Wolfspeed, Inc. (WOLF) Earnings Call Transcript

Well, good morning, everyone. This is C.J. Muse at Evercore ISI. Very pleased to be hosting Wolfspeed as part of our Autotech and AI Forum co-hosted with our automotive team. We're honored to have Wolfspeed CTO, Elif Balkas with us today. She's been with the company for nearly 2 decades, and earlier this year took over the CTO reigns following on our instrumental role as Vice President Wolfspeed's Material R&D business. So welcome, Elif. Great to have you here.

Thank you, C.J. Thank you, everyone, and welcome, everyone. It's actually very exciting for me to be with you. Greetings from Spain. I'm here for a conference. We will be talking tomorrow about the silicon carbide for future -- sustainable future for the energy efficiency. So -- but then we'll talk about the IT and technology today. So hi, everyone.

Perfect. Thank you. So there's a chat box. So if anyone in the audience would like me to pose a question for you, please do so. And I guess I'll kick start things with maybe probably the biggest question coming from earnings report a few weeks back would be, what did you mean by more methodical approach to the substrate capacity build over the next kind of -- into the next year versus what you kind of thought about 6 months ago? Can you kind of walk through what has changed since that October Analyst Day?

In terms of our approach to the technology ramp and the process ramp, nothing really has changed compared to 6 months ago. We're going to apply the same principles. So for us, if you think about the AR existing facility, we have this, for us, relatively big building on the one side of the road, what we call is like the combined building 158, that cluster. That actually produces the majority of the silicon carbide volume globally. And then what we are trying to expand that step by step, there is that across the road that what we call the building 10 by number that we'll kind of be converted to crystal growth facility. And then there is the first step for us. And then the bigger ramp is under the work that is the John Palmour facility out in the Siler City. So compared to 6 months ago, really that we kind of like to had some challenges with the supply of some of the components into the building. Specifically -- yes, all the permits or all the infrastructure, it took time but there was a bottleneck in terms of the critical component that we didn't want to take the risk and jeopardize the safety and the performance of the reactors. But from there on, the last quarter, we already started the ramp-up activities. That problem is behind us already. And so we're kind of like hitting the same the ramp. And then if I talk about the method of where the ramping is, so for us, it is specifically for 200-millimeter. For us, the 200-millimeter technology is new. The fundamentals are not different, but the diameter and the process and the dimensions and then the reactor is new. We've been exercising those technologies in building 1, 5, like existing the cluster. The way we take the new facility is that nothing different than the new process and technology introduction. So we take it step by step. So that actually forms us where the IATF approved it methodology. Take step by step, it qualified one reactor at a time. Actually, that before we did that taking the first reactor qualify the whole building in terms of the -- all of the facilities dialing in the power, in the water and of all the cooling elements of the process. And after that, it's basically that reactor around, see the result, gain the confidence and then go step by step. So that yes, compared to last time that we had the delays that are expected, external influence delays. But in our ramp rate, it hasn't changed really that from our initial plan.

So I think one of the worries is that maybe it's a technology-driven aspect. And so it sounds like that's not the case. And maybe it's a bit of conservatism. Is that fair or is there kind of something else that's changed?

Right. In terms of the crystal growth process ramp, you're right, C.J., that we like to approach it conservatively. And in that part hasn't changed. And then we're not going to change. We're not going to push to catch up that time line to accelerate the qualification. Because if we did that -- from past experience that we know that if things go wrong, by the time we figure things out, there is a risk of creation of like too much the base material and then too much the issues down the line. Every state that we check for the quality, we check for the yield. And then actually, the good news, I'm happy to report actually that we are actually maybe getting to the quarter or so of the first phase of the building and then getting results and getting really good quality and yield results from the building. It's just going to be a matter of time from here on and then taking those careful steps.

Perfect. And thinking out, as you scale out capacity, how do you think about what obstacles that you've seen in the past that you might need to deal with in the future? And how are you kind of preparing for that?

Yes. When we look at it from the technology -- and I think I've talked about this in the past. A lot of the folks that heard me saying that about the difficulty of the technology. So if we can actually reemphasize that, if we imagine that [Audio Gap]. But at the same time, what we are actually more careful as [indiscernible] get informed that until it happened, and it was a very minor component with clear how the process stability is the progressing as we add the volume. Those are more of the critical areas that we own the technology side that we look after and then we were trying to be careful. And it's not going to end. I think you hear Gregg probably talk about that. We will be in this red mode for the next -- the way we look at the material itself, like a good 5 years and supplying the fabs and supplying the continued supply the external is needed. That's not going to change. So we will be going through the issues and fine-tune the technologies, fine-tuned the processes to adapt to the changes.

