Wolfspeed, Inc. (WOLF) Q4 2021 Earnings Report, Transcript and Summary

Good day. And thank you for standing by. Welcome to the Cree, Inc. Fourth Quarter Fiscal 2021 Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Tyler Gronbach, Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Cree’s fourth quarter fiscal 2021 conference call. Today, Cree’s CEO, Gregg Lowe; and Cree’s CFO, Neill Reynolds will report on the results for the fourth quarter and full year of fiscal year 2021. Please note that we will be presenting non-GAAP financial results during today's call, which is consistent with how management measures Cree’s results internally. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered a supplement to and not a substitute for financial statements prepared in accordance with GAAP. A reconciliation to the most directly comparable GAAP measures is in our press release and posted on the Investor Relation’s section of our website along with a historical summary of other key metrics. Today's discussion includes forward-looking statements about our business outlook and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially, including risks related to the impact of the COVID-19 pandemic. During the Q&A session, we would ask that you limit yourself to one question and one follow-up so that we can accommodate as many questions as possible during today’s call. If you have any additional questions, please feel free to connect with us after the call. And now, I’d like to turn the call over to Gregg.

Thanks, Tyler, and good afternoon, everyone. Thank you for joining us today and I hope you and your families are in good health. I am pleased to report that during the fourth quarter, we continued to execute and drive our business, delivering strong revenue in line with our guidance range and non-GAAP diluted earnings per share at the high end of our guidance range. As we continue our transformational journey we are excited to officially change the name of our company to Wolfspeed in the coming months. This represents a pivotal stop in our company history as we are now a pure play global semiconductor powerhouse well positioned to lead the industry transition from silicon to silicon carbide. During fiscal 2021 we made formidable progress. We completed the divestiture of our LCD business to Smart Global Holdings. We went from moving dirt to installing equipment in the clean room of the world's largest silicon carbide fab in upstate New York which will begin processing 200 millimeter wafers in the first half of calendar 2022. We also expanded our crystal growth and wafer production capacity on our North Carolina campus. And finally we quickly adapted to the new operating environment because of the global pandemic keeping our factories running while at the same time staying connected with customers to convert opportunities in our growing device pipeline. These are just a few of the many important developments that we achieved in the last 12 months as we see an acceleration of the demand for silicon carbide based solutions across a range of industries. We are at the beginning of a multi-decade secular shift to silicon carbide and we now believe the demand curve is steeper for devices than we originally expected further bolstering our confidence in our long-term outlook. The investments we are making today will position us well to capitalize on the tremendous opportunities ahead and firmly establish our industry leadership position. I'll now turn it over to Neill, who'll provide an overview of our financial results and an outlook for the first quarter of fiscal 2022. Neill?

Thank you, Gregg, and good afternoon, everyone. We delivered solid results during the fourth quarter as we saw increased demand for devices and materials. Revenues for the fourth quarter of fiscal 2021 were $146 million, slightly above the midpoint of our guidance range, representing an increase of 6.2% sequentially and 34.5% year-over-year. Our non-GAAP net loss was $26.9 million or $0.23 per diluted share just above the midpoint of our guidance range. Our fourth quarter non-GAAP earnings exclude $118 million of expense net of tax or $1.02 per diluted share for non-cash stock-based compensation, acquired intangibles amortization, accretion on a convertible notes, project transformation and transaction costs, factory optimization costs, changes in the value of our previously held ENNOSTAR investments, a restructuring expense related to a modification of our long-term plan regarding a portion of our Durham campus and other items outlined in today's earnings release. Moving out to our fourth quarter performance by product line, we delivered our fourth consecutive quarter of sequential growth for Wolfspeed. We continue to see strong demand in our power product line but the strong demand was partially offset by supply constraints due to the temporary closure of the contract manufacturing facility we use in Malaysia which was shut down for approximately seven days during the quarter due to the COVID-19 outbreak and has been operating at lower staffing levels due to pandemic related restrictions imposed by the local government. Despite the challenges with the production in Malaysia Power saw device revenue grow 46% versus the prior year. In RF revenue increased largely due to increased 5G activity as communications infrastructure providers continue to support the rollout by carriers. For materials we saw that our order flow in the quarter consistent with our expectations for the back half of fiscal 2021. Fourth quarter not-GAAP gross margin was 32.3% compared to 35% last quarter. The sequential decline was primarily due to the growth in our device products and unfavorable margins due to higher [Indiscernible] manufacturing costs of the short term. In addition we were negatively impacted by the production shutdown at our contract manufacturer in Malaysia which resulted in gross margin being at the lower end of our guidance range. As previously discussed we view the gross margin impact as short term in nature due to the sub optimal device production footprint we have in North Carolina and expected to modestly improve going forward as we work through factory transitions and eventually shift production to our new Mohawk that Mohawk Valley fab in calendar year 2022. Non-GAAP operating expenses for Q4 were $82 million and our non-GAAP tax rate was 25%. As anticipated the increase in our operating expenses was fueled by our investments at R&D including development projects that are well underway at our Mohawk Valley pilot line in order to support our 200 millimeter wafer launch as well as an increased sales of marketing expense as we pursue new business opportunities. During the quarter, we also recorded a $74 million write-down for an unfinished facility that was built to support the LED business back in 2015 which is no longer viable to support our future growth plans. For fiscal 2021, revenue was $526 million, representing a 12% increase when compared to fiscal 2020 due to growth in our device businesses, partially offset by lower materials revenue. Non-GAAP net loss from continuing operations was $104.7 million or $0.93 per diluted share. Non-GAAP loss excludes $237 million of adjustments net of tax or $2.11 per diluted share. We ended the fourth quarter with a strong and healthy balance sheet with approximately $1.2 billion in liquidity to support our growth strategy, zero withdrawn in our line of credit, and convertible debt with a total face value of $1 billion. For fourth quarter, days sales outstanding was 52 days and inventory days on hand was 147 days. Cash generated from operations was negative $54 million and capital expenditures were $168 million, resulting in negative free cash flow of $222 million. As we expected, fiscal 2021 required a significant amount of investment in CapEx, totalling a net amount of $566 million. We expect this to represent the most significant period of investment between now and 2024 as we execute our capacity expansion plan including the launch of our Mohawk Valley Fab at 200 millimeter in the first half of 2022. As Greg mentioned earlier, we’re experiencing a significantly steeper demand curve from our customers for silicon carbide devices than we had previously anticipated. This has resulted in supply constraints, for some customer orders will not be fulfilled in fiscal year 2022 and channel inventory levels will remain low until capacity comes online in our Mohawk Valley Fab. In the meantime, we are working to accelerate capacity, CapEx investments, improve output in our derm facilities and manage through the COVID-related challenges with our contract manufacturer Malaysia. As we remain in the midst of a rapid capacity expansion for both materials and our wafer fabs, we anticipate CapEx net of expected reimbursements from the state of New York to be approximately $475 million in fiscal 2022. We expect CapEx to be more heavily weighted to the first half of the fiscal year with Q1 representing the peak investment period as we ensure a ramp at Mohawk Valley remains on track. We are still on schedule to operationalize the world's largest silicon carbide fab in the first half of calendar year 2022. Access to capacity and semiconductors is top of mind for many of our customers and we want to be ready to meet that demand given the steeper ramps that we are now experiencing for devices. Now turning to our outlook, in the first quarter of fiscal 2022 we are targeting revenue in the range of $144 million to $154 million. We expect revenue to be driven by the momentum and power partially offset by the current supply constraints and some lower productivity as our Malaysian contract manufacturer continues to ramp activities following the recent COVID-19 outbreak. Our Q1 non-GAAP gross margin is expected to be in the range of 31.5% to 33.5% which is flat to slightly up versus 4Q as modest improvements in productivity Durham site are offset by higher costs in Malaysia as a team works through COVID-19-related challenges. As previously noted, lower yields and factory transitions in our Durham fabs will continue to present yields and factory transitions in our derm fabs will continue to present some short-term challenges on gross margin performance and will remain a headwind until we ship our production to our new Mohawk Valley fab. Starting this quarter, we plan to start reporting startup costs related to the ramp at Mohawk Valley. We anticipate startup costs for fiscal 2022 will be approximately $80 million of which $60 million will be cash related costs. We anticipate more than 50% of these costs will be incurred in the second half of fiscal year 2022 as we qualify and ramp up at. We're targeting non-GAAP operating expenses of $85 million for the first quarter. The sequential increase in our operating expenses is due to R&D including plant growth at Mohawk Valley to support our 200 millimeter wafer launch. We target Q1 non-GAAP operating loss to be between $40 million to $30 billion and now in operating net loss to be approximately $1 million. We expect our non-GAAP effective tax rate to be approximately 27%. We're targeting Q1 non-GAAP net loss to be between $29 million to $25 million or a loss of $0.25 to $0.21 per diluted share. Our non-GAAP EPS target excludes acquired intangibles amortization, non-cash, stock-based compensation, accretion on a convertible notes, project transformation and LED transaction related costs, factory acquisition restructuring costs and other items. Our Q1 targets are based on several factors that could vary greatly including the situation with COVID-19, overall demand, product mix, factory productivity and the competitive environment. With that, I will now turn the discussion back to Gregg.

