Navitas Semiconductor Corp Q2 FY2023 Earnings Call

Good afternoon, everyone. I'm Stephen Oliver, Vice President of Corporate Marketing and Investor Relations. Thank you for joining Navitas Semiconductor's Second Quarter 2023 Results Conference Call. I'm joined today by Gene Sheridan, our Chairman, President, CEO, and Co-Founder; and Ron Shelton, our CFO and Treasurer. A replay of this webcast will be available on our website approximately one hour following this conference call, and the recorded webcast will be available for approximately 30 days following the call. Additional information related to our business is also posted on the Investor Relations section of our website. Our earnings release includes non-GAAP financial measures. Reconciliations of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our second quarter earnings release and also posted on our website in the Investor Relations section. In this conference call, we will make forward-looking statements about future events or about the future financial performance of Navitas, including acquisitions. You can identify these statements by words like we expect or we believe or similar terms. We wish to caution you that such forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from expectations expressed in our forward-looking statements. Important factors that can affect Navitas business including factors that could cause actual results to differ from our forward-looking statements are described in our earnings release. Please also refer to the Risk Factors sections in our most recent 10-K and 10-Qs. Our estimates or other forward-looking statements may change, and Navitas assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other events that may occur except as required by law. And now over to Gene Sheridan, CEO.