You're going to be a very busy woman indeed.

Yes, keeps us busy.

Yes. So as we think about the Siler City ramp, which were required to take Mohawk above the 20%, 25% utilization level, how are you now envisioning the current cadence under this methodical approach. Will the slower building 10 ramp enable a more accelerated Siler City map? Or are there kind of obstacles the company will have to overcome given the new location and required support infrastructure build of the fab?

Right, right. Great questions and great concerns that we talk about it actually on a daily basis internally. Both with our facilities teams, operations teams and then with the R&D and technologies presence, C.J., that I kind of actually call it like we had a lucky scenario that having this Building 10 instead of going this existing building that we actually did develop the technology for more than 30, 35 years. And then going from there to the going to 10x capacity in 1 step. Instead the Building 10 was so much learning opportunity for us. At least from the learning of that what could go wrong, we've always focused on the technology, okay, to qualify and expand and ramp the technology. But then it's actually that created more of a documentation and the understanding of the dealing with the external, dealing with the facilities and then it's interesting actually that I also joke internally that I'm learning also the facility side of things as well that things like even the permits that you need to adhere to and then how long actually it could take time. Especially when you talk about this massive the first in the world that type of a factory. So the -- we [indiscernible] actually that we feel really good about the new factory location. It's really not that far for us, the -- in the RTP area that is severe spread out area, that is actually the folks are driving actually anywhere, maybe that it's not uncommon for them to drive 40 miles or so to come into the commute to the work. And then this facility is about 40, 50 miles from our Durham facility. So it's far enough to take the power from a different grid and then far enough to reduce some of the risk to have everything together. But it's also closed that our technologies can commute for a day, and they will don't mind actually going and checking things there and then helping the processes to come together. So it's a good actual situation that we have there.

Perfect. So you spoke earlier about building a new 200-millimeter facility. And obviously, every kind of machine is new and needs to be enhanced. So maybe you can talk about the transition from 150-millimeter to 200-millimeter. A lot of competitors have been talking about adoption. So can you kind of walk us through what has brought Wolfspeed to where it is today in terms of your 200-millimeter technological lead. And what are the focus areas of continued development that you're focused on to maintain your leadership at that wafer size.

So it's for us, it's really the diameter extension is a journey. When we started material science and then materials, actually, the silicon carbide activities that will speed prior to CRE 30-plus years ago. We were at maybe less than 2-centimeter diameter. So all we did, and I have actually that cured the history is fascinating that they go to the less than an inch and then the 3-inch and then 4-inch, 6-inch and 200-millimeter. When I joined, Chris, that time, we were just transitioning from 3-inch to 100-millimeter 4 inch. So it's fascinating. Yes,the diameters get bigger, challenges at the volume that the uniformity and the controls they get difficult. But we've been accumulating the technology understanding every time it's a learning opportunity for us. So that doesn't change. What actually that gave us that accumulate every diameter expansion, accumulate the knowledge from the previous to the next one, what goes wrong and what to be mindful of. One of the biggest advantages for us that yes, the high side looking is actually the fun, but in going through all those challenges, there was a lot of -- just like what we are doing today. Get together, solve the problems, look for the better rates that also allowed us to refine and improve our reactor capabilities. And at the beginning of 200-millimeter program, we did another one that when it comes to the reactor that we evaluated and looked at the history, what are the things that we want to have in the reactor for far better performance. So we put all those together for our reactor design. So it's having that type of the control over and the understanding is very powerful for us. So when you look at the -- C.J. historically, that as we improved, as we extended diameter. You also see the quality getting better. If you look at, for example, the micro pipe densities. Every time we introduce a new diameter, you actually see it introduced at a lower micro pipe density. And actually that the 200-millimeter was kind of like the record that it was introduction for ourselves. The demonstration -- it was already really the wafer that you can actually take it to fab and get good quality out of it, good yield out of it. And then specific to 200-millimeter journey for us, it's still. I mean it takes time. Silicon carbide is the learning cycles times are long and learning is slow. So we demonstrated 200-millimeter back in 2015. And then since then, we focused on the seat quality, see the inventory, reactor refinement and then the process. So it wasn't a day effort. And then within the last, I believe, 4 years ago or so, with Gregg's leadership that we said, okay, that let's run a evaluation and where we are and then accelerate. And within the last 3 to 4 years, the increased effort today, we are here and then we're looking at a really good quality and consistency.

So will we ever see 300-millimeter wafer for silicon carbide?