Thanks, Neal. As we look at our performance during fiscal fourth quarter and the full year, I'm very proud of what the team has accomplished. Demand in the automotive and RF markets continues to be very good while at the same time, we are encouraged by growing interest across a variety of industrial and energy customers. And thanks to the hard work and unwavering commitment of our sales organization. Our device opportunity pipeline is now above $15 billion and the team is continuing to uncover new opportunities that a very good pace. At the same time the team is also doing a solid job of converting opportunities. During the fourth quarter we secured our highest total to-date for design-ins and posting slightly more than $1 billion of design-ins with this record setting performance in Q4 the sales team posted approximately $2.9 billion of design-ins during fiscal 2021 which is an amazing accomplishment by a team and demonstrates that we are well-positioned to compete and win in devices. The design-ins for the full year 2021 represents more than 1,100 customer projects. Automotive represents roughly two thirds of the design-ins including a major award from a leading global automotive manufacturer while the rest is spread across a wide variety of applications including an electric farm tractor, residential energy storage systems, and an electrical vertical takeoff and landing aircraft for passenger and cargo transport. Our massive pipeline and record design-ins give us further confidence in our ability to achieve our target revenue for fiscal 2024 of $1.5 billion based on the steepening demand curve for silicon carbide devices through 2024 and beyond. Looking towards the macro environment we're encouraged to see our strategy continues to be supported by several recent developments that indicate long term growth. Last month European Union countries gave their final approval to a law to make the block’s greenhouse gas emission targets legally binding. The Climate Law sets 2030 target to reduce net EU emissions by 55% from the 1990 levels and to completely eliminate them by 2050. On July 14, the European Commission released its new climate agenda, which effectively requires all new cars to be emission free by 2035, removing any flexibility for automakers to continue selling some gasoline or diesel vehicles including hybrids. In addition, a few weeks ago, the White House issued an executive order setting a target for electric vehicles, hydrogen fuel cell and plug-in hybrids to make up to 50% - to make up to 50% of US sales by 2030. This action comes at the same time as many US automakers have increased their commitments to ramp their electric vehicle production activities. For instance, earlier this summer General Motors announced its plans to boost global spending on electric vehicles and autonomous vehicles to $35 billion through 2025, which is a 30% increase over its most recent forecast. A key element to support the increased adoption of Silicon Carbide in the automotive sector and across several other industries is the expansion of manufacturing capacity. Our Mohawk Valley 200-millimeter fab is on track to begin device qualification production runs in the first half of calendar 2022. The facility is shaping up nicely and has shown very well during recent customer visits to the fab. On our campus here in Durham, we expanded our materials operations to a second building on our Durham campus, which is part of the previously announced plan to increase materials capacity by 30x. On a related note a few weeks ago we announced the expansion of our operations leadership team to support our expected growth and the retirement of Rick McFarland who currently leads global operations. Rex Felton, who is currently directing the Mohawk Valley build will now oversee the company's fab operations planning functions and quality efforts reporting directly to me. And until he retires next summer Rick will continue to lead the company’s materials and back end operations along with facilities and procurement activities and will of course assist Rex with the transition. When Rick leaves us next summer Rex will assume leadership responsibilities for all global operations. In addition we continue to attract incredible leadership talent to the organization. Recently Missy Stigall joined us to serve as the new Vice President of Fab Operations here in North Carolina. Missy was most recently with Texas Instruments where she spent the last 20 years building extensive expertise in large scale manufacturing operations. Additionally Laura Russell is now part of our team serving as our VP for Finance for Global Operations. Laura joins us from NXP where she was most recently VP of Finance for the Radio Power Business Unit. Laura has over 20 years of experience in the semiconductor industry and. These recent additions further demonstrate our ability to attract and retain top talent in the semiconductor space and folks who are keenly interested in helping drive that paradigm shift in power electronics in the marketplace. I'd like to thank Rick for his commitment and continued contributions to the organization and wish Rex, Missy, and Laura continued success in their new roles. In summary we are successfully capitalizing on opportunities in front of us today, while continuing to make investments to deliver this next generation technology to customers. We are growing our device opportunity pipeline and winning our fair share as evidenced by the recent quarter with $1 billion of design-ins. Our balance sheet remains healthy to support our operations. We are excited about the future prospects as we expand our leadership position and make the necessary investments to address what we now believe to be a steeper than originally expected demand curve for silicon carbide devices. In late fall, we plan to hold an Investor Day in New York to further discuss the strong progress we've made on our transformation strategy and share more detail about the exciting long-term outlook. With that, I'll turn it over to the operator and we can begin Q&A.

