Good evening.

Thank you for standing by, and welcome to the Will Speed Incorporated First Quarter Fiscal Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. All lines have been placed on mute to prevent any background noise. After the speakers will remark, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 2. We ask that you limit yourself to one question and one follow-up. Thank you. Please note today's call is being recorded. I would now like to hand the conference over to your first speaker today, Tyler Groenbach, Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Wolfspeed's first quarter fiscal 2022 conference call. Today, Wolfspeed CEO Greg Lowe and Wolfspeed CFO Neil Reynolds results will report on the results for the first quarter of fiscal year 2022. Please note that we will be presenting non-GAAP financial results during today's call, which is consistent with how management measures Wolfspeed'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 in the Investor Relations 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 course of the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our news release today and the SSE filings noted in the release mentioned 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 contact us after the call. And now, I'd like to turn the call over to Greg.

Thanks, Tyler, and good afternoon, everyone. Thank you for joining us today, and I hope you and your families are staying healthy and safe. I am pleased to report that during the first quarter, we continue to execute and drive our business, delivering strong revenue above our guidance and non-GAAP diluted earnings per share at the high end of our guidance range. Now, this has been a momentous period for us. We changed our name to Woolspeed, capitalizing on our 30-year-plus heritage of working with silicon carbide. The next generation of power semiconductors will be driven by silicon carbide technology with superior performance that unleashes new possibilities and positive changes to the way we live. As the original champion of this technology, we couldn't be more excited to compete and win in the rapidly expanding marketplace. As part of our move to Woolspeed, we also are pleased to have joined the New York Stock Exchange earlier this month as we continue on our transformational journey as a pure-play global semiconductor powerhouse leading the industry transition from silicon to silicon carbide. We look forward to discussing the strong progress we've made on our transformational journey and strategy and share more detail about this exciting long-term outlook during our Investor Day in New York City next month. If you haven't received a registration link, please reach out to Tyler. I'll now turn it over to Neil, who will provide an overview of our financial results for the first quarter and our outlook for the second quarter of fiscal 2022.

Thank you, Greg. and good afternoon, everyone. We delivered solid results during the first quarter as we continue to see increased demand for devices and materials. Revenues for the first quarter of fiscal 2022 were $156.6 million, above the high end of our guidance range, representing an increase of 7.4% sequentially and 35.6% year-over-year. Our non-gap net loss was $23.8 million or 21 cents per diluted share at the top end of our guidance range. Our first quarter non-GAAP earnings exclude 46.3 million of expense, net of tax, or 40 cents per diluted share for non-pass stock-based compensation, acquired intangibles amortization, accretion on our convertible notes, project transformation and transaction costs, factory optimization startup costs, and other items outlined in today's earnings release. Moving on to the first quarter performance, we delivered our fifth consecutive quarter of sequential growth. In power, momentum continued to build as our customers have a demonstrated need for our products, resulting in revenue growth of 57% over the prior year. For RF, we continued to see good activity on the 5G front, but performance was slightly muted due to output challenges. As we discussed on our last call, we did see some supply constraints and some lower productivity during the quarter as our Malaysian contract manufacturer continued to ramp activities back up following the recent COVID-19 outbreak. At this time, we do not expect any additional impact from the Malaysia shutdown as the factory continues to ramp towards a normal production schedule. Moving to materials, we saw a better order flow during the quarter, which we expect will continue for the remainder of the fiscal year. First quarter non-gap gross margin was 33.5% compared to 32.3% last quarter. The sequential increase was driven by solid performance of materials and improving MOSFET costs and yields. As previously discussed, we view the gross margin impact as short-term in nature due to the suboptimal device production footprint we have in North Carolina and expect it to modestly improve going forward as we work through factory transitions and improve yields. Looking at our consolidated results, non-GAAP operating expense for Cube One was $86 million and our non-GAAP tax rate was 27%. The increase in our operating expenses was largely due to R&D, including investment in our 200-millimeter pilot line in support of the Mohawk Valley Rant. For the first quarter, day sales outstanding was 53 days and inventory days on hand was 154 days. Cash generated from operations was negative $63 million and capital expenditures were $209 million, resulting in negative free cash flow of $272 million. We believe we are in solid position with approximately $850 million of cash and liquidity on hand to support our growth. However, we will be opportunistic from a capital market standpoint to ensure we can have the flexibility to invest as we see fit to continue to underpin our position in the market and fuel future growth. As we continue our transition to a pure play global semiconductor company, we will update our disclosures as appropriate and necessary. A few things I'd like to highlight this quarter. First, we incurred startup costs. primarily related to the ramp at Mohawk Valley. Approximately $8.6 million was incurred in Q1, and we expect this to ramp throughout the remainder of the fiscal year. As noted previously, we expect a total of approximately $80 million of startup costs in fiscal 2022, with the majority of these costs incurred in the second half of the fiscal year as we qualify and ramp the FAD. We have provided a non-GAAP adjustment for the startup costs, as well as a reconciliation table in our earnings release. Second, as noted in the news release, and as you'll see when we file the 10Q tomorrow, now that we have successfully transitioned the company to Wolfspeed and are solely focused on our plans to be a leading global semiconductor provider, we've adjusted the expected useful lives of certain assets to better reflect their estimated economic lives for a silicon carbide-based semiconductor business versus a company that was primarily focused on lighting and LED products. The change has resulted in a decrease in depreciation expense of $8.4 million for the first quarter. The impact on first quarter gross margin is relatively small, and we expect that to fade into the margins over the next few quarters. As we've previously mentioned, we are continuing to experience a significantly steeper demand curve from our customers for silicon carbide products than we had initially expected. This has led to supply constraints where some customer orders will not be fulfilled in fiscal year 2022, 2022, and channel inventory levels will remain low until we ramp our production in our Mohawk Valley fab. We are confident that we will be able to meet this high demand, but in the meantime, we are continuing to accelerate CapEx capacity investments, and our team is working hard to improve output in our Durham facilities. We are anticipating net capital expenditures of approximately $475 million for the year, with Q1 representing the peak investment period, and we will start to see a modest step down beginning in 2q and continuing throughout the second half of the year as we receive more reimbursements for the mohawk valley construction we continue to pull in capacity expenditures where we can at the fiscal year 2022 to better support this deepening demand curves we remain on track to operationalize the world's largest silicon carbide fab in the first half of calendar year 2022. we know many of our customers are focused on assurance of supply when it comes to silicon carbide and we are committed to meeting that demand given the steeper ramps that we are now expecting looking to the second quarter we are encouraged by the positive momentum it is a reminder progress may not be linear over the next few quarters as we ramp production at mohawk valley in the second quarter of fiscal 2022 we are targeting revenue in the range of 165 million to 175 million we expect revenue to be driven by strength across all of our product lines led by power devices. Our Q2 non-gap gross margin is expected to be in the range of 33.7% to 35.7%, which is an increase versus 1Q. As we have stated previously, the key to our gross margin transition from the low 30s to 50% plus relies heavily on our fab cost footprint transition from North Carolina to Mohawk Valley. As we transition to that new footprint and qualify the factory in 2022 and drive revenue growth into 2023 and beyond, we will see the benefits of increasing production from our advanced 200-millimeter fab. Weaver processing costs in Mohawk Valley are expected to be more than 50% lower than Durham, not fully including the benefit from the diameter change from 150-millimeter to 200-millimeter. In addition, we expect cycle times in Mohawk Valley to be more than 50% better than in Durham and yields in Mohawk Valley to be 20 to 30 points higher than where we are in Durham today. We are already seeing good evidence from our Mohawk Valley pilot line to support these projections and anticipate a heavy margin improvement as we move to our new FAB. We are targeting non-GAAP operating expense of $88 million for the second quarter. We expect operating expenses to continue to accrete modestly each quarter as we continue our investment in R&D and sales and marketing resources. We target Q2 non-GAAP operating loss to be between $32 million to $26 million, and non-operating net loss to be immaterial. We expect our non-GAAP effective tax rate to be approximately 27%. We're targeting Q2 non-GAAP net loss to be between $19 million to $23 million, or a loss of $0.16 to $0.20 per deluded share. The EPS outlook for 2Q includes approximately $0.02 of benefit from the previously mentioned change in Estimate of Useful Lives. Our non-GAAP EPS target excludes acquired intangibles amortization, non-cash stock-based compensation, accretion on the convertible notes, project transformation and transaction costs, factory optimization restructuring and startup costs, and other items. Our Q2 targets are based on several factors that can 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 Greg.