Thanks a lot, Steve. In Q2, we saw continued growth in revenues and margins, along with significant customer pipeline progress across all market segments. Q2 revenue increased to $18.1 million, up 110% from the second quarter of 2022 and up 35% sequentially from the first quarter of 2023, and with gross margins climbing to 41.5%, up from 41.1% in Q1. Despite continued global softness in the broader consumer market and also some slowdown in the growth of the solar market, given a rise in interest rates, I am very pleased that we are delivering this robust growth across all markets and in particular, a nice rebound in the mobile market as GaN chargers reach cost parity with silicon chargers, enabling the launch of more mainstream models. With solid shipments in Q2 and continued momentum into Q3, we are excited to announce that as of today, we have shipped a cumulative 100 million GaN devices and over 12 million silicon carbide devices. In our electric vehicle business, we are seeing strong growth, particularly in both onboard chargers and roadside fast chargers. Recently, a consortium of seven global car manufacturers, including GM, BMW, and Stellantis announced plans to install 30,000 fast chargers across North America. This translates to an additional opportunity of up to $100 million for our silicon carbide business in the next few years. As a reminder, our silicon carbide technology is already used in over 50% of non-Tesla roadside chargers in the U.S. Overall, the opportunity in EV roadside chargers has a market potential of over $600 million per year by 2028. Based on recent developments in the generative AI market, power demands have been doubling every 3.4 months in AI and edge computing with the latest chips such as NVIDIA's GH200, consuming up to 1,000 watts just for a single GPU. When considering data centers may utilize many thousands of processors, this translates into a significant opportunity for our GaN power ICs as silicon-based designs struggle to meet these dramatic increases in the required power, efficiency, and density. We recently announced a 3.2 kilowatt server power supply platform, which delivers an industry-leading 100 watts per cubic inch with over 96% energy efficiency to meet the challenging titanium plus efficiency standard as required by the European Union. This platform is enabling customers to rapidly develop these power supplies with our NICs and has already translated into a doubling of our customer data center pipeline as compared to Q1. In the Appliance and Industrial segment, we are also seeing a doubling of our customer projects in our pipeline based on the growing need for high-efficiency electrified motor drive applications across home appliances, which includes dishwashers, dryers, refrigerators, washing machines, air conditioners, heat pumps along with hair care products. And also includes industrial applications, which utilize our silicon carbide technology for high-efficiency factory automation, robotics, and HVAC systems. In solar, despite some market softness, we are experiencing a rapid increase in both the GaN and silicon carbide planned adoption into the solar inverters themselves, as well as a dramatic increase in the energy storage attach rates, which have more than doubled in recent years. One installer is reporting over 60% attach rates, adding battery backup to the solar panel installations for residential Californian customers, and we anticipate such attach rates will approach 90% in coming years. Given these favorable dynamics, the revenue potential for each customer project has increased over 100% in our pipeline for the solar and energy storage segment. In the mobile market, despite the broader global consumer softness, we are experiencing significant growth, particularly in China and Korea. Major new charger developments by leading smartphone suppliers, including Xiaomi, Oppo, Samsung, and a number of others are expanding GaN adoption from performance models to mainstream models, translating into a significant increase in both the number of customer projects in our pipeline and the total revenue potential of those projects. Putting it all together, we're happy to announce a total customer pipeline increase from $760 million in Q1 to over $1 billion in Q2 with important growth in both customer projects and revenue potential across all of our target markets. I'm also very pleased with our progress in expanding manufacturing capacity for both gallium nitride and silicon carbide to ensure we can fully capitalize on this fast growth of our customer pipeline. As previously announced, we are in the midst of ramping our silicon carbide capacity by 5x throughout this year and next as we continue to ship all the silicon carbide devices we can produce. In addition, we're on track with our announced $20 million investment for silicon carbide in-house epi, which will start with the first epi reactor installed in Q1 of next year. In aggregate, over the next three years, this investment is expected to support epi capacity of $200 million per year in revenue, and it will provide appreciable cost reduction and margin expansion. Last year, working closely with our GaN fab partner, TSMC, we are benefiting from a 3x increase in capacity that ensures we have plenty of headroom to support our growth objectives in the next 2 to 3 years. With the benefits of a $92 million follow-on offering in May, we continue to have a very strong balance sheet that can enable additional strategic manufacturing investments to support even higher growth rates in a highly capital-efficient manner. Today, we are also pleased to announce the first Navitas Investor Day to be held at our new global headquarters in Torrance, California on November 30. Investors and analysts are invited to participate in a comprehensive agenda that will include our new Electrify Experience Center that will detail the past, the present, and an exciting vision for the future in the world of electrified power applications. This agenda will also include the announcement of four major new GaN or silicon carbide technology platforms, which we believe will transform many of our target markets. We will also provide a detailed review of our customer pipeline, showcase some exciting surprise guest speakers, and provide a high-level view on our 2024 outlook. In summary, I'm very pleased with our accelerating progress across financial results, customer pipeline, market adoption, technology development, and manufacturing capacity expansion. We're excited about the significant opportunities in front of us, which are reflected in our results. Navitas is the only pure-play next-generation power semiconductor company, and with our vision and our capability to electrify our world, we believe we will continue to be one of the fastest-growing semiconductor companies in the industry. Now let me turn it over to our CFO, Ron Shelton, to update on those financial results as well as our guidance.

