive leads the way in 2022. What kind of impact does it have on gross margins if you compare the automotive wafers with industrial, medical and CCC? Is that positive for the mix or neutral for the mix?

R
Rudi De Winter
MD. CEO & Representative Director

The industrial is still better pricing than -- because the volumes, the smaller lots. But with the automotive, lots are -- the volumes are bigger. So this is somewhat a -- so I do not see there an immediate strong effect. The shifts are also marginal, so I do not expect that the automotive, which is somewhere around 50%, that might go to 51%, 52% or so. But don't expect it to rise to 60% or so. So I don't expect there material shifts.Are there further questions or is there technical problem?

Operator

[Operator Instructions]

J
Johannes Ries
Founder

This is Johannes Ries from Apus Capital. Maybe some follow-on questions to my colleague before. You had a much higher order intakes and your revenues, because you're capacity constrained. It is therefore -- you expect you had more order book at the year-end above $200 million?

R
Rudi De Winter
MD. CEO & Representative Director

What was your...

J
Johannes Ries
Founder

The order book at the end of the year, if I see the difference between the order intake and the revenue, I calculate it as the order book must be around $200 million or above, et cetera.

R
Rudi De Winter
MD. CEO & Representative Director

The order book is around $400 million.

J
Johannes Ries
Founder

Okay. So that's even better. Okay. Okay. And maybe on utilization, you mentioned that you have a utilization -- high utilization of 82%. Is it possible to increase this figure? Or is it -- with maintenance and so, you are nearly at the other end, it's not to increase a lot?

R
Rudi De Winter
MD. CEO & Representative Director

Yes, it is our intention to further increase it. And -- so this is the average utilization of the equipment. And -- so if the product mix in the factory is not optimal for the equipment that are there, then there are some equipment not being utilized and that explains -- so what the exercise is, what we're doing by debottlenecking, we mean we -- there are bottlenecks in the factory of the certain equipment where we don't have enough. And there are others where we have actually -- they are not fully utilized.So we are trying to put more of those who are fully utilized so that we can then leverage also the other equipment to a higher utilization. And -- so this is how we plan to further, but that requires sometimes deliveries of equipment. And nowadays, if you place the purchase order equipment, it takes us sometimes 18 months delivery time. And until they are really installed and qualified and ready to run production, it's 2 years. So this is the equipment that are now coming in. So in -- for instance, in the factory in France, we have every week a piece of equipment that's coming in. They have been ordered at end of 2020.

A
Alba Morganti
Chief Financial Officer

I can also add that the 82% is the average of the full year 2021. So you have months with 70% and months with 85%.

J
Johannes Ries
Founder

Any target figure for the year -- for year '22?

R
Rudi De Winter
MD. CEO & Representative Director

We don't have that on hand here. But we always said that it is possible that we strive to go to something like 92%, 93%.

J
Johannes Ries
Founder

Okay. Great. And coming back to the question of the former speaker. The capacity, if you know all this equipment you ordered in '21, maybe come step by step in, what capacity you will maybe start the year 2023? What is the potential revenue can maybe build on the capacity you have available in '23?

R
Rudi De Winter
MD. CEO & Representative Director

Yes. So this -- yes, it depends on the -- we have capacities for different product categories and not all product categories bring in the same revenues. So for instance, in the silicon carbide, they -- there's quite some expansion plans, but -- and these wafers are very expensive. So that adds quite a lot to the revenue. And -- so -- yes, so we are -- I would say our objective that we have set a while ago to go to $1 billion. This is something that is becoming in the reach towards 2024, maybe, yes.

J
Johannes Ries
Founder

Okay. That's helpful. On gallium -- on the lithium carbide (sic) [ silicon carbide ] how much you can grow your capacities there? And what could be maybe as a percentage of silicon carbide on your sales or in absolute figures in the year '22 [indiscernible] whole company?

R
Rudi De Winter
MD. CEO & Representative Director

The -- yes, it is outgrowing the average of the company. And so we -- what I can say is that we are -- today, we are running around 2,500 wafers per month. And by the end of this year, we want to have capacity installed for 8,000. Now that we might not run 8,000 then, but maybe something in the range of 5,000 to 6,000 by end of the year.

J
Johannes Ries
Founder

Okay. Last remark. Gallium nitride, you're also doing, is still very small, yes?

R
Rudi De Winter
MD. CEO & Representative Director

Yes, that's small, yes.

J
Johannes Ries
Founder

But it's also growing strongly. On the margin side, you expect a clear margin improvement over the year comparing your full year target to the target for the first quarter. That's based on higher revenues and leverage in the business model?

R
Rudi De Winter
MD. CEO & Representative Director

Yes, exactly.