Thanks, Neil. We made remarkable progress on our transformational journey during our fiscal first quarter. Our power business continues to see strong demand from the automotive markets, and we are also encouraged by the increasing demand across a number of industrial and energy customers. The strength of our device opportunity pipeline, which now is about $18 billion, underscores the significant demand we're seeing not only for automotive power, but also in RF, industrial, and energy solutions. Now, if you recall, at our 2019 Investor Day, we showed a $9 billion device opportunity pipeline. So we've doubled the pipeline in the last two years and now have more than 8,200 potential projects. And the team continues to identify additional opportunities at a rapid pace. Meanwhile, the sales team is converting these opportunities at an impressive rate. with approximately 560 million dollars of design ends awarded during the last quarter a significant portion of these were for automotive inverters while we also continued to secure other interesting applications including a wall charger for electric vehicles an elevator energy storage products and an induction cooktop our massive device pipeline and continued success securing design ends continues to give us confidence in our ability to achieve our target revenue for fiscal 24 of 1.5 billion dollars with current demand trends offering some potential upside based on the steepening demand for silicon carbide through 2024 and beyond as we focus on executing across our business we are pleased to see our strategy is further supported by developments in the broader market. Global electric vehicle sales are expected to be over 6 million this year, according to consulting firm Wood McKinsey. Electric vehicle sales in the first half of 2021 nearly tripled worldwide compared to the first half of last year. The share of electric vehicle sales in the global passenger car sales doubled compared to the same period last year. This performance provides another proof point of the end of the ice age as consumers transition from internal combustion engine and embrace electric vehicles. And as more OEMs and Tier 1s leverage silicon carbide based solutions for powertrain onboard chargers and off-board fast chargers, which increase the vehicle's range and reduce charge times, we expect the adoption rates to continue to increase. President Biden, in his address last month to the UN General Assembly, reiterated his intent to work with Congress to make critical investments in green infrastructure and electric vehicles. In mid-September, U.S. lawmakers proposed an expansion of tax credits for electric vehicles that includes significantly higher subsidies for union-made zero-emission models assembled in the United States. We are continuing to see U.S. automakers make big commitments to ramp up their electric vehicle efforts. For instance, in late September, Ford announced that it would spend billions of dollars to build three battery factories and an electric truck plant in the United States, significantly increasing its commitment to electric cars and train well positioned to capitalize on these opportunities as we are in the midst of an increasing manufacturing capacity, including bringing online the world's largest silicon carbide fab in a matter of months. In fact, we believe our capacity expansion efforts were a critical factor that led General Motors to choosing us to provide power device solutions for its future electric vehicle program. Our silicon carbide devices will enable GM to install more efficient EV propulsion systems in several different models that will extend the range of its rapidly expanding EV portfolio. The combination of Wolfspeed's global leadership in silice carbide and GM's commitment to an all-electric future, including a plan to launch 30 electric vehicles globally by the end of 2025, establishes a powerful partnership, pushing the boundaries of electric vehicle innovation together. Our Mohawk Valley 200-millimeter fab remains on track to start qualification runs in the first half of 2022. We now have more than 50 of the primary ballroom tools placed in the cleanroom. We've had an opportunity to host several global automotive executives at the site, and they were impressed with the level of automation and the overall scale of the operation. In Durham, we have major expansion underway right now to continue the growth of our materials capacity. The space conversion and refit-up is actively being converted from an old lighting and office space into industrial space for significant growth of our crystal growth and EPI capability. Our expansion enables us to increase the number of growers and take advantage of our continued crystal growth technology improvements, which increase production yield. To avoid supply constraints, we've already ordered the majority of the long lead time items, including electrical substations and steel infrastructure. In terms of timing, we will start ramping phase one of this space in June of 2022. In particular, it is being built out in three phases and gives us adequate growth capability through 2025 or 2026, depending on realized demand. In sum, as we move forward in our new capacity as Wolfspeed, we will continue to execute our strategy to create a global semiconductor powerhouse. We continue to win business at a very good pace while we're making the necessary investments to deliver next generation technology to our customers. We are excited about the opportunities ahead and are confident in our strategy and our path forward. We look forward to discussing the progress we've made on our transformational strategy and share more details about our long-term outlook during our Investor Day in New York next month. And with that, I'll turn it back over to the operator, and we can begin the Q&A session.

