Enovix Corp Q3 FY2024 Earnings Call

Thank you for standing by, and welcome to the Enovix Corporation Third Quarter 2024 Earnings Conference Call. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. As a reminder today's program will be recorded. And now, I would like to introduce your host for today's program Robert Lahey, Head of Investor Relations. Please go ahead sir.

Thank you. Hello everyone, and welcome to Enovix Corporation's Third Quarter 2024 Financial Results Conference Call. With us today are, President and Chief Executive Officer, Dr. Raj Talluri, Chief Financial Officer, Farhan Ahmad; and Chief Operating Officer, Ajay Marathe. Raj and Farhan will provide an overview and then we'll take your questions. After the Q&A session, we'll conclude our call. Before we continue, let me kindly remind you that we released our third quarter 2024 shareholder letter after the market closed today. It's available on our website at ir.enovix.com. A replay of this video call will be available later today on the Investor Relations page of our website. Please note that the shareholder letter press release and this conference call all contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are based on current expectations and may differ materially from actual future events or results due to a variety of factors. For a discussion of those factors that could affect our future financial results and business, please refer to the disclosure in today's shareholder letter and our filings with the Securities and Exchange Commission. All of our statements are made as of today October 29, 2024 based on information currently available to us. We can give no assurance that these statements will prove to be correct and we do not intend and undertake no duty to update these statements except as required by law. During this call, we will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. You can find a reconciliation of the GAAP financial measures to non-GAAP financial measures in our shareholder letter, which is posted on the Investor Relations page of our website. I'll now turn the call over to Raj to begin. Raj?

Thank you, Rob, and thank you all for joining us today. For our format today, I'll start with a recap of our recent results, some of our recent milestones and before I turn it over to Farhan for the financials and the outlook. I'll have a few closing comments and then we'll take your questions. Now, we had a very productive second quarter. To recap our recent achievements, first, we delivered a Q3 revenue of $4.3 million above the midpoint of our forecast. We grew 13% sequentially and expect even further growth in Q4. Second, we opened our Fab2 in Malaysia. This was a really huge deal for us, because numerous leading smartphone and IoT companies toured our facility, they're impressed by the quality of our first production lines and now they are even more confident in our manufacturing capability. Third, I'm pleased to announce that we executed a new agreement with a leading global smartphone OEM for the qualification of our battery cells and the late '25 launch of one of their fund models and this would mark our first official entry into our smartphone market. Now ramping Fab2 on schedule and showing it to prospective customers was a very pivotal accomplishment for the company which until now only made batteries from our R&D headquarters in California. It's also a significant accomplishment that we shipped EX-1M samples from Fab2 just weeks after the grand opening consistent with our plan. Now the Agility line is fully operational and the initial yields and the agility line are comparable to the final levels we achieved with our first client in California and with improvements expected from there. The high-volume line is also on track to complete site acceptance testing in 2024, which is consistent with our timeline and start mass production for smartphone and IoT customers in late '25. Now we are thrilled to announce today that we formalized a strategic partnership with a second leading smartphone OEM. This agreement outlines the key milestones that we are working together with them and upon meeting them, we are set to enter the smartphone market in '25 with high-volume production. I've said many times before that our first commercial smartphone deal would be the hardest. We still have a lot of work to do in passing the customer qualification process and ramping the high volume line, but we're doing that together with our customer, and we expect this with our first expected customer. Now to further bolster our 2025 sales pipeline, we aligned on a production schedule with a leading IoT customer, which includes a mass production purchase order. This partnership as well as the progress we're making in the EV space underscores our ability to diversify into high-value sectors beyond just smartphones. Now, I'm very pleased with our recent commercial success and believe the opening of Fab2 has been a very helpful contributor. We're also benefiting from the recent surge in AI-enabled smartphones, which is further validating our strategy and driving significant pull for our products and the transformative leap in energy that we can provide. Now last quarter, I mentioned that 4,000 milliamp hours to 5000 milliamp hours battery smartphones in our pockets today could soon go to more than 6000 milliamp hours ports and beyond due to AI. Here, we are just three months later I report to you that our customers are now asking us about 7000 milliamp hours for smartphone batteries. Now why is this important? This is important because the smartphone size has not increased. So the industry will need higher energy density batteries to fit this increased capacity in the same space which bodes very well for a company like Enovix which works on producing high energy density batteries. As I mentioned earlier we've already started shipping EX-1M. Now as the needs of our customers continue to increase we're also launching EX-2M as fast as possible. As I mentioned before EX-2M will increase their energy density on top of EX-1M. The first sample shipments to select customers of EX-2M are scheduled in Q4 and these are key also to accelerating our timeline to full-scale mass production in 2025 and beyond. We also completed the product definition and the roadmap beyond EX-2M reaffirming our commitment to pushing the boundaries of innovation and delivering industry-leading solutions to our customers across a wide range of industries. With that, I'll turn it over to Farhan for the financials.