J
Johannes Ries
Founder

Okay. Because the mix we discussed it before is not the main topic. On France, how much of your French capacity? Remind us or update us. I think it was a figure of 70% or something or even more. At the end of the year, how much of the French -- percentage-wise of the French fab will be based on your processes, so can be used for automotive?

R
Rudi De Winter
MD. CEO & Representative Director

So today, it is -- so the past quarter was 48%. This is in revenue. And I expect over the end of this year to be rather in the -- in maybe the 70%, 75%.

J
Johannes Ries
Founder

Okay. And next year...

R
Rudi De Winter
MD. CEO & Representative Director

And this is, of course, not just shifting the feet, but it is top line that grows. So the other legacy is dropping not so much. So it's a -- it's all the X-FAB core technologies that are growing.

J
Johannes Ries
Founder

Okay, I see. And this 5G business and CCC, how big it can be, maybe at the end of the year or maybe next year?

R
Rudi De Winter
MD. CEO & Representative Director

Yes. So this is -- this is very -- this is a typical mobile consumer application where visibility is very limited. So the -- so it is running at -- I think, it's around $2 million, $3 million per quarter now. But has the potential to significantly go up, but this is very dynamic.

J
Johannes Ries
Founder

And that's also very profitable -- so it's much more profitable than the other consumer business, yes?

R
Rudi De Winter
MD. CEO & Representative Director

Well, the mobile business is, in general, not so profitable. The -- because it is our own -- based on our own technologies, we're somewhat in better shape than the legacy business. But it remains consumer, mobile and that is quite competitive.

J
Johannes Ries
Founder

Okay. So -- but in the longer term, maybe move everything to medical, automotive and industrial, because it is positive.

R
Rudi De Winter
MD. CEO & Representative Director

Yes.Do we have further questions? Operator, do we have further questions? Maybe the wrong line is open. Hello, operator?

Operator

Sorry, sir. I was on mute. Okay, we will now take our next question.

R
Ruben Devos
Senior Financial Analyst

Yes, I believe my line is open now. Is that right?

R
Rudi De Winter
MD. CEO & Representative Director

Yes, we can hear you.

R
Ruben Devos
Senior Financial Analyst

Okay. This is Ruben Devos again. No, just on the capacity, obviously, for a long time, sort of the target number was $750 million. Obviously, you've now identified $190 million in CapEx. I mean that's already initiated in 2021. So my question is, how far would that bring you those investments that you've already identified basically in terms of overall sales?

R
Rudi De Winter
MD. CEO & Representative Director

We think that could bring us -- with all this what we have initiated, installed and running, that could bring us beyond the $900 million.

R
Ruben Devos
Senior Financial Analyst

Okay. Okay. And in terms of...

R
Rudi De Winter
MD. CEO & Representative Director

But also includes some price increases already that we think -- or price road maps and product mix and so forth.

R
Ruben Devos
Senior Financial Analyst

Okay. Okay. And in terms of cash CapEx for 2022, I think, obviously, it was $74 million in '21. I have $125 million in my model, but I don't know whether that's...

R
Rudi De Winter
MD. CEO & Representative Director

No, that's on the low side. That's with maybe rather -- yes, closer to maybe $200 million.

R
Ruben Devos
Senior Financial Analyst

$200 million. Okay. Okay. And then I believe you mentioned in one of the previous answers that -- when talking about silicon carbide, you said that these wafers are expensive. So my question is what are the typical ASPs for this silicon carbide?

R
Rudi De Winter
MD. CEO & Representative Director

Well, this depends. So we have 2 business models, you could say maybe 3, that we sell the wafers where we source the substrates and do the processing, and then we sell complete finished goods or we have customers who consign the substrate and we charge them for the processing. And -- so that, obviously, the difference is the cost of the substrate and depending on the type of substrate and so forth, that's in the range of $1,500 to $2,000.And then we have the epitaxy. So these are the substrates with the epitaxy external. And so we have ordered more epitaxy capacity that should come online in the fourth quarter this year and that should improve our value contribution. So then we are looking at substrates, costs that are closer around $1,000, but where we then add the epitaxy ourselves.

R
Ruben Devos
Senior Financial Analyst

Okay. And you mentioned that you ramped capacity to 8,000 wafer starts per month. I believe there was a long-term objective of $200 million in sales for silicon carbide. Would those 8,000 bring you to that objective? Or is that even longer?

R
Rudi De Winter
MD. CEO & Representative Director

Yes, that could bring -- well, depending whether it is based on substrates that we -- if we assume that we source the substrates, which is today the case for the majority of our customers, then yes, that could bring us in this range. Yes.Well, maybe just -- I'm just trying to -- yes, so it's maybe -- rather in the $150 million to $200 million range. And so we are -- so the 8,000 is the first step and then that will be immediately followed by an expansion to 11,000, that should be ready by end of Q1 2023.

R
Ruben Devos
Senior Financial Analyst

Okay. So the $200 million objective is already outdated?