Ladies and gentlemen, once again to ask a question, please press star 1. And as a reminder, we are learning questions to one question and one follow-up, so please be mindful. The first question we have is from Vivek Warae with Bank of America. You may proceed.

This is Blake Friedman on for Vivek. I was just curious from our first question. At the beginning of the month, I believe you announced a strategic supplier agreement with GM. Can you provide further details on the agreement or an overview of Wolf Speed's assurance of supply program?

And then relative to 90 days ago, can you kind of mention how customer engagements with auto AMs have had changed or progressed sure on October 4th we announced jointly together with General Motors a partnership with them as we're providing the soda carbide devices for their EV platforms the the program is slated to go into several different vehicles and we'll be starting ramping after 2024 I can't get into a lot of other detail about that other than to say it's a really great partnership that we have together with GM and I think it you know in terms of the assurance of supply program this is a really I think this is what a really key item for GM and it's become a hot button for all of our customers that are currently experiencing a lot of supply issues in the silicon world and as a you know an integrated device manufacturer that has its own capabilities and materials where we're kind of in a unique position to be able to offer this kind of assurance of supply that's good to hear and then just quickly for my follow-up just with regards to the increase in the useful

life of certain assets just to make sure our math is correct the kind of the net impact to GM's this quarter was it about 20 to 30 basis points and if you can maybe clarify the impact moving forward over the next few quarters, that would be great.

Oh, that's right. Yeah, about 30 basis points, I think, in one queue. And then you can see it kind of bleeding into kind of the guidance in the 2Q between one and two points. And you can think about maybe, you know, 150 basis points or so for 2Q, and then another one to two points kind of bleeding in to the back half of the year. And you've got to think about that in terms of kind of a revenue exit rate for the year around 200 million or so, which I think we have a very good line of sight to.

Very helpful, thank you.

Hi, thanks for taking my question. Can you hear me fine?

Yes, we can, thank you.

Okay, great. I have a question about your 200 millimeter wafers. And I was wondering, you know, how you're approaching the question of making these wafers available to your substrate clients so how you're thinking about that and then you know how far you are in the process so are you are you sharing have you already shipped some of these wafers to to your clients so that they can start you know playing with them look at whether they would like to to to add up the new the new size thanks yeah so thanks for the question so we're obviously focused on an internal ramp at this point with with our new 200

millimeter factory coming online so that's really where the the focus is the the results as Neela talked about running these wafers through our pilot line is actually very encouraging at this point so we feel real good about about being able to ramp that but it's really you know with the new factory coming online we're really focused on getting that okay and in that case do you have a sense for you know what your competitors would on the device side could have a similar like 200 millimeter fab what kind of lead time they would get based on on like what you see from like a substrate substrate that perspective yeah hard to tell you know obviously we began construction of our 200 millimeter factory almost two years ago so a year and a half year and three-quarters ago so it does take a while to actually get a silicon carbide factory up and running there are there are some differences between silicon and silicon carbide in terms of the equipment that you need in the fab and so you have to kind of be thinking through that so I don't know exactly when that would be for everybody, but I know that for us, going from not having a factory to having a 200 millimeter factory, beginning to run a qualification material, it's a two-year process. And that was started, of course, 18 months ago or so, before there were all these supply issues. So I would imagine if you're trying to build a factory today at 200 millimeters, it probably would be a lot longer than two years, would be my guess.

Thanks, Ray. You're welcome.

Thank you. The next question is from Jerry Noble with Wells Fargo. You may proceed.