Thank you. Our first question comes from the line of Jed Dorsheimer from Canaccord Genuity. Your line is now open.

Thanks for pointing that out that fee might grow. Kind of along those lines, I think that probably sums up your position on the material side of the business pretty well and I guess my first question is a bit more granular in terms of the billion dollars of design-ins. If we think about the device side of your business and the design-ins and in particular automotive can you give us some more clarity in terms of the 2023 model year and how many models or platforms we should expect to see the Wolfspeed MOSFET in either directly or with your partners and then I have a follow-up.

Okay, Jed. So just to remind everybody on the call the $1 billion of design-ins are all device design-ins and the $15 billion opportunity pipeline that we talk about is all device opportunity pipeline. So we don't mix that with the materials. I know you know that but I just wanted to remind everybody on that to be clear. Basically the billion dollars that we posted basically the $1 billion that we posted this recent quarter, I think around two-thirds of it was automotive. And the typical timeline for you know going from when you get a design into when it goes into production is typically four years, maybe five years sometimes. For electric vehicles, it's turning out to be a little bit shorter than that. And you know obviously that's why we're seeing kind of a steepening ramp. So, I can't give you the exact number of models that I don’t have that data right handy here Jed. But what I can tell you is that we've got a number of different customers that are going to be ramping, that are ramping right now and a ramping in 2023 and then obviously supporting the $1.5 billion in 2024. And that's what we're referring to as is being steeper right now. There's a -- there's just a demand from the customer that that's steeper than we are originally anticipating and that's what we're trying to catch up with.

Got it. That's helpful. And maybe it's just a Segway to my follow up and this might be better for Neill. I'm assuming that you're keeping your long-term targets the 50% plus or minus in terms of gross margin. And you know a lot of clients are asking us whether or not this 30% where you've been out for a while is sort of the new normal. And I was wondering if you might be able to help us bridge that understanding of what gives you the confidence in keeping that 50% out there. Maybe that also touches on I guess what I was asking in terms of Gregg for the shift from materials to devices a bit too. Thanks.

Yeah. Thanks, Jed, for the question. I think as you look at the current margins were impacted by about a 1 point in 4Q and 1Q from the Malaysia situation. So I think in both quarters you think about that driving us down about a 1 point from where we would have been kind of normally. And as I think if you look at where we would have been kind of normally. And I think if you look at the rest of the year, the margin would be a function of how things play out in Malaysia. If you step back and think about achieving kind of mid-30s, I think, plus or minus or if you get to the back half of the fiscal year, you know, we'll need to just improve the execution, you know, out of the North Carolina factory and I think, you know, some of the management changes we discussed should bring in - I would think of it as more high-quality expertise and experience to kind of drag to those levels in the back half of the year. And if you shift to kind of - kind of mid-term to long term, you know, as - as you’ve mentioned, that's kind of what a hit on our long-term target model. For that 50% plus gross margin by 2024. And as we stated previously, you know, the key to that transition from kind of the low-30s from where we're at today to 50% plus kind of like heavily on the - kind of fab cost footprint transition from North Carolina to Mohawk Alley. And as we transition kind of that new footprint, and you know, qualify the factory in 2022 and if you think about fiscal 2023 kind of begin of that and beyond, we'll see some very big and significant differences between what we’re running today in North Carolina and what will be running in -- in Mohawk Valley. Let me just kind of spell that out a little bit in further detail. I think if you -- if you think of the differences between North Carolina and Mohawk Valley, wafer costs for instance in Mohawk Valley will be more than 50% lower than what we currently have in Durham. And that's not completely including the full benefit of moving from 150 millimeter to 200 millimeter and that diameter change. Cycle times in Mohawk Valley will be 50% greater or better than what we have. So 50% better than what we have in Durham. And then lastly the yield in Mohawk Valley will be 20% to 30% - sorry, 20 points to 30 points higher than what we have currently in Durham. So all of those benefits can be really derived as a function of moving from, as you know is a very manual - and I think a small footprint in North Carolina to kind of highly automated, you know state-of-the-art facility that would be running up in New York. And then, you know we've already seen good evidence of that from a Mohawk Valley pilot line to support somebody insertions. And you know we anticipate a heavy margin transition as we move from North Carolina into the news at Mohawk Valley.

Thank you. Our next question comes from the line of Edward Snyder from Charter Equity. Your line is now open.

Thanks. Gregg, you said yeah, the second building for materials which was growing very nicely. I know you've kind of throttled on devices given not only in Malaysia, but your footprint in Durham or in an execution. Is it space safe to assume that the materials continues to grow as a percentage of your total revenue? And I expect that would be the case until New York comes on or is there something else going on maybe we can give it - maybe just…

Thanks, Ed. So we are expanding into a different building here on campus. In fact, I just went through the facility today. And you know so that is happening here on campus and that will be for our materials factory. And what I would say is we're also expanding obviously the wafer fab here in North Carolina for our devices as we move the LED business out of that as well. I would anticipate to Jed -- Ed, I'm sorry is that when we look at our plans for 2024 at $1.5 billion we were projecting that roughly $600 million of that was going to be devices. And about $900 million of that was going -- excuse me $600 million was going to be materials and $900 million was going to be devices. Actually we are anticipating that our device business will be growing faster than the materials business through that timeframe of 2024. And it will most likely accelerate as a percentage of the business beyond 2024 as we start seeing customer ramp with the you know the $1 billion of device wins that we just posted this first previous quarter. Does that make sense, Ed?