Thank you, Gene. In my comments today, I'll first take you through our second quarter results, and then I'll walk you through our outlook for the third quarter and some of the market dynamics we're seeing. Revenue in the second quarter of 2023 was well above our guidance, growing 110% year-over-year and 35% sequentially to $18.1 million. The beat was driven primarily by a strong growth in the mobile market, tempered somewhat by slower growth in the high-end consumer market attributable to macroeconomic factors. Nevertheless, we had record bookings during the quarter and exited the quarter with record levels of backlog, increasing by more than 50% compared to the first quarter. That's on top of a 50% increase that we experienced in Q1 so we continue to see strong momentum across the business. Before adjusting expenses, I'd like to refer you to the GAAP to non-GAAP reconciliations in our press release earlier today. And the rest of my commentary, I'll be referring to the non-GAAP measures. Non-GAAP gross margin in the second quarter increased to 41.5% from 41.1% in the first quarter of 2023 and compared to 41.6% in the second quarter of 2022. Non-GAAP gross margins in the second quarter were at the higher end of our guidance. Total non-GAAP operating expenses were $17.0 million for the second quarter of 2023, which is slightly lower than the first quarter and below our guidance as we experienced lower audit-related fees and consumed fewer materials for research and development. As we've mentioned in the past, we continue to invest in our business in a disciplined manner the results of which you have seen in the second quarter. Our non-GAAP SG&A expense was $7.2 million, and non-GAAP R&D was $9.8 million. Putting all of this together, the non-GAAP loss from operations was $9.6 million compared to a loss from operations of $8.9 million in the second quarter of 2022 as we continue to invest simultaneously across new markets and focus on growth opportunities. Our weighted average basic share count for the second quarter was 165.6 million shares. Turning to the balance sheet, it remains very strong with high levels of liquidity and continued improvements in working capital. Cash and cash equivalents at quarter end were $177.7 million and we continue to carry no debt. As part of our successful public offering in the second quarter, we issued 11.5 million shares for net proceeds of $86.5 million. Leveraging those proceeds, we announced the first in a series of strategic manufacturing investments to increase control over our supply chain, reduce costs, expand margins, and enhance our capacity to meet the needs of our growing backlog and pipeline. The first $20 million investment enables the silicon carbide epi facility at our Torrance headquarters. This facility enables epi capacity that can support over $200 million in annual revenue, while making a meaningful contribution to improved gross margins. Accounts receivable were $15.2 million compared to $7.4 million in the prior quarter, reflecting higher sales during the quarter which was weighted towards the last month of the quarter. Inventory was flat at $18.9 million, and days of inventory improved nicely as we continue to drive inventory levels to more closely align with the business going forward. Over time, we believe our inventory levels will trend towards our long-term target for inventory turns better than 3 times. Moving on to guidance. For the third quarter, we currently expect revenues of $21 million, plus or minus 2%. At the midpoint, this represents substantial year-over-year growth of approximately 105% over the $10.2 million we recorded in the end of third quarter of 2022 and an expected 16% sequential increase over the second quarter of 2023. Our guidance is based on an increasing supply of silicon carbide products and the expected continued recovery in the mobile market. Throughout the year, we've indicated that our goal was to double revenue this year. Our recent performance adds to our confidence, and we remain comfortable with that guidance. Gross margins for the third quarter are expected to be relatively flat compared to the second quarter given the upside in the mobile business, which will also translate into a moderation in our gross margin expansion in the short term. In total, our non-GAAP operating expenses in the third quarter are expected to be approximately $18.5 million to $19.5 million. And this excludes stock-based compensation and amortization of intangible assets. We will continue investing in growth, but expenses will generally decline as a percentage of revenue as we continue to scale. For the third quarter of 2023, we expect our weighted average basic share count to be approximately 175 million shares. In closing, we're extremely pleased with the results for the quarter and our near-term and long-term outlook. We saw strength in the mobile market, where we are the leading supplier of GaN ICs. We ended the quarter with record backlog, our customer pipeline has grown to an unprecedented level, and we ended the quarter with nearly $180 million of cash and no debt.

I hate to focus on a negative, but gross margin sounds mostly due to mix, coming in perhaps a little bit lower than previously expected. Can you spend a minute discussing how you view the mix between mobile, consumer data center, and some of the higher-margin silicon carbide markets as you look into the second half? Ron, when do you think you might be able to achieve margins in the mid-40s range, which I believe was your prior target by the end of 2023?

Quinn, I appreciate the question. The business is fundamentally strong at the moment. Our pipeline exceeds $1 billion and our backlog has increased by more than 50%. The mobile market appears to be recovering, and we have a solid position there, along with growth in other end markets regarding pipeline revenue and backlog. As we previously mentioned, we are seeing a slight moderation in the growth of gross margins due to the mix. However, we are actively executing strategies to improve margins across all areas. We are currently transitioning to Gen 4 technology and diversifying into higher-margin end markets, as evidenced by our growing pipeline. Additionally, we are effectively managing costs through strategic manufacturing initiatives, including the establishment of our epi facility. Although we're experiencing a slight slowdown in the rate of growth for margins, there is no fundamental change to our margin profile. I anticipate this moderation will last for a couple of quarters, after which we expect to return to our growth trajectory for margins.