For us that -- yes, of course, in the technology. And we just need to -- yes, technology-wise, why not. We didn't -- we don't see a limitation. We don't see a 200-millimeter hits the limit. It's something that I call it is the timing. Does it make sense? The 200-millimeter, we see a great -- the potential in terms of the fab benefit. That's the motivation. And is the threshold, how much does it take to create the material and how much gain. There's still a lot of gain, obviously, we're going to go through the same exercise for 300-millimeter and just will evaluate. But from technology perspective, why not? It might be expensive, but yes.

C.J., I'm Tyler Gronbach, VP of Investor Relations. I got stuck in the waiting room. I think for now, though, we're very focused on ramping 200.

Of course.

The priority right now is we've got to get capacity at building 10, produce more wafers to feed Mohawk Valley. So yes, I think -- but as Elif kind of said, long term, there's opportunity probably to continue to innovate on silicon carbide. But immediately, for us is the focus on getting those 2 facilities up to scale.

Yes. No, of course. I was just trying to ask a more provocative question. That's longer term. I may have asked for 50-millimeter. If there's enough demand for EVs, does that cause the industry to go there, but I'll leave that for another day.

You will always get why not, as an answer from me for that technology. And of course, we need to be very mindful like Tyler said that we have a big task in front of us. All hands that we are focused on the ramp-up technologies, yes.

So another technical question. The transition to longer bulls has been a challenge over the last few quarters. Could you help us think through the quantification of the inherent benefits of the longer bull? At what point do you expect these benefits to begin showing up on your P&L? And what is driving, I guess, the company's confidence that this dynamic will not be a headwind in the 200-millimeter scale-out?

Right, right. So that same idea applies there going from 150- to 200-millimeter that we kind of learnings that we implement already in 200-millimeter as well. That problem that we faced was more with the 150-millimeter diameter crystals. And as it had the external dependence not in the way of the supply issue, but the back end of the processing, the challenges. There's always the pros and cons that having at home, the build equipment versus the working with the external ready equipment. So this was one of those, and then we had to go back and solve those issues. And so that's behind us. But even at the time that we had, of course, the 200-millimeter in mind, and so we kind of saw the problem there. But that's not to say the C.J., I believe that we will have the similar or different technical, not technology problems. What we want to do is actually to be mindful of the time line effect. We have such a strong technology team at Wolfspeed that is really relying on the experience and the depth of knowledge that there are a few things that technical that we think we can't solve, maybe not. But the time is important. So for us, is that we want to be -- to stay on our time lines. Keep -- to maintain our rent rate. And then for those though that I feel comfortable about the handling to the taller crystals for 200-millimeter as well.

Perfect. So maybe a bigger picture question. As you think through your silicon carbide road map over the next, call it, 5 to 10 years, what are you primarily focused on? What gets you excited? Where might there be innovations across materials, devices, packaging? Where do you think you can maybe increase Wolfspeed's competitive moat? And then as part of that, are there other solutions perhaps around just traditional silicon that keep you up at night as you think through kind of the moving dynamics in the coming decade?

Yes, yes, yes. These are really rich questions, and it might take me a while to hit all of them. Specific to silicon carbide, I'm very excited and the team. I know they are very excited that for us, a good 10 years or more actually did up to 20 years, there is a lot of the technological improvements that are ahead of us for 200-millimeter. Those improvements are about delivering better products out to the market at the die level. And then that's looking at it from the crystals perspective, whether that's the quality of the material and then cost of the material. And then with our vertical integration, not only in the supply perspective, but also looking at the technology as well, having that feedback and then creating the better learning loop, we already see the very clear road map ahead of us within the next -- the half to a decade in terms of the quality and the cost of the products. When we look at the die themselves you appreciate as well, there's so much to do, that we will always go after the reducing the RDS on and then getting more apps out of the diaper design. But when we take it also that there is the advanced packaging and the modules, it's all about the unlocking the potential through potential of silicon carbide. We have the amazing material, really solid, reliable device designs and then getting the best out of those designs through the module designs. Those are on our road maps. Of course, it is we get more closer to the applications that we're also excited to work with our customers closely to understand their needs and their road maps and of course, the aligning to them and then lift actually altogether the silicon carbide application in the performance. There is that. But then coming back to the crystal growth of things, I see that we already have in our -- the road map that the really cool things that we are working on. And those will be implemented over the next decade, I will say. Specific to when you ask about the silicon, silicon there has been a very mature technology, I don't even talk about the material side of things with the device and the device packaging and then the manufacturing side of things, very, very mature. But it hit the limits, right, that we know like the actual -- the applications that we are talking about today for using the energy more efficiently there, we know that it's past theatrical kind of like the calculations of what silicon can deliver. But then, yes, keeping me awake at night, when I see news on the -- if I read it in the evening, it gets me thinking and that keeps me awake, but I don't see it as -- I mean, it's not a concern.