Thanks, Raj. All the relevant financial information is in the quarterly report in the shareholder letter. So I'll keep my comments short. For Q3, we delivered revenue of $4.3 million, which was above the midpoint of our guidance range. Non-GAAP EBITDA came in at a loss of $21.6 million above our guidance of a range of loss of $23 million to $29 million. And non-GAAP EPS came in at a loss of $0.17 and at the high end of our guidance range of loss of $0.17 to $0.23. We ended the quarter with roughly $200 million of cash and equivalents. And we had CapEx of about $19 million and $31 million of cash used in operations during the third quarter. Our balance sheet is strong and gives us runway well into 2026. Now, turning to the guidance. For the fourth quarter of 2024, we expect revenue in the range of $8 million to $10 million and adjusted EBITDA loss of $19 million to $25 million and non-GAAP EPS loss of $0.17 to $0.23. Now, I'll turn back to Raj to close.

Yeah. Thank you, Farhan. As you can see, we made substantial progress in the third quarter by opening our Fab2, securing our most meaningful customer commitment to date and the next major milestone this quarter on our journey to scale will be completing the site acceptance testing of our high-volume line, and shipping the first samples of EX-2M to our customers. With that, we can go into questions. Operator?

We will now begin the Q&A session. Please note that this call is being recorded. Before we go live to questions we are going to read the two most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is: what yields are we currently seeing on the Agility line? And when can we expect an update on HVM line yields?

Yeah. Ajay, do you want to take that?

Yeah. Sure. So as we communicated with you all, the Agility line completed the SAT during the last quarter. And we brought up the Agility line on the EX-1M technology node at yields a little bit higher than where we left off here, closer to 80%. And the HVM line, which has identical kernels to the Agility line is in SAT mode right now in Fab2 and there's no reason to expect anything lower than what the Agility line was able to do. So, we feel pretty good about the yields, how they're ramping.

Yes. Thank you, Ajay.

The second question is: Understand Enovix proprietary process is patent protected where applicable, but how long of a first-mover advantage does Enovix have before you see competition begin utilizing silicon and batteries on a larger scale once Enovix and customers prove the technology works and there is a market demand? And does your arrangement with Group 14 Technologies afford Enovix exclusivity in the markets where you utilize their SCC55 material?

Yes. Thank you for that question. Yes, as you alluded to, we have a patent-protected process, with a significant amount of patents and more importantly, a significant amount of trade secrets and industry know-how, not only in how to manufacture higher energy density batteries, but also the machines that we use to manufacture the batteries. As I mentioned before, we first designed the machines and then the machines make the battery. Our intellectual property is in both areas. Our unique architecture of manufacturing the batteries allows us to use 100% active silicon. We are the first ones to use 100% active silicon batteries in this consumer market, and we're really excited by that accomplishment that the team has made. The competition that we have seen has been mostly people who use 5%, 10% in the best case of SIC or SIO, some pharma silicon material doped on top of graphite. If you use any more than that, what we have seen is the battery continues to swell up and the swelling cannot be controlled by traditional manufacturing processes. We have a unique advantage there and that is why we feel strongly that we have this unique value proposition. As far as our agreement with Group 14, we're working with Group 14; they provide great anode material. We also work with other suppliers of anode material, that use silicon and some form of carbon. So we have multiple suppliers that we use, based on the market, best of the end products and based on the requirements of the battery. So, thank you.