R
Rudi De Winter
MD. CEO & Representative Director

Well, it is getting closer.

Operator

Okay. We will now take our next question.

E
Emmanuel Matot
Analyst

Emmanuel Matot, speaking from ODDO. Could you state your sales growth average guidance of 19% for 2022 between volumes and prices, please?

R
Rudi De Winter
MD. CEO & Representative Director

That's -- yes, it is -- it's actually a mixture of volumes, product mix and maybe a bit of price increase. And -- but I cannot -- I don't have that here on hand, but I would think the price increases are -- the volumes is the bigger portion. So it's maybe 10% volume, 5% price and maybe another couple of percent product mix.

E
Emmanuel Matot
Analyst

Okay. When I'm checking your guidance of EBITDA margin for 2022 of 23% in average, this is exactly in line with the one of 2021, if I'm right. So I do not see any leverage from, let's say, your top line growth. How do you explain that? Is it related to the problem of productivity you have currently with the COVID?

R
Rudi De Winter
MD. CEO & Representative Director

Well, there is one thing you need to keep in mind. In 2021, we had success with the PPP loans that were waived that gave us $6 million extra profit that does not come out of the regular operations. That -- so that already adds that maybe something like 1% on the full year.

E
Emmanuel Matot
Analyst

Okay. So on a recurring basis, you mean there is a leverage from your volume growth?

R
Rudi De Winter
MD. CEO & Representative Director

Yes.

E
Emmanuel Matot
Analyst

Okay. And regarding the French fab, if I'm right, it is still loss-making at the EBITDA level. Do you think you can reach breakeven somewhere this year?

R
Rudi De Winter
MD. CEO & Representative Director

The objective is to reach breakeven EBITDA level end of next year.

E
Emmanuel Matot
Analyst

End of 2023?

R
Rudi De Winter
MD. CEO & Representative Director

Yes. '22, sorry. I'm confusing with the year, end of 2022.

A
Alba Morganti
Chief Financial Officer

But at the end.

R
Rudi De Winter
MD. CEO & Representative Director

At the end, not for the full year.

E
Emmanuel Matot
Analyst

Okay. And was it still significantly loss-making in Q4, this fab? Or it is close to breakeven currently?

R
Rudi De Winter
MD. CEO & Representative Director

It was depending on -- yes, one-offs left and right, but it was still negative on the EBITDA with $1 million or $2 million or so. I don't have the exact numbers here, but it was still EBITDA negative in Q4 and significantly negative for the full year.

E
Emmanuel Matot
Analyst

Okay. And my last question is maybe about your view on the EU Chips Act to promote state aid for the production of semiconductors in Europe. How X-FAB is positioning currently about this? I don't know if it is still a project, but [indiscernible] direction.

R
Rudi De Winter
MD. CEO & Representative Director

Well, I think the positive thing is that everybody talks about chips, and the chips are important, and that is good. There are definitely also good elements in there to develop training, to try to stimulate the industry, but there is a very high focus on the pure digital road map with feature sizes down to 2 nanometer, which is a different world than where we are in. So it must be realized that shortage of chips nowadays is not -- the problem is not the deeds of micron chips. It is the regular ICs that goes into cars and so forth.And what I see is that the program still does not give enough stimulus to, let's say, encourage sufficient investments to get rid of capacity problems. And so as I maybe indicated, so the -- also with the investment plans that we currently have and so forth, yes, demand is still higher than what we see. We will be able to follow with the investments, but it's all a matter of demand at what price. So -- and I think there, the industry will have to find an equilibrium.

E
Emmanuel Matot
Analyst

Okay. And last question. Have you commented about your exposure to Melexis last year in 2021 in terms of sales? [indiscernible]

R
Rudi De Winter
MD. CEO & Representative Director

It is in the presentation on the website that is updated today as well. But I believe it is somewhat slightly below 40%. I think it's 39% or something. It is, I think, roughly within plus/minus 1%, the same as the previous year.

E
Emmanuel Matot
Analyst

So it does not change significantly. And do you expect that contribution to change this year or not?

R
Rudi De Winter
MD. CEO & Representative Director

No, I don't think so. It will probably stay in the same range, maybe slightly less, because we are -- the silicon carbide, which is becoming more and more important in our total revenue. That will maybe make our percentage of exposure to Melexis smaller, because Melexis is not a customer for the silicon carbide.Operator, are there further questions?

Operator

We will now take our next question.

T
Trion Merton Reid
Analyst

Can you hear me?

R
Rudi De Winter
MD. CEO & Representative Director

Yes, we can hear you.