Yeah it makes sense. Once New York comes on device is going to grow much faster.

Yes.

It's kind of a chicken and the egg issue. I mean you've got a lot of demand that there is obviously a lot of potential demand out there. Will sales even sell on a low industrial and RF are doing quite well too. But it seems like based on especially on SD micro agreement here and what we've been hearing from the food chain is that it's really a materials limited business to some degree increase still the largest. I know there's been a lot of talk and we've got a lot of calls from folks who are kind of concerned about some of the press releases coming out of you know Infineon’s internal efforts SD micro made an announcement of a 200 millimeter you’ve got GTA out there talking about shipping stuff. The reality though seems to be quite a bit different on the ground. You've got about $1.3 million or $1.3 billion in long term supply agreements. Has the competitive dynamic in materials both crystal wafers bare wafers and epies changed much. And if it has is it is it safe to say it's favoring the incumbents maybe [Indiscernible] little bit of ROM or are we seeing more people come on board because the demand is so strong?

No I think Ed what I would say is certainly from our perspective there is a huge growth in the opportunity for silicon carbide. And so yeah you see a lot of folks attempting to get into this business but it has a lot of pretty tough barriers to entry and meet our technical barriers that you can't just kind of solve with money. So you know some of this is very, very difficult stuff to work with. And I think the fact that we've got know $1.3 billion worth of long term supply agreements pretty solid with pretty much with who’s who in the market. And really kind of light on our fundamental capability. And as we talk to customers, you know, in this area, this is a really important thing for them to -- to know that we've got a very, very strong materials business. So and then finally what I would say is, we - we are absolutely not resting on our laurels. In terms of our materials capability, we drive it every single quarter whether that's the transition to 200 millimeter reductions in cost, improvements in yield, all of that kind of stuff is a very, very intense activity for us. And so basically, it's just creating an -- an even more difficult environment to try to jump into because, you know, learning and scale is really important for silicon carbide. We've got 30 years of learning and - and the largest scale and we're growing that scale pretty rapidly now as well. So I think it's just going to create - it's going to continue to have kind of really tough barriers for - for entering those market. But again, we don't rest on that at all. We're driving this like crazy every - every day of the week.

Thank you. Our next question comes from the line of Joe Moore from Morgan Stanley. Your line is now open.

Great. Thank you. I wonder if you could talk about the -- the startup costs that you mentioned in the second half of fiscal 2022 is $60 million, and how do you see that rolling through? Just in general, obviously, a lot higher margin out of the new fab. But you know, what happens to your overall cost of sales? Do you sort of maintain both fabs and do you have to -- to grow into a revenue level to sort of support some of these incremental costs coming in?

Hey, Joe, thanks for the question. This is, this is Neill. So, first of all, yeah, so Mohawk Valley startup cost, we’re anticipating about $80 million, that was for the year. And $60 million of that, it was roughly in, in cash cost. And you can think about more than 50% of that being kind of in the back half of the year. So, as you move into fiscal year 2023, they'll start to fall off pretty significantly as we start to ramp fab. And you’ll start to see that fall away. So, I don't think it's about, I think, I think it's very much in line with our long-term plan. I don’t think there’s any real change to it. I think this has let me kind of anticipate it as you bring up a new factory. So, I think this is right in line with the trajectory we need to hit the $1.5 billion in revenue. And I think it's on track for where we need, to where we need to get to. And again, as you said, as you look at the, as you look at the cost numbers, the cycle time differences and the yield differences between what we're currently seeing today and what we anticipate, anticipate seeing in Mohawk Valley, that, all of that will then underpin pretty significant transitions in margin as you start to bring up the fab as you get out into more significantly into 2020, fiscal year 2023, we start to bring that revenue on.

Thank you. Our next question comes from the line of Pierre Ferragu from New Street Research. Your line is now open.

Hi, guys. Thanks for taking my question. So, I've been following this earnings season and I was actually very impressed to see how many people are talking about silicon carbide and how positive comments are. And I had in mind SD Micro reiterating that they want to increase the front end I mean front-end capacity by 10X between 2017 and 2024. I think the Infineon was not that specific but [indiscernible] talked about spending $1 billion in CapEx on Silicon Carbide over a decade. [indiscernible] is talking about growing capacity 5x between 2020 and 2025. And so my question to you -- my first question to you, Gregg, was I guess you guys are following that very closely as well and how does that stack up when you add up all the capacity forecast being made public by your potential competitors and when you compare that to what you see in terms of end demand and what you see in terms of potential markets and what you guys are planning for and winning, do you feel like the whole thing is stacking up to a healthy market in which you’ll be one of the top three players and you see these other players taking their fair share as well or do you think there is a level of delusion in the market and some of them might be too optimistic and maybe underappreciating the difficulty of getting into silicon carbide and scaling out.

Yeah, I guess I'd answer that from a couple of different vectors. First off, the demand is definitely there and it -- and the appetite for silicon carbide just continues to grow. Neil and I were just in Europe a month ago or so for a couple of weeks visiting with OEMs and with Tier 1s and so forth and all of the indications we got from pretty much all the customers we saw is what they thought was going to be the demand. It's now higher than what they originally thought and faster than they originally thought across multiple different end equipments and certainly automotive being a pretty key part of that. So, I think the demand is definitely rapidly expanding, that's obviously a good thing. In terms of the market itself, I think from a materials perspective we're obviously growing our capability pretty strong in that area. And the one point $1.3 billion of materials long-term agreements that we have. I think it's just an indication that this stuff is pretty hard to do and everyone you know we have a lot of people that are trying to do internal efforts. But I think you know with $1.3 billion worth of long-term agreements it's kind of an indication that maybe it's a little bit more challenging than most people originally think. So I would say I think having the experience and having this capability is one thing that I talk to customers quite a lot about. You know when they look at making this transition to silicon carbide, you know the company that's been in it for the longest amount of time that has the most experience in it is us. And so, you know I think it does kind of shine a light on us. It's someone that has a lot of capability. And obviously you know there are other folks that are -- that are entering the market as well. But it feels to me like the demand is, it's way past any kind of tipping point right now. And you know the -- you know the automotive market certainly has said goodbye to the internal combustion engine. I mean, the number of companies that just are no longer developing any plans for internal combustion engine cars by 2030, 2035 and so forth you know has grown. And now we're seeing you know industrial customers. You know we talked about vertical takeoff and landing, cargo, transport, electric tractors, motor drives, compressors. You know they were just seeing a lot of industrial customers jumping on this silicon carbide bandwagon. And you know when you see the benefit of 10 times the electron mobility or 10 times to the performance from electron mobility’s perspective the lower energy costs and so forth for operating these equipments that the transition is pretty solid.