Ron, I would like to follow up on that question. Is the recent pause in gross margin primarily due to stronger than anticipated growth or recovery in the mobile charger market, which is the lower margin part of your GaN business? Or, as you mentioned in the call, is there a slowdown in the higher-end consumer appliance market? Additionally, is the gross margin pause influenced by a delay in the silicon carbide segment of the business affecting the mix? Or is the margin impact mainly due to a stronger than expected rebound in the mobile charger market, contributing to the flattening in the third quarter?

Yes, it's simply a product mix issue. It doesn't reflect the strength in silicon carbide. Silicon carbide is a business where supply is improving, but we are still facing some supply challenges and we are shipping everything we can produce right now. It's primarily a mix issue. I wouldn’t describe it as a pause; rather, it’s a slowdown in the growth rate of gross margins and margin expansion. I believe this slowdown will last a couple of quarters. However, we are not doing anything wrong in our execution; we are actively working to drive margin expansion moving forward.

Got it. And maybe if I could just slip in one quick one, just on the data center business. You announced the new 3.3-kilowatt platform. Is that data center business now starting to ramp to production here in the second half of '23? Are you starting to see revenues from the data center power supply market this year?

Yes. The revenue begins in Q4, with most of the increase expected next year. We are preparing to release the high-power GaN ICs aimed at data centers into production later this quarter, and customer revenue will start next quarter.

This is Melissa Weathers on for Ross. Could you give us a high-level summary on where you believe industry inventory levels are today by end market and maybe particularly in the appliances and industrial end market? And how do you guys see that inventory situation impacting your pace of market share gains and penetration of new markets in the medium term?

Sure. Thanks, Melissa. Yes, the industry levels from our view are pretty much in line with what we would expect in the channel. We don't report specific channel inventory, but we did see certainly a buildup in the mobile and consumer space last year. As reported in Q1, we saw an unexpected upside in mobile, we couldn't actually deliver, which reflected a lot of those inventory levels being depleted and now we're shipping apart from inventory and apart from brand new builds. So I'd just highlight that particular market where we've seen a nice reduction in channel inventory, a nice pickup in demand. But I think from the broader markets, we see things pretty balanced and reasonable. If anything, as Ron highlighted, silicon carbide, we're shipping everything we can build, so we have pretty limited inventory both at Navitas and in the channel.

Okay. Great. And then kind of building off of that, for your September quarter guide, you guided to mid-teens sequential revenue growth. Can you talk about what you're expecting by end market? And how much of that should be driven by the mobile kind of refill or recovery there versus your other end markets?

Yes, it's quite widespread. Mobile growth continues into the third quarter, which is typically a strong period. We anticipate this trend will extend into the fourth quarter, and we also observe good stability and growth in other markets. The only exception is the data center, where we have not yet begun shipments. However, as we mentioned earlier, those data center shipments will commence in the fourth quarter and are expected to increase significantly throughout next year.

I wonder if you could give us a little more details around the industrial and even appliance market, the right goods. If that's just starting to ramp and what areas, what geographies are they ramping in if you can give us an idea of the average dollar content you'd have?

Yes, great questions, Kevin. Thanks for that. It's pretty broad based. I listed a number of the applications from the home appliances, washers, dryers, refrigerators, air conditioners, HVAC. We're particularly excited about fuel pumps, which are fundamentally moving from fossil fuels to more electrified electricity and clean energy semiconductors like gallium nitride or silicon carbide. As you look at the Industrial segment, that tends to be more about automation, HVAC using silicon carbide technology. So very broad-based across both gallium nitride and silicon carbide across lots of different applications. And even regions, we've talked about it before. Europe is really the starting point for us. There's a big focus and a big strength in Europe in these segments, but we're now seeing that picking up into more customer projects and revenue opportunities across Asia and across U.S., we highlighted the fact that the number of customer projects has more than doubled just in a quarter. Most of those are ramping, some are ramping in '24, many more ramping at '25. So it's not the fastest-growing segment, but brings great stability and certainly a lot of growth in conversion from silicon to gallium nitride or silicon carbide over the next couple of years.