Hey, guys. Hey, everybody. Thanks for taking my question. I wanted to ask about some of the supply constraints and the impact this has had on your unfilled backlog. If I'm not mistaken, last quarter you identified roughly $100 million in revenue you're not able to fill. And I presume that was mostly on the RF side and related to some of the bottlenecks out of Malaysia. But now that we're sitting here late October, where does that unfilled backlog sit? And how would you characterize the trends or the gap between demand and supply overall?

Thanks, Gary, for the question. I think if you think about the amount that we've got and just took the revenue numbers up um obviously in 2q and the outlook for the rest of the year as i said earlier i think we've got a pretty good line of sight to kind of exiting the year kind of that 200 maybe a little bit north of revenue there so i think we're making progress on driving more capacity through the system whether that be in malaysia or here in durham but the challenge we've got is that the demand keeps steepening so i think if you look into this year and you get into next year we always talked about that transition point being 23 or 24 and And, you know, that demand curve continues to steepen, and it's right, you know, right upon us, you know, right now. So I still think that even with that revenue increase, you know, we still have north of $100 million of unfulfilled demand. And we're really just pushing, you know, as hard as we can, whether it be CapEx or driving organic, you know, throughput or, you know, bringing as much capacity online as we can to kind of close those gaps. Now, as you know, the big transition for us is getting to Mohawk Valley.

So, you know, the faster we can, you know, make that transition and move into Mohawk Valley, we can. but we're looking at kind of any and all solutions to try and close that gap as uh you know as fast as we can i think gary maybe just a just a couple other additional points uh we made some uh some changes here in north carolina in terms of uh brought in some leadership for the uh the wafer fabs here we're seeing some early signs of good progress there customers are super excited about that and then the additional thing that neil mentioned um you know with mohawk valley coming online you know customers are obviously super excited about that in fact last quarter uh we received our first um official purchase order for products coming out of mohawk valley um on 200 millimeter wafers so you know they're they're seeing that light at the end of the tunnel and you know it was great to get that first purchase order in i appreciate that as my follow-up i wanted to ask you, Greg, about China.

If I'm not mistaken, your expectations in terms of revenue contribution from China as part of your 2024 plan is only about 10% of that $1.5 billion revenue forecast. And as you know, Rome and Shanahan seem to have a strong hold on some of the Chinese EV OEMs. But I'm wondering if you have any change in your outlook as it relates to China for better for worse. It's a contribution to Cree.

Yeah, we haven't changed that at this point. And what I would say is the, you know, the tensions, the global tensions between, especially between the US and China remains pretty high, I would say. And there doesn't seem to be a sign from my viewpoint of anything evading so we just think it's just prudent to kind of dial that back a little bit you know that being said we've got a lot of activity in China and and you know customers are evaluating products and design wins and so forth but I think it's just prudent to dial that back just in light of the increased tensions thank you guys look forward to seeing you a couple weeks Thank you.

Thank you. The next question is from the line of Jed Dorshner with Concord Genuity.

It's a tough one. So, hey, guys, congratulations on a great quarter. First question, Greg, putting the conversation away from it seems like that's been most of the lines of questioning. Context of that.

Sure, Jed. Thanks for the question. You know, as I mentioned in the prepared remarks, you know, we've got, you know, the pipeline now at over $18 billion has over 8,200 projects in there. And, you know, of course, a lot of the value is automotive, but a lot of the number of projects are these other applications. You know, I talked about an industrial cooktop that we won, a wall charger, an elevator. so you're exactly right we're seeing a lot of momentum in in the broader industrial markets and I you know customers are switching from silicon to silicon carbide across a number of different end equipments our partnership obviously with arrow helps us reach those customers that continues to be a very strong relationship and strong partnership and you know the momentum there is actually quite solid so I feel real good about that and what But I would tell you, Jed, in terms of the capacity coming online, those industrial customers are also paying attention to the fact that it was nearly two years ago we made the decision to invest in a new fab, and then we broke ground in March of 2020. and you know they see that we've made those investments well ahead of this demand coming on online and they're really appreciating that and so as they start looking into designing in silicon carbide they're definitely paying attention to who made those investments you know almost two years ago and it is now bringing on capacity and we're looking pretty pretty good from that perspective.

Awesome. Just as my follow-up, I'll just turn to Neil for a second. And just going back to a previous question, just by my math, if I kind of pull out some of the one-times from the margin adjustment, it looks like yields in the wafer facility picked up a few points. And Greg mentioned, not by name, but Rex Felting coming on, sort of some of the management changes. And I'm just wondering whether or not well one is is that in line with with what you saw and and so I'm assuming then that we've kind of seen a bottom and margin is yields seem like they're they're moving up that's right Jed I think we've you know I think we've seen the bottom and we're starting to turn up the you know the other way you know on margin and I think there's several components to that.