Thank you. Our next question comes from the line of Craig Irwin from ROTH Capital Partners. Your line is now open.

Hi. Good evening. Thanks for taking my questions and congratulations on that design and momentum. Impressive. Gregg, I wanted to ask a little bit about the industrial market since this is something we haven't talked a whole lot about on the last couple of calls. I don't remember if it was your prior Analyst Day or the one before that we had the gentlemen from MBB, who discussed the potential in some of their -- some of their utility equipment. And there was a conversation about high powered MOSFETs. I think you know 3,500-volt, 5,000-volt MOSFETs. Can you maybe frame out for us the importance of these future devices to you or 2024, 2025 outlook? You know. Is this in the guidance that you give us? And how would you rank this as a priority for the industrial markets and the development that's available there?

Great question, Craig. And you know what I would tell you is the industrial market I obviously have a ton of experience. And with you know with my time at TI, you know the one thing about it that's really very different is that it's very, very fragmented. You have thousands of customers. You know all the individual different packets that you're trying to win are relatively small individually, but collectively it's very, very large. And so, the real key there is having an ability to engage with those customers and, and since we are, we have a relatively small footprint, this is where the partnership we have with Arrow has really played very, very well for us. They’ve gotten engagements with thousands of different customers with their massive sales channel that they have. We’ve got a great relationship with them. In fact, Neill and I and some of our other executives were out there month-and-a-half ago I think, meeting with them and, and the subject line of the meeting was how do we take this to the next level. It's already gone great. How do we continue building that relationship and capitalizing on each other's progress. So, it's a very important market for us. And the good news is we've got a great partner in helping us reach that. And that's going very, very well. I think as it relates to 2024, it's kind of baked into the plan. But obviously, the steepening demand that we're seeing into 2024 and then beyond it gives us a lot of comfort for what the growth trajectory looks like beyond that, Gregg.

Thank you. Our next question comes from the line of Brian Lee from Goldman Sachs. Your line is now open.

Hey, guys. Good afternoon. Thanks for taking the questions. One thing I just wanted to clarify, Neill, you mentioned the $80 million of startup costs in fiscal 2022 with more than half of that in the back half due to the Mohawk Valley ramp. Is that all flowing through, I'm assuming it's all flowing through cogs, and when we look at your non-GAAP gross margin guidance, it’s 31.5 to 33.5 for Q1 here. Does that reflect inclusion of those startup costs? Are you, are you stripping those out? Just wanted to clarify that and then I had a follow up.

No. Good. Good question Brian. No. Just to be clear, we're going to exclude those costs from our non-GAAP results going forward. And you know those are just going to represent things like you know we got depreciation and labor and facilities and other things that we're at a point where the base build is just about complete with the fab or into the clean room. But there'd be a lot of cost of running up related to our current revenue. So, we’ll perform of those out going forward just kind of give a better view what the markets look like in the business as it progressed to the year which I see is more of a kind of Durham based kind of margin model as it gets for fiscal year 2022. You think about ramping the fab and of qualifying it in the first half of next year calendar year and then as we move forward from there, we'll start bleeding that any kind of an apples-to-apples basis once we start going past that kind of ramp up phase.

Thank you. Our next question comes from the line of Samik Chatterjee from JPMorgan. Your line is now open.

Hi. Good afternoon. Thanks for taking my questions. So I have a couple. The first one I wanted to see if you can give me a bit more visibility about fiscal 2022 revenues and how material the more Mohawk will be to it? And -- but again if you compare to the second half versus first half, what we see in this year fiscal 2021 of about like 70% increase half for the half. Like how different or how similar does it look to this year and how materialist Mohawk in that? And I have a follow up as well. Thank you.

Yes. Thanks for the question. And let me just please be clear on Mohawk Valley. So at Mohawk Valley you know we're going to be ramping with fab you know in the first half of calendar year as you get it this in calendar year 2022. And what that means in the first part of that you know is going to think about that kind of March quarter, certain internal qualification and then as it’s moved into the June period, now you start thinking about doing customer qualifications and then transitioning to revenue out beyond that. So, if you think about 2022, there’s kind of de minimis impact on revenue for Mohawk Valley. But I think, I think this is kind of getting down to a few things that we should clarify a little bit on the revenue. Let me just unpack how this kind of plays out. You kind of mentioned a few pieces there. So, first of all, as you look at just 4Q, it is looking back, the revenue and the quarter came in just, just above the mid-point of the guidance range. And while demand continued to accelerate and some of these businesses particularly in power, we were slowed by the COVID-19 outbreak in Malaysia. And it was roughly $3 million to $5 million of revenue that was left unfulfilled in the quarter, okay. So, we would have done $3 million to $5 million more had it not been for the, the COVID-19 outbreak at our contract manufacturer in, in Malaysia. And but despite that, I thought we saw, we saw, we saw pretty good growth. As you look in to, looking forward into 1Q, the demand continues to be strong particularly in devices and power, able to continue to fuel I think strong quarter-over-quarter and year-over-year growth. But however, at the midpoint of what we've baked in another kind of $5 million to $7 million of revenue impact from Malaysia so said another way we probably could have committed to more revenue in Q1 period had it not been for the Malaysia situation. So, we also widened our revenue range with that as well. So, again, even with that we do expect to see some good revenue growth. Now, with that, I also think it's important that we kind of step back and just kind of look at the macro level here. Gregg kind of talked a little bit earlier. As we discussed in the prepared remarks, the slope of the demand curve for silicon carbide solutions particularly on devices has dramatically increased and is ahead of what we previously thought. We thought the inflection point, as we talk about Investor Day and since then was kind of 2023, kind of 2024 timeframe. And right now, we're seeing that pulling all the way into fiscal 2022. And to give you an idea, you know, this year alone, we'll see, you know, more than $100 million of customer demand on a revenue line unfulfilled in this year and the demand levels we're seeing in 2023 and 2024-plus has steepened as well. And I'll say, you heard a couple questions on industrial or automotive. This demand stays relatively broad based. For instance, you know, our automotive devices continues to be relatively small. The revenue for that in Q4 alone grew more than a 100% versus last year. So, I think this device situation has really shifted to a supply side type of challenge. So we just need to drive more capacity out of our current footprint in North Carolina just to keep up with the demand inflection that's really pulled all the way into this year, and you know, until we get Mohawk Valley kind of up and running. So I think the -- the revenue markers that we're seeing now as evidenced by the -- the pipeline and the design is really pulling in pretty heavily weighted to - weighted to the current period.