And on the gallium nitride Gen 4, can you say is that tracking as expected? And which end markets do you think will adopt it faster?

Yes. No, great question. Generation 4 is our next major platform. We launched it late last year. This year is expected to be a big transition from Generation 3 to Gen 4, and that's exactly what's happening. It's actually being adopted by all of our gallium nitride markets, even customers in production are switching over from Gen 3 to Gen 4, getting performance advantages, cost reductions, and margin enhancement for us. All of the high-power GaN chips that I mentioned that we're launching into data center, solar, EV, and other markets are also launching directly into Gen 4. So we actually expect virtually all of our shipments will have transitioned to Gen 4 by the end of the year or Q1 at the latest.

I just wanted to focus on the mobile market. You've highlighted strong traction with OEMs in Korea and China. I was just hoping anything you can comment on developments or relationships with North American OEMs would be helpful.

Yes you bet. Thanks, Blake. We're seeing pretty broad-based adoption. We highlighted the fact that this year, and we predicted this for the last couple of years, this is a big year for gallium nitride to achieve system cost parity with silicon-based power systems. That's true for many of the charger markets, and it's true of many of the others. In particular, what we're seeing is a transition from the high-end flagship or performance-based mobile charger models to more mainstream models. In particular, we highlighted China and Korea with companies like Xiaomi, Oppo, and Samsung because these are a few that we can publicly talk about. That's not to say we aren't seeing similar transitions and successes in North America and around the world, but in some cases, some customers are more sensitive to disclosing those public names, so we tend to shy away from them. So it is broader-based than we spoke about and announced for the reasons I described, and we're also looking for a lot more details on the customer profile, the specific products, and the major product launches at our Investor Day in late November. So more details will be coming.

Great. And then just as a quick follow-up, following the capital raise that occurred in the last quarter. Just curious about your thoughts on cash position...

You broke up a bit. Could you repeat the last part? Capital raise...

Yes Blake, it's Ron. In a nutshell, we feel really good about the balance sheet and our cash position. I think the equity raise, as we've indicated, was for targeted reasons, strategic manufacturing being one. I think going forward, when you think about us and our capital needs and planning, what I would say right now is, to the extent we raised capital going forward, it would be for strategic reasons. We've been active in M&A in the past or additional strategic manufacturing, but it would be strategic and accretive. But in terms of the business and ongoing operations, we don't see a need right now to raise more capital.

I had a few on silicon carbide. So recently, there's been a bit of talk about falling prices for silicon carbide wafers and just more suppliers entering the market. So I was curious, what are you guys seeing just in terms of wafer pricing or the broader supply landscape right now?

Thanks, Jack. I think in general, silicon carbide supply chains are still reasonably tight as we mentioned and highlighted we're shipping everything we can build. We're in the midst of a pretty significant ramp-up with X-FAB. We signed a 500% increase in capacity with X-FAB that includes materials. So substrates or bare wafers, as you alluded to as well as the epi wafers, and we're going to be adding our own in-house epi wafers next year, as Ron described in the call. With all of that said, I do think it's improving. I think we're seeing pockets of improved material availability. I think that's true with the bare wafers or substrates as you said. And I think we're seeing prices start to come down. I wouldn't call it very dramatic at this point. And there are new suppliers coming on board, but quality yield, the ability to use those for higher-performance MOSFETs, all has to be evaluated. So I think these things take time, but I think the trends are favorable in terms of getting a more balanced demand and supply for the industry over the next year or two.