We will now go to the queue. Our first question comes from Ananda Barua with Loop Capital Markets. Please unmute your line and ask your question.

Yes. Hi, everyone. Thank you very much. Congratulations on the new announcement. I appreciate you taking my question. I have two questions, if I may. I'll start with a clarification regarding the announcements, Raj. Is the volume customer announced for the December quarter of 2025 a new customer or is it a continuation of a prior relationship?

Yes. This is a new customer that we announced today. There is a commitment on the agreement that we made that, once the batteries as that we jointly agreed to, that once they pass the qualification commitment to launch next year. The other customers we work with are also well along the way, and we hope to get more as the year goes by just proving that the value of our technology is there for multiple customers in the smartphone market.

I got it. I got it. That's very helpful. And EX-2M, can you remind us, which batteries you'll be going to market with next year, at volume EX-1M, EX-2M if everything goes well once you start getting samples out?

Yes. As I mentioned, EX 1M is a battery that we sample to our customers, and people like the performance of the product. People like what they're seeing. They're giving us some feedback on things to tweak and update to better fit, those particular smartphone models, and we are continuing to work with the customers on that. EX-2M is our next technology, which we will be sampling this year and we expect that to go to production in 2026 and we are working hard to get that accelerated also.

Got it. That’s helpful. Thanks so much. Appreciate it.

Our next question comes from Colin Rusch with Oppenheimer. Please unmute your line and ask your question.

Thanks so much, guys. As you look at initial yields as well as the evolvement specs from your customers and what's happening with pricing on batteries, can you talk a little bit about how those pricing dynamics are trending and how that rolls through into your target gross margins that you've previously communicated?

Yes. We've started the pricing discussions now with our customers for these products that we're expecting to launch next year. We've also closed pricing with some of the other customers in the IoT space. We are continuing to be able to command a premium for our batteries because we provide much higher energy density and that's very valuable in premium tier smartphones, which is where we are focused on where the value will provide translates into value for the end customers, so our customers are able to give us that price premium because they're able to take advantage of the higher battery density. So, we feel pretty good about it. As for the gross margins, we've mentioned in the last quarter our long-term gross margin profile that we expect to get to as we get to these premium tier smartphones in the 50% range. And at scale, we still expect to get to that.

Okay. Fantastic.

Colin, I think, Farhan wants to add.

Yes, I just wanted to clarify that our cash gross margin is over 50%, not just the gross margin. As Rob mentioned, we believe we can achieve that. In the market, it's clear that batteries with higher energy density command a premium, and we anticipate securing a premium as well. This market is highly sensitive to energy density, and to meet our long-term target, we need to reach the energy density of XTM types and beyond, while also achieving scale. As we scale, we expect to attain those margins.

Fantastic, appreciate the clarification. And then in the guidance for fourth quarter and revenue in the $8 million to $10 million, can you just break out what's coming from Rugged and how much is coming off the Agility line and driving that revenue?

Yes, it's mostly coming from Rugged. There's a small amount that is coming from the Agility line. But at this time, we have mainly sampling and so the revenue contribution is mostly coming from Rugged.

Appreciate it.

Our next question comes from Bill Peterson with JPMorgan. Please unmute your line and ask your question.

Yes, hi. Good afternoon and thanks for taking the questions. Nice to see the additional announcements. I wanted to ask about sampling, so I guess, how many of the top eight smartphone OEMs have received the DX1 samples thus far? What's the initial feedback then? I think you're looking to sample six out of the top eight. Have you sample the large Korean or the large U.S. player? Are these pretty much all in China? And I guess are there other form factors or device types that you also sample in the quarter with similar technology?