Thank you. Our next question comes from the line of Karl Ackerman from Cowen. Your line is now open.

Yes. Good afternoon, gentlemen. I have two questions please. For my -- my first question, I was curious - it’s more of a clarification, but how much do you have remaining of the $1.3 billion in long-term materials contracts? Or -- or I guess, are we saying that the $1.3 billion is future orders. And then secondarily on - on materials, is -- is the absence of material contracts on 200 millimeter today just driven by maybe more mature yield on 150 millimeter than 200 millimeter? Just help me think about or think about the - the opportunity of 200 millimeter materials contracts as well.

I'll take that. So first off, in terms of the $1.3 billion, I don't have an exact answer for you. But I would say most of it is futures. That's my guess. You know so I think that's pretty -- I think that's pretty solid. So we've gone through you know some of it obviously, but we still have a probably the -- a substantial portion of the $1.3 billion is revenue to come is as you know I don't have the exact number, but I'm pretty sure that's pretty -- pretty close. You know and then basically that $1.4 billion is really all on 150 millimeter. So that's been the focus of that. And then, in terms of 200 millimeter we're really just concentrating right now on you know ramping our own facility on that at this point.

Understood. Appreciate that. If I may for my follow up you know you need record over a $70 million order expense driven by the modifications to your long term plans for Durham. I was hoping you could discuss. that I guess are you seeing less wafer capacity demand on 150 millimeter than previously expected or is it driven by the need to fill Mohawk or the desire to fill Mohawk's sooner? Thank you.

Yeah. Thanks for the question. First of all there's really no good in relation to this. The demand is very, very strong. So you know the write down to the building. First let me say we've actually found a different solution than that building that we currently have on campus and we're expanding -- we’re currently expanding materials capacities for you know 200 millimeter you know in that new building as we speak. So there's a significant amount of investment going in. You know as we said in Q4 we just determined that we just no longer needed a shell. A lot of people are familiar with that. We had a shell on campus and that’s partially completed building was built to support the LED business back in 2015. So we look for a lot of different ways to use the facility either for wafer fab materials perspective. But then we found a more optimal kind of expansion plan for materials in derm, on the derm side. And then, with addition of the assurance of supplying for our customers, we’ll think about additional potential materials capacity down the line outside of [indiscernible].

Thank you. [Operator Instructions] Our next question comes from the line of Gary Mobley from Wells Fargo. Your line is now open.

Hey, guys. Thanks for taking my question. I know you haven’t filed your 10-K yet. But, but in terms of trying to think about the materiality of ST Micro as a customer and thinking about $500 million in silicon carbide material supply agreements signed back in 2019, have, has all that $500 million been shipped in the last 18 months to 24 months? And does the need for an incremental $300 million is going to augment that, that relationship? And then in terms of thinking about some of the capacity constraints that are limiting your power business, should we think about that as being perishable demand given that perhaps others can, can fill it? Or is this just going to continue during your backlog until you can solve those capacity constraints? Thank you.

Thanks for the question, Gary. And I'll take them. So, first off, I don't want to get into a lot of detail on our contracts with, with any of our materials customers. I think I can just go back to the comment that I made earlier is if you take a look at the total pipeline or the total materials contracts, the long-term agreements of $1.3 billion, the vast majority of that is still to be fulfilled. And I'd probably just leave it that way. I don't want to get into any one specific customer but I think you can kind of directionally understand that. And then in terms of you can kind of directionally understand that. And then in terms of, you know, the opportunity, of course, Neill mentioned there's a $100 million worth of opportunity that will go unfulfilled this year. And of course our - our customers would prefer to see that fulfilled. And I've spent a lot of time talking to customers and the - the thing that I think resonates with the -- the most is that in five months, we will be processing material in the world's largest silicon carbide fab. We will be processing material that will be going through then qualifications and then they'll be getting material to qualify et cetera, and you know, just recall a lot of our really -- the demand really takes off in 2023 and 2024. So they see that we are expanding capacity that we made a decision two years ago to expand capacity and that capacity is coming online, you know, really just in five months now when you think about it, first part of calendar 2022. We've had customers recently visit the New York factory, and the feedback we've gotten is super positive on that. They see the pilot line that we've got running up there, and they like that because it's sort of getting the - getting the production lines kind of ready to go with -- with the pilot line and then kind of transitioning that to the factory as it begins to open. So I think the customers see that we've got this pretty substantial amount of investment we're doing. They appreciate it. And you know, they're really sticking with us on that. And to kind of put things in perspective, we - we had a field of mud in March of 2020 and in the first quarter of 2022 we will be producing product and qualifying product, that's pretty quick and this is in a time where the semiconductor industry in general has a ton of capacity issues and a few decided today to start with a field of mud and build a factory, I think there's zero possibility you'd be up and running in two years. I would say it's at least a year in addition to that and maybe even longer. So I think the bottom line as I said they see that we're making the investments and that these investments are a big light at the end of the tunnel for them.

Thank you. Our next question comes from the line of Vivek Arya from Bank of America Securities. Your line is now open.

Thanks for taking my questions and two as well. For the first one I'm curious that you're seeing very strong demand signals but how is that translating into the pricing environment, right versus what you have thought 90 days ago or ask differently what is the level of confidence in achieving your long-term gross margin outlook right and as the customers come and tour the facilities and then they look at what you'll be producing there how are you doing the tradeoff between the pricing versus having the certainty of these long-term contracts?

Yeah, I think in terms of pricing what I would say is the vast majority of what we do our long-term deals and that's bulk materials as well as on devices. And so the pricing is kind of set. So, we have a pretty good view as to what's going to happen there. We obviously know what's happening with our cost models as well. And as Neill mentioned there's pretty And as Neill mentioned, you know, there's pretty dramatic cost reductions coming online as we - as we move into Mohawk Valley. We don't really price our business as a kind of a spot market kind of thing. So we don't really get into the - into that kind of thing. And so you know, we’d - we'd much rather have long term agreements with folks, and they can count on us for putting the capacity in place and having and understood pricing curve, and then we can count on them for having the demand coming our way. So it's -- it’s more like that I would say.