Sure. Okay. That's helpful. And then on the device side, so your devices can be above 50% gross margin, which is a bit higher than what some of the large device manufacturers are at right now. And so how much of that is due to Navitas just being fabless and having a lower fixed cost base versus other factors like end market or product mix?

It's hard to say. Obviously, we don't have the benefit of knowing cost structures of other suppliers. Many don't break out their detailed silicon carbide business, let alone gross margins and cost structure. So I think we feel good about our cost structure. We benefit from our technology being very robust as a trench assisted planar silicon carbide technology that can mix and match with different substrates, different epi vendors. So I think that gives us more flexibility, especially as prices come down, as we talked about on the substrates and maybe on the Epi and using our own in-house epi. So I think all of that gives us a pretty good cost structure. But actually, I think the main reason we might be doing better on margins than others is because of the performance of the technology. We have the best high-performance in-circuit test results of anybody. We did heavy benchmark testing a year ago before we bought GeneSiC. We also have the most robust avalanche rated 100% avalanche tested to the highest values in the industry. And we also offer the widest voltage range from 650 volts to 6,500 volts. In that upper voltage range, there's very, very few competitors that can technically do that and allows our customers to use fewer high-voltage chips in place of multiple stacked lower voltage chips, making their systems more cost effective but also giving us higher gross margins. So I think it's more about the performance and capability of the technology that's translating into maybe above-average gross margins in the industry.

Gene, I wanted to ask about the in-house epi capabilities you guys are going to be investing in. Could you please speak a bit more about how you view them? Is that going to be a cost improvement and to extent you have a time horizon that we should think about that project going forward?

Yes, definitely. Thanks, Natalia. So it's a $20 million investment over a 3-year period. The first phase is the first epi reactor. It's on order to be received late this year, early next year, and we expect it to be fully operational and contributing to revenue by the middle of next year. I said that first half of next year. It will both give us incremental capacity that's very important as the market is still tight but it also will give us incremental cost reduction, which can allow us to be more aggressive on price and drive even more top line, but also put some of that cost reduction into enhanced gross margin throughout next year, which Ron alluded to earlier, I did say 3 years, so we expect additional reactors to be involved in years 2 and years 3, we'll be placing those orders as we see the demand and time it to fit that demand profile and will continue even once it's online, to use a blend of outsourced epi as well as in-sourced epi to maximize kind of the cost and capacity profile.

Understood. That's very helpful. My second question is about the data center. Gene, could you explain how we should view the applications of GaN and silicon carbide in data centers? Historically, we always considered GaN as the first to be integrated into those markets, but you mentioned silicon carbide as well. Could you discuss the different programs you have in that market?

Yes, it's a great question. Obviously, it's a very, very dynamic one with generative AI fundamentally changing the processors that will be used in the future, the power profile, the efficiency demand. So it's pretty exciting, it's also the newest because we're not shipping into it yet. But our data center is already bringing out system-level design centers as we highlighted, one of them, the 3.2 kilowatt just announced. That particular one uses all GaN ICs inside, but we do continue to do advanced system R&D work, looking at the combination actually of silicon carbide compared to GaN or in combination with GaN. So I don't want to preannounce something, but that's one of the benefits of Navitas is the only pure play next-gen power semiconductor guy. We have a world's leading GaN, world-leading silicon carbide in a very objective way we can evaluate what's going to be best for the system, depending upon customer priorities around efficiency, density, power delivery, cost, reliability, et cetera. So I think there is a potential for silicon carbide to be used in combination with GaN, but we definitely see data center being heavily a GaN IC market, and we expect you'll see that as we announce more products and ramp that revenue starting next quarter.

My first one, just going back to the gross margins. I was wondering, Ron, how should we think of margins exiting '23 or exiting Q1 of next year just based on the mixed forecast and the adoption of next-gen products and when you look further out with the addition of the Epi equipment, is your target margin changing there? And when should we expect that to be incremental to I guess, the margin versus if you didn't have that equipment at all?