One is, you know, we did have a bit of a drag with this kind of Malaysia subcontractor issue, you know, the COVID-19 outbreak, and we've been recovering from that. So I think that we've put that behind us. I mean, the second thing is, and Greg mentioned it earlier, that we've seen some benefits just from some of the, you know, the new staff and the management changes that we made. We are seeing good early returns on that, but we'll take a little bit of time for that to work itself through inventory and see itself, you know, kind of into the results. So as we move forward, I think we're going to see margin expansion both in the device and the materials businesses. But the one thing to be aware of is that the power device business is just going to grow faster. And we're just seeing that order flow right now. It's off that, regardless of the improvement there, that's going to be kind of a negative mix for us, right? Just based on the North Carolina footprint. So I think what you'll see is margin expansion in terms of the fundamentals of the business. And we'll see a little bit of that kind of maybe held back a little bit just by the overall mix on device and then as we've talked about many times once we shift that over to Mohawk Valley that's really the solution but I do think we'll see you know some some strong margin improvement here as we move forward great thanks guys thank you the next call is from Brian me with Goldman Sachs hey guys thanks for taking the questions it's first one just Talking about the scale and the capacity, given it sounds like the demand environment is getting better

and there's potentially upside, can you give us some thoughts around adding more raw materials capacity, whether it be on timing, location, maybe anything on potential scale versus what you have today in Durham? And then also maybe related to that, how much it would cost? And Neil, you alluded to being open about accessing capital markets, sort of how that would all fit into the strategy here going forward. And then I had a follow-up.

Yeah, thanks, Ryan. So we are doing that capacity expansion for the materials business, you know, kind of as we speak. It's been something that we've actually been doing now for the last year and a half or so inside of our current materials building. we've now gone across the street to a different building and and are expanding that if you if you happen to come on our campus these days you'll see a lot of construction and you know fences up and things like that and that's all that's all the transitioning of that old lighting facility and actually what used to be a basketball court to to a materials production you know operation that's going very well we're super excited about that and that expands our capacity here on campus but to a different facility so that's something

that's been ongoing for the last couple of years in the existing building and now it's going on in in a building across the street from us yeah and then Brian just your second point there obviously you know we've been working on this capital expansion for a couple of years now two three years and we put a substantial amount of capex to work for us to essentially triple the business over the next, you know, from last year out to 2024. So, you know, ramping beyond what we've had, what we've done already is already kind of a challenge. So I think, as I've talked about many times, it's really becomes a supply-side challenge, and we're trying to manage that, you know, and push it as fast and as hard as we can. As it relates to funding it, I mean, there's several different funding ways that we've been managing this. You know, one of them that we haven't seen a lot of yet, but it's really starting to kick in, is the reimbursements from New York for Mohawk Valley. So from a CapEx standpoint, we're going to spend $475 million or so this year, and that's going to step down in the back half of the year as you see more of those reimbursements coming in. So as you look out over that time frame, obviously we'll be opportunistic just around can we look for opportunities to increase the revenue between now and that time. But still I would say it's a supply-side challenge thing, and we're somewhat limited in the options that we have, although we're looking for solutions always within the four walls that we have right now to kind of go manage that. And, again, if that required being opportunistic, you know, it's something I would look at. But right now I think we're in pretty good shape from a, you know, cash and liquidity standpoint to kind of manage where we're at. But, again, we'll be opportunistic looking forward.

And just a real quick addition on that. You know, obviously anything from a supply perspective, you know, near term before we get Mohawk Valley would be out of our Durham wafer fashion. And that's where we brought in some new leadership. You mentioned Rex, but also Missy Stagall has come in last quarter, and it's already making an impact, a pretty strong and positive impact in terms of how the fab operates. We still have a ways to go, but we're seeing really good early indications of some good progress that she's going to make.

Appreciate that context. The second one from me, on the VW framework agreement, I mean, I think this was one of your original sort of, you know, points on the board, if you will, a couple years back. I know you've talked about customer developments accelerating of late, especially on the automotive side, and then you've had some nice tier one wins like GM here recently. So just wondering, can you update us a bit on kind of what's the latest at VW, where you are in terms of reaching any stage of, you know, commercialization and a revenue opportunity there? Thanks, guys.

You know, nothing specifically to announce on any additional customers. We obviously were able to announce the GM deal through a joint press release. So, you know, we win business, and sometimes we're able to announce specifics about it, and sometimes we're not. So at this point, we don't have anything to announce on that. What I would tell you is we've had a number of automotive OEMs and a number of Tier 1s that have come visited us over the last – well, we visit with them a lot, but over the last quarter we had a number come visit with us here in North Carolina and also go visit the Waper Fab in Mohawk Valley, and they leave quite impressed and quite satisfied with what we're doing. As many of you know, I've been in Europe multiple times, even during COVID, visiting with customers, doing my five-day quarantine to start that off, but then visiting with customers, and that's kept the level of engagement quite high. Both Neil and I were in Europe a couple of months ago. We were actually going back in the first two weeks of December for more customer visits. And, of course, the week before October 4th, I was in Detroit visiting with folks, including General Motors, and preparing for that announcement. So we've stayed high on the engagement list in terms of engaging with customers both virtually and live with them. And we're feeling really good about the development of the relationships we have. They see the fact that, you know, two years ago, we made the decision to increase output in March of 2020. We started, you know, moving dirt in Mohawk Valley. And they see that, you know, in a matter of, you know, a couple of months here, we're going to be running production, well, qualification runs in the first half of 2022, calendar 2022. to. And then, you know, getting our first customer purchase order for specifically for Mohawk Valley 200 millimeter equipment is really encouraging. So, you know, all of that is tied up pretty nicely. I think that's helped us win the business that, you know, the 560 million that we just got this last quarter, the 2.9 billion that we've got in fiscal 21. That's all really positive. And it's also helped us increase the pipeline. And, you know, that device pipeline doubling in the last two years, technically it's more than doubled because the $9 billion that we referenced at our last investor day had LED in it and obviously it doesn't anymore. So, you know, we're just feeling like there's a really nice transition happening with silicon carbide in the industry and the fact that we were pretty far ahead of anybody in terms of expanding capacity is proving to be a very positive thing for us all right thanks guys I'll pass it up thank you very much first off if I could Greg Looking at all the math, if you go through all the details of where you are in both the device fab in North Carolina