Yes, the Agility line as I mentioned, we just guided up and we have sampled some customers and we'll continue to sample more and more. There's interest from many, many different people and it's just that we are trying to make them as quickly as I can. I can really give you all the details of who we are sampling to, it wouldn't be fair to say that. But I can assure you there's a lot of demand and we're trying to make them as quickly as we can. And maybe Farhan wants to add.

No, I just want to say that we have sampled, like we said, the two customers that we have disclosed are top five OEMs in smartphones. So, they are not like some tiny company. They are companies that are very prominent in the premier tier smartphones in China and so that's something that we can tell you.

Yes, that's what we're prioritizing first because that's where we see our highest demand.

On the commercial side, considering your expectations with the new smartphone OEM announcement and some early IoT production schedules, could you provide an idea of the volume expectations for 2025? Specifically, are these volumes in the millions for the smartphone segment, or how should we approach the volume estimation?

Yes, it's very difficult to know exactly that. I think we will get more clarity as we move along. So, as I mentioned last time, I think it's important to understand the process of how smartphone penetration happens, right? So we give them samples. They're going to test them; then we're going to get from them the specification of the exact battery size that they would like to use in the phone that's going to launch in late 2025, and that will usually come at the beginning of 2025, that's when they finalize what the model would be, what the size would be, then we make that sell in our high-volume manufacturing line. And they'll go through another set of series of tests within the phone model itself. And based on the performance and based on which model they are targeting and the volumes will vary based on which regions they will launch and so on, at least initial ones. And then through 2026, you'll see them build up and go into more and more models. That's typically how the smartphone ramp works. They start small but they keep going up.

Yes. And the other thing I would just add like Raj mentioned earlier, we have always felt that the hardest part of the ramp is getting the first customer. Once you have the first customer, your value proposition to customer changes. Before that the risk for customers is: hey, this is a battery that nobody else is using. And if I use it and something goes wrong then there's a lot to lose. If on the other hand, the best battery goes in a smartphone and it launches and it's proven then the equation changes then if you don't use it then you're rest falling behind. So that's how we have approached it, and it's very encouraging to see at least one customer like has gotten over that hump and said that a, we build the batteries in their form factor and if they meet the performance that is in line with the expectation. Based on the initial samples, they feel good about engaging with us with the intention of launching a phone in 2025.

Perfect.

Thank you.

Our next question comes from George Gianarikas with Canaccord. Please unmute your line and ask your question.

Hi, everyone. Thank you for taking my questions. Just to maybe tack on to the previous question to the extent you wanted to fill your revenue pipeline additionally for next year given how late we are in 2024, how long it takes to qualify and get designed in, is there still potential if customers come to you that are testing your samples to fill the 2025 revenue pipeline between now and the end of the year or wherever that deadline kind of meets? Thank you.

Yes. It's all going to be based on how quickly the batteries that qualified in the customers' products, right? That's the most important thing people need to realize about this market. Batteries people take it very seriously when they put it in a device. And the qualification process is very strict and takes a certain amount of time, a lot more stringent than semiconductors for example because of safety and so on. But I do believe that we do a lot of the testing in-house to make sure that what we're giving is what people really want and are safe. So if things go well, it could be much faster. But we are planning that it will be late next year. But I will tell you one thing. The first ones are the hardest with any customer because once you're a supplier that is better in their system and they've launched some batteries with us, the following models come much faster and much quicker. So I think that's the most important thing.

Maybe as a follow-up to that, does the same logic apply to additional IoT customers, who could fill the revenue pipeline for next year? Thank you.

In some IoT markets, the testing could be a little less stringent, because for example, in smartphones customers want 800 to 1,000 cycles. So to test 800 to 1,000 cycles takes months, because you can charge and discharge and touch and dispatch 800,000 times. Some IoT markets people only want 500 cycles because maybe the product doesn't last that long. I'm not charged every day. There could be lessers. So, in that one example where you could launch the product sooner, because the testing cycle could be shorter. I'll give you another example. Like in a portable device like a smartphone, people do a lot of safety tests like drop tests, thermal abuse tests and so on. If it's a larger portable electronics device, maybe that's not as important. So again, it all comes down to the nature of the device, the how many cycles it has to go through, how much testing the customers want to do and how the device is used. And that is what gets how quickly a product can go to production after we give them samples that qualify.