Got it. And for my follow-up maybe for Neill, I believe you said you're looking at a higher CapEx level for fiscal 2022. I was hoping you could give some more color around that? You know, what is driving that higher CapEx? And then importantly, when does that translate into upside to your longer-term model? Like what - what is the benefit of this additional spending that you're planning to do next year?

Yeah, first of all, and as we said - thanks for the question. First of all, as we said the - the demand as we kind of look at -- at the slope of the demand curve, not just this year, but into 2023 and 2024 has certainly steepened. And I think, you know, our revenue trajectory as we get out to those timeframes is really just going to be a function of how much CapEx we can burn online and how fast we can translate that into revenue. So I do think as you look out at the time that's exactly what we're trying to do is kind of get out into and above where we're at today. Now that can be a function of how - how well we need to execute that and bring it online. So I'm not necessarily saying we can typically changing those numbers today, but I think that, you know, we're anticipating and seeing the steeper demand curves. So if you look at 2021 fiscal, you know, we spend $566 million of CapEx, which is our peak year. We'll bring that down to $475 million this year, but we'll also see a, you know, a significant amount of reimbursements from the state of New York and as the year moves on given that steepening demand curve, we'll start to see some benefits from that hopefully as we get out into a year from now and what type of cough that is, probably if you go back to January and the CapEx plan that we laid out and we launched 200 millimeter, this is largely the same plan but we're trying to do is capture the capacity and the revenue in such a way by pulling in that same plan anywhere we can to drive more capacity. So some of that was going over 23 and 24 some of that was materials expansion for facilities and things like that. So you could think about it as being maybe pulling in roughly $100 million maybe versus what we anticipated before but with the expectation that as you get out into 2023 and 2024 we can meet a higher revenue level than we had anticipated previously in the $1.5 billion plan.

Thank you. Our next question comes from the line of Colin Rusch from Oppenheimer. Your line is now open.

Thanks so much, guys. Can you just give us an update on the preparedness of the supply chain and your suppliers to support your ramp as you get into it here on the back half of the next fiscal year?

Yeah. So I can probably hit that, Neill is very actively engaged in this as well. Basically from the beginning of the pandemic, we've had a weekly supply chain update in terms of where things are, what crunch points are happening and so forth. Our team has done a fantastic job on this and we've stayed close with all of our suppliers in the supply chain obviously throughout the pandemic. The feedback we're getting from these folks is very positive in terms of how we've handled the situation both from day one when everything went into lockdown and there was no business kind of going on, and how, how we were very even-handed in terms of dealing with them and then as things have kind of rolled back, they’ve been very, very supportive of us in this, in this transition. Neill, I don’t know if you want to add any additional color from your point.

Yeah. So, I think in terms of the supply base, one thing I think that we've been fortunate, fortunate enough to have affected was going out very early, knowing that the, the capacity expansion and the revenue requirements we would need to go out there early. So, I think we placed orders on equipment or other things out in the long term to get those types of things in place. Now, as Greg mentioned earlier, I think that would be a difficult, more difficult expansion if you were starting that today. So, as you look at working with the suppliers, I think, again I think we’ve partnered with the suppliers very, very well. And I also think that we've gotten ahead I think in many cases of maybe longer lead times that are out there right now. And we don't really see an impacts on it in terms of the scheduling of the capacity expansion being working on it back. As I mentioned earlier, we’re actually pulling things in, in any area we can and we are seeing the capability to do that.

Excellent. And then just following up on, in terms of the design ins and the rate at which they are now, can you just talk about the duration of working through and those design ins and that process and how they accelerate any noticeable rate versus or at call it six months or a year though?

It seems like, well, first off every opportunity kind of has a life of its own. And so, you'll see, obviously, the last quarter we were super pleased with having a $1 billion of design in. But it's not one of these things where it's kind of always up into the right. Sometimes a lot of decisions are made in a quarter. And sometimes decisions get made for, get delayed for whatever reason. Last quarter obviously was a super-positive quarter for us. The last year was phenomenal at $2.9 billion. So we feel pretty good about that. So, if they kind of took a life of their own, what I would say though is we're certainly seeing the -- the designings that we have, the - the expectation from the customers in terms of ramp is what's been pulled in. And - and is -- it’s steeper than we originally anticipated. So you know, it's obviously a good problem to have and it's one we're working on pretty hard right now.

Thank you. Our next question comes from the line of Edward Snyder from Charter Equity. Your line is now open.

Great. Thanks for the follow-up. Gregg, I was a little confused by your answer on the question about perishable demand for materials. You've got a lot of large customers in the material business like [indiscernible], which are also competitors in device. I know you've had -- you must have had conversations about how they feel about you building the largest most automated SIC device, but that's not going to be competing with them. Can you maybe characterize the tenor of those and -- and help explain how they're going to benefit from the materials business because that's your Durham side of the business. You're not going to grow materials in New York and that could ramp independent of your device business - device fab in New York. So A., what's preventing the materials business from ramping faster if that's the limit to your customers? And B., how do they feel about -- about this monster fab you're building?

And Ed, just a couple of things. First off on the -- the perishable demand, I -- I thought I was answering that relative to devices. And -- and as Neill kind of mentioned it with the device business that has the -- the $100 million worth of - of unfulfilled demand for next year. So that's really from a device perspective. And so, I think when those device manufacturers see what we're doing with New York or when those device customers see what we're doing in New York they're pretty pleased with the amount of activity that we've got going on there and the development and so forth. In terms of materials as I mentioned Ed we anticipate by 2024 that our materials business will be somewhere in the order of $600 million in device business, $900 million and so we know that a lot of folks are trying to build materials on their own but I think the $1.3 billion and a couple of expansions and extensions that we've seen are kind of turning into -- I think people are just realizing this is more difficult than they originally anticipated and again Ed our attitude is we've got great relationships with these folks. I have ongoing conversations with them. We treat them as real customers. There's not sort of a bin one for what we do and a bin two for everybody else. We try to give them the best materials we can and that's primarily because we're trying to convert the power market from silicon to silicon carbide and as a big supplier of materials having a good relationship with folks that are going to help us do that is a really important thing. So I think the way I would characterize it Ed is I think people -- the materials customers see that their opportunity as a device supplier is growing very, very rapidly because the entire market is growing rapidly and there's really no sign of it asking toting out anytime in the coming decade really. So I think it's mostly just a realization that this stuff is harder to do than probably anticipated and the fact that we treat them well as a customer

Great. And maybe Neill if I could a housekeeping. Did you say that the $475 million in CapEx is gross or net of New York State payments?