T
Trion Merton Reid
Analyst

This is Trion Reid here from Berenberg. I just had one. I think just a follow-up on an earlier question about the revenue guidance and the margin guidance. Obviously, the revenue guidance is quite strong, I think, above consensus. I'm a bit surprised that the margin guidance isn't higher. I mean I know you mentioned you had this one-off last year. So maybe the price is a bit lower in reality than it appears.But your model does seem to have quite high operating leverage. So I just wondered, is it may be more to do with the inflation you're seeing in things like energy and transportation that you're a little bit worried about, which makes you a lot more bullish on the margin?And then just a sort of follow-up to that, in terms of your longer-term guidance, I think you point to $1 billion of revenue at a margin of 27% or more. In light of current pricing and inflation, do you have any thoughts on whether that margin could be higher or maybe won't be as high as that?

R
Rudi De Winter
MD. CEO & Representative Director

Well, that's -- there's no reason to think that we cannot achieve that. Now there is in the whole dynamics of -- because, yes, I explained, we have $400 million backlog on orders that we are working on. So that brings us well within 2022. And yes, there is a dynamic on pricing everywhere. But yes, orders that we have on the books are on -- at a fixed price, and so we need to execute. If we -- so there is a delay and dynamics on the pricing and the cost.

T
Trion Merton Reid
Analyst

Got it. Okay. Clear. I mean does that imply that potentially for 2023 or whenever we get through these kind of -- this order backlog, you could see quite a meaningful improvement in the margin?

R
Rudi De Winter
MD. CEO & Representative Director

That is possible, yes. So indeed, so if we are always behind with the inflation curve and if the inflation stabilizes, then there could be a positive effect here.

Operator

Okay. We will now take our next question.

M
Michael Roeg
Analyst

It's Michael Roeg again from Petercam. My line was bad for a minute. So I was wondering, could you please repeat the CapEx guidance for this year, because I missed that?

R
Rudi De Winter
MD. CEO & Representative Director

So this is mainly based on the projects that we initiated last year, which was $190 million. So we expect that the CapEx for this year will be $200 million or more.

M
Michael Roeg
Analyst

$200 million or more. And will there be a drop off the year thereafter, down strongly?

R
Rudi De Winter
MD. CEO & Representative Director

Well, if the market remains that strong, it could be in the same range.

M
Michael Roeg
Analyst

Okay.

R
Rudi De Winter
MD. CEO & Representative Director

So you will immediately say okay, how would -- how about all the depreciations and the costs that go up. I said that -- yes, that will have an impact on the EBIT. And -- but we are installing capacity for our customers. And yes, we then also will pass that on to the customer.

M
Michael Roeg
Analyst

Okay. And then I also have a follow-up question on that margin. If I take out the loan and all the inventory changes last year, then I get to an EBITDA margin of 20%. For this year, the midpoint of the guidance is 23%, so 3% improvement. If I take the midpoint of your sales guidance for this year, then it is $126 million higher year-on-year. If you were to do, on top of that again, on long-term 26% and 3% margin improvement, then you are already close to your long-term margin guidance at $910 million in sales. So again, do you see upside to that 27%?

R
Rudi De Winter
MD. CEO & Representative Director

As it's from today's perspective, very difficult to say. But what I'm very excited about all the opportunities out there. The new things that are coming -- that -- new projects that we're doing with also good pricing. I think that the product mix, going forward, together with the strong demand puts us in a position to have maybe some upside.

M
Michael Roeg
Analyst

Okay. Good. Let's start with 23% first this year and then move further.

R
Rudi De Winter
MD. CEO & Representative Director

We'll see then where we go, yes.

Operator

Okay. We will now take our next question.

J
Johannes Ries
Founder

This is Johannes Ries from Apus again for a short follow-on question. Regarding your French fab, can you give us a feeling how high was the revenue contribution of the French fab? And you said you will turn it into black to the end of the year.Could it maybe 2 years have the same margin like the average in 2 or 3 years like the average of the rest of the company? Or is -- okay, you have this consumer space here, but in the longer term, if you put it out, maybe can you come close to the margin of the average?

R
Rudi De Winter
MD. CEO & Representative Director

Yes. So the sales was $82 million in last year, which is somewhat in -- slightly higher than the year before. We expect a significant increase this year to continue to ramp quarter after quarter, but -- so may be having this year an increase of something like 50% or 55%. And that -- with a follow-on year, that should go another 30% or so from that.

J
Johannes Ries
Founder

Super. And so profitability could come closer to the average in some years?

R
Rudi De Winter
MD. CEO & Representative Director

Well, the -- in the -- when we have reached a full conversion to the X-FAB core technologies, yes, then we can come to the average, yes.

Operator

[Operator Instructions] I guess there are no questions at the moment. Please continue.

R
Rudi De Winter
MD. CEO & Representative Director

Right. Thank you very much, operator. So thank you for joining the call today. And -- so I hope to hear you all again in the first quarter results reporting that will happen April 28. Thank you very much, and good evening.

A
Alba Morganti
Chief Financial Officer

Good bye.

Operator

Okay. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.