Our next question comes from Gus Richard with Northland. Please unmute your line and ask your question.

Yes. Thanks for taking the question. Now that you're getting visibility into 2025 given the mix you're expecting, what do you think the revenue potential for that line would be given the mix you're looking into both IoT and mobile?

I think we mentioned before, our line is capable of running at 1350 UPH and that is for large sized batteries. We mentioned roughly like nine million units at $10 is what we can get the line up to. But again I think, the gating thing is not so much the line but the gating thing to how much revenue is the customer qualification timelines. And we take that very seriously and we spend a lot of time on making sure the batteries are safe and the customers go through all their tests for the first time around when we are the new supplier. But once we get there, I think the revenue will be much, much quicker.

Okay, got it. And then just thinking about the second line, I think you had talked about that starting production maybe at the end of next year. And I was wondering if those plans are still on track?

We view the development of the second line this way. As we gain better visibility into 2025 and learn about customer requirements, for instance in the case of a high-volume phone, we will recognize the need to invest in the second line more urgently. If the volumes are lower initially and then increase with subsequent models, we may have a bit more time. It’s also important to ensure that the second line is significantly more cost-effective than the first. Ajay and his team have some excellent strategies for reducing costs and improving speed, which we've taken into account. We will provide further updates on how we are progressing with these lines as we move into 2025 and beyond. Ajay, do you have anything you'd like to add?

Yeah. Just to add to what Raj just said, we are working learning from line number one, where we can cost reduce this line significantly. And we already said that that was the plan and we are executing to that plan now to substantially reduce line number two. So we don't want to rush into ordering line two, which is exactly replicate of line one because then that would not be right. We need to cost reduce it and we have a lot of good ideas, which are actually in the works right now before we order the second line. And many of those concepts, which will be in line two, which cost reduces the line have been tested through proofs of concepts, the POCs that we typically build. And we're finishing that up before we are ready to order line two.

Our next question comes from Gabe Daoud with Cohen. You please unmute your line and ask your question.

Hey everyone. Thanks for the time. Maybe just going back to the order, guys could you maybe talk a little bit about what exactly has to happen from here into 4Q 2025? Obviously they're going through the proliferation process, but maybe some of the milestones that need to be achieved whether it's specific targets on energy density or cycle life or cash charge capability. I know it may differ depending on specific model but curious if there's any brackets you could put around that?

Yes. So the important milestones from now in the first quarter, we will get the dimensions from the customer. And based on those dimensions, we will make the samples. In 2Q we will ship to them. And in 3Q, we expect to get the final order. Raj is that right? So those are the milestones there for you.

Yeah, we do have clear targets on energy density and fast charge and cycle. So we do have those targets from them and we are working with them to deliver those to them.

Okay. And then just a quick follow-up to that. So you expect to get the order in 2Q. And any kind of range on the specific models, what they do in terms of shipments a year just to try to get a sense of what the actual size of the order could look like?

Yes. I think, I answered that question. It's hard to tell that now. We'll know more about it. I can tell you it's in the premium tier. That's where we provide most value. And we'll give you more color as we get closer.

Okay. Thanks, guys. And then just a quick follow-up. Any comments on capital needs and maybe options to bring in additional capital in the door if you think you need it? Thanks, guys.

Yes. Thanks, Gabe. So you look like we have runway until 2026 and we will continue to evaluate more capital if we need it like as I've mentioned in the past we may need more capital to get to profitability. And so at some point we have to raise capital. There are three avenues open for the company: the capital markets, the governments and the customers. And we are pursuing all of them to see what makes the best sense for the company and provides the most efficient path with at least a lot of possible dilution while managing the risk for the business. So we will continue to evaluate that. And one big thing that we are very particular about is delivering on the milestones before we go and raise capital. So that's something that is also important to the company.

Thanks Farhan. Thanks guys.

Our next question comes from Derek Soderberg with Cantor. Please unmute your line and ask your question.