Yes, that's a good question. Thank you, Jon. Regarding the near term, as we mentioned earlier, we are seeing a short-term moderation in margin growth. This suggests that while we expect margins to grow compared to Q3, it won't be at the pace we previously projected, which was in the mid-40s range. It seems like there will be a slight delay in margin growth compared to our earlier expectations. Overall, we are confident in our margin growth and the margin profile. However, in the very short term, we are experiencing some positive moderation in margin growth. Concerning Epi, as Gene noted, one of the advantages is reduced costs. Still, we don't want to get too detailed about it. The best way to view our margins and their profile is that we're currently experiencing a slight pause and moderation in growth. However, our long-term outlook remains unchanged. We have an Investor Day scheduled for the end of November, where we will provide insights into our longer-term model and expectations for margin growth over time.

Okay. Great. And then, Gene, just wondering on the pipeline, where are the areas that you're seeing that the quickest conversion from pipeline to orders to being able to deliver, whether it's by end market by customer type. Could you just give us a little more color on where you see the most immediate strength in that pipeline you're developing?

Yes, the development cycles vary by market and tend to be quite predictable. The mobile consumer segment rapidly converts from opportunity to revenue, often within 12 months. Data centers follow closely, with typical development cycles of around 18 months from opportunity creation to shipping and generating revenue. Renewable energy projects usually take about three years, while electric vehicles are trending back to three years from four. Many of the opportunities in our $1 billion pipeline are already advanced in their development stages, not all starting from the beginning. We expect to see contributions from these projects throughout this year and next, including late-stage electric vehicle programs that will contribute to short-term growth, as well as solar projects. Overall, it's challenging to define exact timelines due to the rapid expansion of our $1 billion pipeline across various markets and customers. However, this provides some insight into the rough timelines for moving from early opportunities in the pipeline to actual shipping and revenue generation.

Great. Just if I could another one. The increase from Q1 to Q2 in the pipeline opportunity was pretty sizable. Was that mostly from existing customers changing their forecast and maybe adding some new applications? Or did you actually add a lot of new customers or applications in there?

Yes. We actually added in the solar space. Let me specifically highlight appliance industrial more than doubled the customer projects within that pipeline. Data centers, we more than doubled the number of customer projects within that pipeline. Solar actually saw nearly a doubling of revenue per project, which is an interesting dynamic. While it didn't diversify as fast, we see more people looking to sort of double down or go bigger as they convert from silicon to either GaN or silicon carbide. So it varies a little bit by market, but those are a couple of facts and figures to give you a sense of the dynamic. It's certainly broadening quite dramatically in terms of number of customer projects while the overall revenue pipeline grew, of course, from 30% to over $1 billion.

Can you hear me?

Yes, we can. Thank you.

I just got a question on how far from prior highs are GaN gross margins? And do you have any visibility into them returning near those levels, either through mix or cost declines?

Yes, we don't break out our gross margins by technology or in further granularity. But it's fair to say that gross margins took some hit with the TSMC price increases that we spoke about over the last year, 1.5 years, first one and was 20% almost 1.5 years ago, another 6% at the start of this year, and we made a strategic choice to continue to drive towards system cost reduction and revenue growth. With that said, we don't anticipate further price increases. We have a lot of cost reductions coming. We highlighted a number of them in our pipeline that Ron went through, including the in-house epi on the silicon carbide side, but we're also completing a major transition from Gen 3 to Gen 4 which is very important to driving incremental gross margins to that business, bringing it much closer to the average corporate and ultimately driving towards our long-term model. So I think some of that gross margin adjustment or negative impact is certainly behind us, and we see a pretty attractive path of incremental gross margin improvements on the GaN business going forward.

Thank you. Seeing that there are no more questions from the queue. This concludes today's conference, and thank you for joining Navitas Semiconductor Second Quarter 2023 Earnings Call. You may now disconnect.