and the materials business and your plans for Mohawk Valley, it's hard to escape the reality that Mohawk won't be up and running in material revenue really until probably early 2023. I know you're going to ramp. I know the plans for ramping, but in terms of really starting to impact the top line, it doesn't show up until probably 23, and that gives you about maybe 18 months to hit your financial targets. So I just want to check some reality. You're going to need to be growing revenue at least 50% year on year every quarter and maybe even as high as 100% in the early stages in order to get there. And at the same time, isn't it also the case that the device business, the device fab in North Carolina is going to have to get their margins at least in the high 30s, probably even the low 40s into fiscal year 24 to hit the targets you have laid out here. does that ballpark make sense to you well you know our our target remains 1.5 billion dollars in 2024 and as we mentioned in the prepared remarks we're feeling pretty good about that you know the steepening of the demand curve is it's certainly there the demand isn't I would say an issue at all relative to

that target we're feeling very very good about that we have you know obviously a lot of effort in terms of getting Mohawk Valley going. And just recall, we, as part of the deal in New York, we got a pilot line. That pilot line was converted to 200 millimeter silicon carbide a long time ago, maybe a year ago or something like that. So we've been running 200 millimeter wafers through that pilot line for quite some time. We're seeing the initial MOSFETs and Chotky's off there. The yields are looking pretty good. So we feel like when we get the fab up and running, it's going to be in, it'll kind of have a running start, so to speak. I think from a North Carolina perspective, we made the change with Missy joining the team. She's made a tremendous amount of progress in a very, very short amount of time in terms of changing how the factory operates, The metrics that they're looking at and so forth and initial indications are really positive and So we've got you know good hope for some continued You know very strong progress out of that factory as we were as we're ramping Mohawk Valley Let me just add to that and I think you know if you look at you know the North Carolina fab You know while the cost footprint is higher We've also transitioned the fab and I've talked about it before we need to stabilize it We put over 100 tools into it over the last year or so, and we haven't really seen all the benefits of that.

So I think we'll get more improvement out of North Carolina as we move through the remainder of the year. The difference is that we're just talking about a different diameter and a bigger scale factory in Mohawk Valley, but I think that Durham still plays a very important role for us and the improvement that we can see out of it between now and that time frame you're talking about.

Great, thanks. If I could follow up with you, Neil. So, I mean, you mentioned again this quarter you had 50% lower wafer costs in Mohawk Valley than in Durham, and that didn't include the full benefit of 200 millimeter, but you also said, you know, 50% lower cycle time and 20 to 30 points better yield. The 50% lower wafer costs has caused quite a bit of confusion, not just among us, but some of your larger investors, and we spent quite a bit of time in the quarter going through it with IR. And really, you're the guy we've been trying to get a hold of in order to explain the specifics of that. So if I could just set the stage from the debate that's been raging all quarter, is if the 50% faster cycle time already captures amateurization of fixed costs across your wafer, so you kind of capture that in the 50% cycle time, and the 20% to 30% point yield improvement captures the lower breakage and better process control that you're going to get in this automated fab, where does the 50% lower wafer cost come from and in talking to Tyler through the quarter and he was maintaining that it didn't include any it's a hundred fifty millimeter versus 150 millimeter but your comments seem to suggest there's something with 200 millimeter so maybe you could explain for us finally what

goes into that 50 percent is it 200 millimeter is it is it something we're missing or is it captured in some of the other metrics thanks no the cycle time obviously is part of the wafer processing cost, but there's a lot more cost and dent in the you know in the model obviously than just the wafer processing cost okay so if you think about it going from 150 to 200 normally wafer processing cost would go up just by the nature of it in this case we're saying just on a nominal basis it's going down and if you take into account the 200 millimeter benefit it's you know you know well above you know 50 percent significantly above 50 percent so I think more than 50 percent is a fair way to talk about it in that sense and then of course, then you have to add the yield benefit on top of that, right? So the number of good die that we're getting off every wafer is 20 to 30 points higher. So just from a pure cost benefit standpoint, if you go down to the die level, that's well over 50% when you start putting those two things together. So I think, you know, 50% greater than 50%, I think, is a reasonable way to talk about at this point. And I think that we outline the site, you know, obviously to, you know, even better numbers than that in terms of the die level.

So the 50% lower wafer cost does capture to a large extent the large amount of breakage that you have on 150 millimeters in Durham and how that won't occur in Mohawk Valley that's where a lot of it comes from so even with a bigger wafer you're still getting better better wafer costs on it that's right yes the processing cost at 200 is better than 150 which which that doesn't take into account the change right so there's there's there's an improvement right there and then you get the benefit of going to 150 to 200 and on top of that not only do you get the bigger wafer with more dye on it you get you know the yield yield off that die is better so you get a better you know cost great thank you okay good evening and

thanks for taking my questions so um Greg I was hoping you could help us understand the the composition of the 560 million dollars in awards in the quarter can you maybe talk a little bit about how much of that is automotive versus distribution and you know how much of that is likely to turn as revenue within the next let's say maybe 12 months versus being a contribution to demand in the 24 or 24 plus time frame thanks Craig so let me hit the second question first.