I think that of a net of New York State payments.

Great. Thank you.

Thank you. Our next question comes from the line of Ambrish Srivastava from BMO. Your line is now open.

Hi. Thank you for letting me get on the call. I had a question, Neill, on the startup costs, and -- and both you and Gregg are from the semi industry. It's kind of unusual to see startup cost being pro forma cost out especially since $16 billion out of the ADs cash charge. Can you just help -- help us understand the thinking behind that? And then my kind of related follow-up question is, since you're performing pro forma in the costs out, does that imply then that gross margin bottoms out in the second quarter of the current fiscal year? Thank you.

Thanks, Ambrish. And of course, before we take that decision we did some benchmarking on that, and I think if you kind of study that we've seen other companies do that as well. I think the second thing really isn't the startup cost. Given the size of the company we are today versus what we're going to be out in the future, you know, weighing down the margins and then trying to explain them to all of you, with that startup costing and that was not really generating revenue. It's such a significant piece that’d just be easier to kind of report on it every quarter let you know what we're doing, and be very transparent about it and then be able to, kind of look and see where we go from there. And I’m sorry, and what was that second question?

Yeah, the second question was should we thing that gross margin then bottoms out in the second quarter of the current fiscal year?

Yes, I think that we're going to see some improvement. I mean, a lot of this is going to be dependent upon what happens in with the contract manufacturer. As I said earlier about one point of impact happened in 4Q. We’ll see another point of impact in the 1Q quarter just related to that. And we are making improvements in our, in our derm, in our derm factory. So, I think if you think about what’s going on in derm and its deepening demand that’s happening right now, a lot of that is supply disconnect. If you think about our revenue standpoint, we’re not, what we are standing here is if we can get more capacity online, we could do more revenues. So, our revenue forecast for the year hasn't changed. It's just we got higher than them and we want to get more output out of Durham in the meantime. So, I think what'll happen here and if you take a step back, in Durham alone, we put in over a 100 tools in the last year to support higher demand. And we just need to get that, improve that factory output and kind of support that kind of demand curve. And as Greg mentioned earlier, we've got a new leadership to get better focus on that and really improve the North Carolina footprint. For example, [indiscernible] who you heard the prepared remarks is someone we've recently hired. She was running a [indiscernible] for TI that produced a significant, significantly more amount of wafers in our Durham pad. So, given that, most of the capacity improvements and you think of a bottoming out on the margin that we've got to drive to fulfil that incremental demand will come through yield and cycle time performance in a footprint. As we drive to higher revenue, we anticipate that the margins will, will come along with it. So, that kind of all goes together. So, fulfilling this additional demand, driving those things feels like we've kind of hit bottom. We should see some improvement as we get to 2Q and then as we get in the back half of the year kind of hit that mid-30s kind of plus or minus that is excluding those start-up costs as I, as I mentioned earlier.

Thank you. Our next question comes from the line of Harsh Kumar from Piper Sandler. Your line is now open.

Yeah. Hey, guys. Congratulations on that strong design in pipeline. Gregg, I had a quick question. I was, I've seen a lot of companies define things differently. I was hoping that you could explain to us how you guys categorize design. And these are -- these orders that are on the books that are just basically fully committed at this point or is there something else to it? And yeah, I'll go with that and then come back for a second.

Yeah. Typically, well the way it works is something is flipped over to design-in and when a customer has awarded us the business. Many times that's in the form of an award letter or something like that but it's an official document that comes from the customer that we have evaluated all of our different suppliers and you've won this particular project. And so, it's a -- it's a customer design award if you will. And they talk about the ramping of it and when they need an initial qualification parts and all of that. To go from that award letter to production depending on the end equipment can be several years in automotive. It's typically four years. And during that time you're shipping initial samples to them. They put them in their builds say you know whatever challenges they have you working with them on it from an engineering perspective and so forth. That is pretty typical for what semiconductor companies define as design-in. It's very familiar to me in terms of the other companies that I've worked on. And I think most people kind of consider it the same way.

So I just wanted to follow up on that. But then the opportunity pipeline, do you know the number growing in when you're going to design like how big that order is going to be or is that something you can estimate?

No. The customer tells us it's going to be x millions of units and then we multiply it by the price that we did. And so, we know how much it turns into. And obviously all of that is subject to the accuracy with which the customer thinks their product is going to ramp and that can have some variability but that's supernormal harsh in this environment. So I think what we're doing in terms of design-in is pretty much straight down a fairway with the way other people would describe it as well.

Understood. Very helpful. Thank you, Gregg.

Thank you. Our next question comes from the line of David O'Connor from Exane BNP. Your line is now open.

Great. Thanks for taking my question. Maybe Greg if I can go back to the wait for supply agreement, given the transition that we're seeing in the industry from the 150 millimeter to the 200 millimeter. I'm just wondering why 200 millimeters were not part of this expanded wafer supply agreement given that it's going to stretch into the back part of the decade and just in addition to that the $1.3 billion in agreement is still the five-year timeframe still the right way to think about that? Thanks.

Yeah. So on the second question yes so kind of half a decade is about the right zip code if you will. Some of them are obviously a little bit longer and the one we just announced and gets into the second part of this decade here with just in terms of just to remind everybody all the deals that we've done are 150 millimeter and we're really focused on just ramping our internal capability at this point on 200 millimeter. So it's more of a decision just to stay focused on that.

Got it. And maybe just one quick follow-up for Neill on the OpEx how we should model that into next -- the next fiscal year anything that to call out there? Thank you.

Yeah. Thanks, David. As we get into the OpEx, I think similarly you could think about that accreting at a couple of million dollars a quarter and the investment areas remain the same. You know it's primarily in R&D you know as it relates to bringing new products to market in addition to the -- you know the 200 millimeter development work that's going on and in sales and marketing you know who we're investing in to help us bring home all of these you know grow the pipeline and grow the design and levels that we continue to do. And those are the areas that we're investing in. You can think about maybe a couple of million a quarter as you get out to the end of the year.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Gregg Lowe for closing remarks.

Well, thanks everybody for your engagement and questions and participation in the call today. And we look forward to talking to you over the next quarter. Thank you.

This concludes today's conference call. Thanks for participating. You may now disconnect.