Yes. Thank you for taking my questions. I have a question regarding the Smart Glass opportunity. How should investors evaluate the addressable market in comparison to smartphones? Can you discuss the current size of that market and your expectations for the next 10 years? Additionally, Raj, it seems that smartphone customers are looking for a substantial battery cell. What capacity are the smart glass devices targeting?

Yes, that's a great question. I wanted to clarify the requirements of the smart glass market compared to the smartphone market. In terms of augmented reality (AR), virtual reality (VR), or mixed reality headsets, the battery draw is significantly higher than that of smartphones. This is mainly because these devices do not have a standby mode; when they are on, everything is fully operational. The processor, memory, and display are active, and to provide a realistic experience, the GPU is working at full capacity, leading to high power consumption and shorter battery life. Additionally, the batteries are smaller as they need to fit inside the glasses. This market is well-suited for our batteries that offer high energy density even in compact sizes. There are industry reports suggesting that we could see tens of millions of units, possibly between 20 and 30 million, in the coming years. I believe this market is still developing. I've seen demonstrations of products that we announced to a customer, who I think showed interest in our offering last quarter or earlier, and they are creating custom cells for them, which look fantastic. Significant progress has been made in waveguide optics, enhancing the user experience. I anticipate that more customers will start producing these products, especially with the advancements in generative AI that allow for speech navigation, which also requires substantial battery life. In terms of battery size, smart glasses might have smaller batteries, while AR/VR headsets could accommodate larger batteries, depending on their design. For example, devices like Vision Pro could have bigger batteries placed externally, while others might have integrated batteries that differ slightly in size. I foresee multiple battery form factors in these devices, but they all share the need for high energy density in small sizes, which is conducive to our technology. I am quite enthusiastic about this market. Although it may take time to grow significantly, it presents a strong opportunity for us, particularly with a favorable average selling price. We are beginning to see this reflected in our initial battery offerings.

Got it. And then as my follow-up just regarding the announcement around the IoT customer. Some of the wording that's been used is mass production. I'm curious if you can sort of quantify what that means by mass production? Is it sort of one million battery units annually, something like that? Is there maybe something we should go off of? And then also I'm curious if you can speak to which kind of device that IoT device is? Thanks.

Yes. Unfortunately, we are not at liberty to speak wise. I know this is a question I get often, which device, which customer. And I promise you, I'll work hard on trying to get names from the customers so if we can mention them. Like you got to understand, when you're an early-stage company and when you get customer samples into these products, the customers are a little hesitant about really letting us speak to them, speak exactly what they are. But I would say that we are excited that it is something that will be in the market that you should be able to buy some of that. I know everyone is looking forward to that. But that's probably all we can say at this point in terms of who the customer is and how big it is.

Our next question comes from Sean Milligan with Janney. Please unmute your line and ask your question.

Hey, thanks for taking the question guys. Have been from another call, so sorry if you already answered this. But can you kind of go over the remaining CapEx to deliver the first auto line? And kind of maybe how that splits up in terms of like what's the fourth quarter and what's the first half next year?

Most of the capital expenditures will be this year, as we are funding the line ourselves. We expect the capital expenditures to be around $80 million to $90 million for this year. For next year, we do not anticipate significant expenses for this line; only about $5 million may carry over. Next year's capital expenditures should be relatively small until we prepare to order the Gen 2 line, at which point we might see an increase. Overall...

But that is most of that...

Yes. Sorry, go ahead.

How much of that is left to be spent of the $80 million to $90 million?

No, that's like next year is only like about $5 million. So you can look at the CapEx for this year and we are expecting like about $80 million to $90 million for the year.

Okay. And then as you start to order additional lines, how should we think about like the payment splits. How much is on order. How should we think about that cadence?

No. The next line is not on order. Again, like I said, we have been doing proofs of concepts of how to do this second line a lot more economical, and that's the only thing that we have spent on is POC is actually proof of concepts. And the way to think about Line 2 is the target we are expecting where Line 2 high-volume line 2 will fall is roughly 60% of the Line 1 roughly.