So a very small percentage of any of that 560 will turn into revenue in the next 12 months. And that's, you know, industrial applications are definitely have a longer gestation period from design end to revenue ramp. And so it'll be maybe some, but it'll be relatively small. You know, the, and so, you know, not much is what I'm saying. There's not a whole lot of you know sort of consumer applications industrial is definitely a couple of years automotive typically is four or five years you know so a little bit longer period and then in terms of the design ends I don't have the exact numbers but I recall it to be about half is automotive for the 560 and then of the rest we've got some nice RF designer wins that that we've gotten our design that we've gotten, and then, you know, a very strong industrial play. And I mentioned, you know, a couple of these industrial cooktop and induction cooktop, a wall charger, elevator, an elevator application, you know, things that, you know, we wouldn't normally be able to cover. But with the partnership we've had with Aero now for a couple of years, we're able to reach those customers as well.

Great. Now, that actually bridges very well to my second question. Yes, you've had an excellent relationship with Arrow and your distribution partners over the last many, many years, and it's helped you cost-effectively serve emerging customers, emerging applications. The EV charging application, I would not call that emerging. There's a super customer out there in charging, a real pioneer that you've served from day one. and most of the hardware guys we talk to either have silicon carbide in their designs or coming into their next generation of designs. But when we talk to them, a lot of them really are buying through distribution. Do you expect this to play a major role in how the maturation of these relationships occurs? Has there been a process of companies getting to a certain size and then maybe being shared with distribution or moving over to direct purchases? How does this possibly evolve for you?

I think we have a distribution strategy that's playing very well for us, and I don't see any change of that strategy. I think we've got a really strong partnership, and I think that plays very well for the strengths that Arrow brings to the party in terms of the channel and the strengths that we bring in terms of product breadth and so forth. So I don't see that changing. Some companies have changed their model to more of a – they do their own demand creation across these thousands of customers, but, Craig, our footprint is just so small. it just wouldn't be viable for us we had a an opportunity to have one of our sales folks in Europe actually present to our board of directors about an opportunity that she won with a customer in in Spain and they did that through arrow and arrow had arrows footprint in Spain I believe was larger than our footprint in Europe and we have we have zero employees in Spain so it just in fact we don't have anybody to the left of France so and I think there's only one person in France so you know our footprint is really really quite small so we're we're we I think we've got a great strategy we're sticking with it and and I think we're gonna have this partnership for quite some time well congratulations on the strong quarter thank you thank you Craig silicon carbide is obviously a super attractive space right now and there's a lot of companies that are getting into this into this space we are the largest provider of silicon carbide wafer materials to the customer base, and we have long-term agreements with many different customers in this space, and basically all of our long-term agreements, well, the vast majority of the long-term agreements that we have are with customers that also have some kind of internal capability or an internal desire to have an internal capability, and And that's true with the vast majority of our long-term suppliers or customers. And I think strategically it probably makes sense for them to try to do that. I think this business of silicon carbide materials tends to be a lot harder than a lot of people think. And so what we're finding typically happens is we've had a couple instances already where we have a long-term agreement with a customer, and then they extend it and expand it and extend it and expand it, you know, again. And as they see their, you know, the internal effort just really is difficult. I don't think that changes at all. I think if I were them, I would do the same thing, and I think their strategy makes sense. But I think it's, you know, this growing of silicon carbide is not for the faint of heart. there's lots of tricky things associated with the technology we spent 30 years doing only this and I think you know we've grown the scale pretty nicely it was in one cue we saw you know you think of it as you know you know just like you

know a few million bucks not not not a huge amount however I think we've caught that back up and I think in the estimate that we're looking at we're seeing some you know forward progress on RF kind of in line what we thought previously so So that kind of gets caught back up, I think, in the new estimate we've given.

Thank you. The next question is from Carl Ackerman with Cali University.

Good afternoon.

This is for Carl Ackerman. Can you hear me okay?

Actually, no. It sounds very scrambled. Is there maybe something with your Bluetooth?

Is this better?

Yeah, that's way better.

Okay. Great. I have two questions, please. The first one going back to the GM contract. You've mentioned some of the multiple EV cars that it will be put into. Could you provide a few more comments on the number of platforms or product design?

And then as a follow-up to that, given the increasing amount of designing that you've been awarded, including GM, would you expect to more rapidly build out plan capacity mohawk thank you for the question and we can't give any more detail on the GM announcement other than you know what was out in the press so apologize for that we're excited about it it is across a number of different vehicles and you know it's a really solid announcement for us you know in terms of the the ramp-up of capacity maybe I'll let me talk to a little bit more yeah Obviously, we're seeing a steepening of the demand right now, and we are, you know, working really hard to satisfy that demand. It's basically a pull-in and a steeper ramp than we originally had anticipated, and quite frankly, I think that originally than anyone would have anticipated with the demand growing very, very rapidly for not only electric vehicles, but for silicon carbide solutions and EVs and across the industrial market. So maybe, Neil, if you want to give a little bit more color on that.

Yeah, then in terms of what we think we can do in terms of bringing on capacity faster, one thing we've got to remember, and I said it earlier, is we're going to triple the business here just over a few-year period. And if you think about bringing up new factories, purely like Mohawk Valley, which is a brand-new fab, you just want to be really careful in terms of the time frame in which you bring those tools up and start to expand capacity. So between now and 2024, we feel like the plan we've got is the right one and balances the risks in terms of bringing up a new fab obviously at a new diameter but clearly as we you know as we look out beyond that you know there is space in Mohawk Valley just a little bit over 50% of the clean room kind of is utilized on that you know 2024 timeframe and obviously we would look to you know fill in the rest of that you know capacity out beyond that you know in the meantime I think as we talked about earlier we've really got to look for ways to solution you know the capacity constraints you know within the four walls that we already have and that's really where we're focus right now all right thank you and my second question um could you discuss

some of the opportunities that you see to pass along pricing or mitigate some input of freight cost increases that we've seen across the industry especially with your expanded relationship with arrow yeah so I would say there's there's minimal impact here and we're in the very early phase of a pretty massive you know ramp most of our most of our design wins we have either even with the LTA you know agreements that we have in place and so forth are you know longer term pricing agreement so I'd say the minimal impact there great thank you and congrats again thank you thank you the next question is from

Amber Shrivakava with BMO, you may proceed.

Hi, thank you. Neil, I had a clarification on the depreciation impact, the positive impact from longer depreciation. Is that going to flow through for the next two quarters and beyond as well? And then I have another clarification, please.

Yeah, Amber, so let me just reiterate so we can be as clear as we can on that. So Q1, roughly 30 basis points, An incremental one to two points as you get into two queues, so think about 150 basis points. And then an additional one to two points, you know, that will bleed in in the back half of the year.

Got it. Got it. Thank you. And then I just wanted to come back to the CapEx and the capacity. Just wanted to make sure I understood. In the Durham FAB, you're adding capacity as well, right? But the $475 million CapEx is primarily for Mohawk and there's additional for Durham or that's the total that you will be spending? It wasn't very clear to me.

So it's $475 in total. A big piece of that is the final kind of, I'll call them outlays for Mohawk Valley. So remember, we outlay and then we get reimbursements. We've seen about $60 million or so of reimbursement of the $500 million so far. In Durham, just remember there are two pieces to this. There's the materials factory expansion and then there's a Durham fab. in the durham fab we've largely completed that um execution in terms of bringing up the factory from a from a mosfet standpoint and the and the investment we're making now that's showing up for the remainder of the year is really around the materials expansion for 200 millimeter in the facility that greg mentioned earlier got it got it so by 2024 durham would would would have what percent of capacity would be mohawk valley versus durham and then and And did I hear you say correctly that you would have 50% additional clean room space by then to hit the $1.5 billion?

You feel you have sufficient capacity, but then beyond that, you have 50% additional clean room capacity, correct?

Yeah, I think it's a little more than 50%, I think, Ambridge, we'll have filled out, and we'll have a little less than that for the remainder of the FAB and Mohawk Valley. So there was a period beyond then we could fill in more tools into the clean room in Mohawk Valley. And then, you know, in Durham, you know, let's continue to try and drive as much capacity as we can through. We'd expect, you know, a little north of 70% of the device revenue, the total device revenue, you know, coming out of Mohawk Valley as you get out to that 2024, you know, time frame.

Got it. And materials?

All materials will be fully out of Durham. So we have, you know, materials capacity that we have today. And then we are building a new – we're fitting out a new facility here on campus. as we talked about in the prepared remarks, that will support essentially 200 millimeters. So when we're done, what we'll have is a 150-millimeter small amount of that fab work will be done here in Durham, but materials will be driven through 150-millimeter that we've got today, but a much larger expansion on 200 millimeters. So we have a pretty significantly sized 200-millimeter supply chain through materials in Durham, and then fabbing through Mohawk Valley.

Got it. Thank you very much. I appreciate the color.

Got it.

Thank you, Mr. Shravatska. The next question comes from the line of Colin Roche with Oppenheimer. You may proceed.

Thanks so much for sneaking us in here, guys. Can you just give us a sense of the next event device opportunity number of how much of that is 400-volt devices and how much of that is 800-volt-plus within that $18 million number that you're talking about?

Yeah, so from an automotive perspective, what you're really talking about there, I believe, is the voltage for the car manufacturer's bus. It's either a 400-volt bus or an 800-volt bus, and then our devices are actually higher than that to support those kinds of levels of devices. They can be 750 volt or 1,200 volt or a variant thereof. What I would say is we are winning a business both at 400 and 800 volts. And I would say that a lot of our customers are moving and transitioning from a 400 volt bus to an 800 volt bus for automotive applications. And that's primarily because they get better efficiency and they get way better charging, you know, capability as well. So there's kind of a transition going on, but we've got wins in both those areas.

Great. And then just in terms of the qualification process, you guys gave us some detail and just, you know, starting to work with the tools. But in terms of full automotive grade qualification on the factory, how far along are you guys with that? and how is that progressing here? Can we think about you guys really shipping the material out of Milwaukee that's been fully qualified for the customers?

Yeah, so we will begin qualification. Our internal qualification will be in the first half of the year, and when we do that internal qualification, that will pass the automotive qualification requirements. So we'll be doing those internal qualifications to the automotive customer's requirements. And then in the back half of the year, the customers will do their own qualification, and that's where they take qualified devices and put them into their inverters or their equipment and run whatever tests that they need to do on that. So that's kind of the process that we'll go through.

Perfect. Thanks so much, guys.

I will now pass a call back over to Greg Lowe with Wall Street for closing in March. You may proceed, Mr. Lowe.

Well, thanks a lot, everybody, for taking the time to visit with us today, and we look forward to continuing to work with you on November 17th at our Investor Day in New York. Thank you very much, and have a good evening.

Conclude the Wolfspeed Incorporated first quarter fiscal year 2022 earnings call. Thank you for your participation, and enjoy the rest of your day.