Some in the beginning probably earlier on that.

Yes. We will manage our cash flow in a way that allows us to order long lead time items earlier in 2025. The proof of concepts will unfold throughout the year, and as we approach the end of the year, specifically in Q3, we will place orders for the remaining parts of the line. This approach is typically driven by how demand develops and its overall profile.

Our last question comes from Mark Shooter with William Blair. Please unmute your line and ask your question.

Hi. Thanks team. Congrats again on the second customer. We got more details in that engagement. So should we read this as more concrete? Or is this customer more eager than the other? Is there an opportunity here to try to pick these two against each other in a race for qualification?

I mean, every customer is a little bit different Mark. And I think as you know I have relationships with all of them. Every estimate is a little bit different, every customer is in a little bit different stage. I think that's the way you should read it. Our goal of course is to be a sizable player in the smartphone market. So it's just a question of who does first versus next. So that's probably the best way to describe it.

Yes. And I would just add to it. Like earlier also Raj mentioned and I mentioned that. The first one is hardest and the equation changes. Once you get one, it goes from push to pull. The first one is like you have to convince them and you have to cross all the hurdles. But once you get past that, from the next ones, it becomes a lot easier.

Yes. And my experience, both at Micron, PI and Qualcomm is we launched the first one, then pretty much most of the market tends to use the technology once it's differentiated and they see the value. So that's just the way the smartphone market works.

Got it. Thank you both. Silicon has a slightly lower reduction potential and so a lower voltage profile. And I know smartphones are a high-power device with high voltage. I'm wondering if customers have brought this up? Is there any pushback in terms of the voltage profile? Or are they open to modifying the power management and the electronics? And any conversation like that with your customers?

Yeah. Yeah. We've had a lot of conversations with them, and it's an area where we work very closely with the other components in the ecosystem. For example, Qualcomm makes processors and PMICs, and we work with the customer and Qualcomm. So I think people have realized now that silicon is going to be in the smartphone market. So the PMICs have already made the adjustments to actually be able to get that last bit of energy from silicon, which is what we've been doing through last year, and we are pretty happy that this should not be a problem anymore.

We have one final question from Tony Stoss with Craig-Hallum. Please unmute your line and ask your question.

Thanks, Raj. I wanted to follow up on your comment about the 7,000 milliamp batteries. I'm curious kind of when you think you could be producing something to that density? And also, what would the ASP be like on that? Are we kind of stuck in that $10 per battery ASP? Or would the higher densities markedly move up from that $10 number?

Yeah. I'll take the comment on when, and I'll let Farhan talk about the ASPs. He's pretty passionate about that. But yeah, this is for launching next year. We are actually talking about the next year 7,000 milliamp batteries. And I actually think it's going to keep going up if we can produce higher and higher energy, higher capacity batteries in the same footprint, I think there is still a lot more demand for energy capacity in the smartphones because the applications we see now are just drawing more and more power from the battery.

I would say that for the 5 milliamp to 5.5 milliamp cells, we previously mentioned 11.5 million units and $150 million in revenue, which translates to about $13 in average selling price to achieve our target revenue. Looking at our silicon batteries in the graphite silicon category, their prices range from $10 to $12 for the higher performing tiers based on market analysis. Thus, we expect to secure a slight premium over this. Additionally, commodity batteries are priced around $7 to $8. Given that higher energy density batteries are already receiving a premium, we are confident in our significant energy density advantage. For the 7,000 milliamp batteries, which offer higher energy density and utilize more material, it is reasonable to assume that pricing will be higher. The exact pricing remains uncertain since, to my knowledge, there are currently no other providers of these batteries. Once we reach that point, we may have greater pricing flexibility, but it will certainly be higher than our current prices for the 5 to 5.5 amp cells.

Great. Thanks, Farhan.

There are no further questions at this time. With that I'd like to turn the call over to Dr. Raj Talluri for closing remarks.

Yeah. Great quarter, and thank you all for patiently listening to us. And we'll talk to you next quarter. Thank you.