Jed Dorsheimer: As a follow-up, I know on wearables, we’ve talked about Apple Watch in terms of the value of the additional battery life is not as great as that of a phone. But I’m curious, when we look at Apple Vision or when we look at something that only has two hours of battery life certainly gating the adoption of that product, how do you think about the value in terms of the — and therefore, the gating function of the battery to kind of help those markets open up to larger volumes?
Raj Talluri: Yes, absolutely. That is — there are more and more applications like that coming out that absolutely need much higher energy density. And I am one of those proud owners of Apple Vision Pro. I love the device, and I hate the 2-hour battery life. It’s — the single biggest problem with the device is the battery life. So — but it’s a phenomenal device. And I think the reason the device is so great is because of the performance that’s in there with the memories and the processors and the displays. And there’s an IMAX app, I tried on it, and it just feels like you’re in a movie, in an IMAX theater, but the battery goes down pretty fast. So I think the ASP premium is there in those markets because that’s, I think, all told, $4,000 product, and people will be willing to — I mean, what if you could double that battery life?
That’d be awesome. So I think a lot — I mean, I actually think that is just the first of the many products that are coming. And this is what I’ve mentioned when I first came to this job is that the performance and the end user experience that great processors, great memory devices, great displays, great cameras can deliver is huge. We haven’t seen how good that can be. And now, we are seeing with the early products coming out. There will be a lot more like that, that will come out. And you’ll see that to deliver the experience that these advances in chips and cameras and memories as really delivered, you can’t really realize them until you have a better battery. And that’s why I think that once we produce this battery, there will be a lot of opportunity for a differentiated ASP.
Operator: Our next question comes from Derek Soderberg with Cantor. Please unmute your audio and ask your question.
Derek Soderberg: Hi, everyone. Thanks for taking the questions. I wanted to start with, on the slide deck, it looks like you guys have the goal of multiple smartphone launches in 2025. I’m wondering what you’re going to need from a production capacity standpoint to achieve this. Can you do that with a single line? Do you need two lines? Any detail on that would be great. Thanks.
Raj Talluri: Yes. So I think it’s important for me to like explain how the process works. I know I get asked this question a lot. So if you think about where we are in our journey, we now have a recipe with EX-1M that we feel pretty good about that actually meets the requirements of the market. We have our factory coming up now, and we feel pretty good that we’ll be able to get some samples in April from that. And so, what happens next, right? We’re going to give these to our customers. They’re going to test them, and they’re going to give us some feedback, and they’re going to give us feedback on maybe some optimization on dimensions of how big the battery should be and so on. We’re going to make those changes because we have an Agility Line that can actually do different size batteries.
We’re going to give those back to them, and they’re going to test them again. And like I said, we are sampling multiple cellphone customers. And when you do that, typically, it’s nine months to 12 months, as I mentioned, on how long it takes them to qualify the battery because you remember, we’re talking about 1,000 cycle battery, which means they’ve got to charge-discharge for 1,000 cycles to make sure it’s okay. That will take some — that will take the nine months to 12 months. And then, we get designed into, if things go really well, maybe multiple models. They’ll start with one model. If things go really well, maybe you’ll have multiple OEMs. So the amount of volume that we need is going to depend upon how these qualification cycles go.
And that’s going to get how much capacity we need to build. We do have one line now that can produce, as I mentioned, around nine million batteries or so a year. And we’re going to be watching those customer qualifications closely and making decisions on how to make sure we have enough capacity based on how the design wins are going. And that’s something that, as this year goes through, we’ll continue to update you on that.
Derek Soderberg: Got it. And as my follow-up, Ajay, you spoke a bit about yield on the last podcast, and you mentioned a bit about throughput just now on the video. From your perspective, how is the equipment as a whole? I know you guys did a bunch of proof-of-concept tests. Just curious your thoughts and confidence level around everything together, hitting sort of that 1,350 UPH metric and share any incremental details on, how throughput is tracking as well? Thanks.
Ajay Marathe: Sure. Yes, good question. The yields, I mean, as a part of the SAT, as Raj mentioned, we are doing some rigorous, just take one example, laser, for example, there’s about 25, 26 critical to quality parameters that we track. We’re doing that in SAT, making sure the CP and the CPKs of that is, at good more than 1.0 CPK levels. We’ll further fine tune that to 1.33. But yes, fairly, fairly looking fairly good that we are, when we clear the SAT, that the yield on certain, critical processes throughout the line, from our learnings in Fab 1 will not only hold, but will start at the right time, at the right place. So, kind of looking more and more confident we’re gaining actually as we finish the SAT. The POCs helped us design the equipment right.
Now the SATs are helping us ensuring that the yields are going to hold. And then the SAT, which is going to happen here, some of it is already started. In fact, the machines behind me are going to SAT right now, are going to assure that the fine tuning will help us get the yield even at a better place, right? So that’s yield. UPH-wise, Zone 2 and 3 is really the battery line, which runs at, or which will run at 1,350 UPH. Zone 1 and 4, we are tuning it, to as a farm and we’ll do the 1350, but we can keep on adding to that, to make sure it is debottleneck. So, 1 and 4 are farms. They will be adjusted to 1350. 2 and 3 are the ones, which are kind of locked in. And we’re feeling good about both these things.
Operator: Our next question comes from Anthony Stoss with Craig-Hallum. Please unmute your audio and ask your question.
Anthony Stoss: Hi Raj, a lot of my questions were asked, and maybe now that you’ve had Routejade and under your belt for a while. Can you update us what you’ve learned from Routejade and then also just to get Farhan in the action here, just your view on OpEx for March and where OpEx trends for the rest of the year?
Raj Talluri: Yes, Routejade, I visited the factory, I think a few months ago. We are super thrilled by the acquisition. It’s really phenomenal. I mean, this company has been making production batteries, shipping for over 20 years. And it’s an expertise that really complements what we have in the company. They understand battery manufacturing. They understand safety. They understand different end markets. And more importantly, their coating expertise is phenomenal. So, the thing I want to mention is, that when you coat a roll properly to the right specifications, it makes it much easier, to cut it on the laser and to stack it. So, it’s very important you own the incoming material quality and specification, and which is one of the problems we had when we were running in Gen1, that we were relying on, third-party tool coaters who weren’t that motivated to really to coat it like how we wanted it.
Because, you got to remember, we don’t just take rolls and make them jelly rolls like other people that they used to supply to. We cut them with lasers, so they’re very different, and we stack them. So, it’s a, I realized when I came in last year that, it was a key piece of the manufacturing process we absolutely needed. And now, we are using that capacity to even for Ajay to do his FAT and SAT and so on. So, when that material comes out, we’re able to quickly go back and forth between making sure its coating is right and the laser cutting is right and so on. So, it’s like an end-to-end optimization. The second thing we found is that, the team at Routejade has two things that they do really well in addition to the things I mentioned. They know how to make high-current batteries.
So, these are batteries that can actually propel things like run electric motors, run drones, run military applications. That’s a very unique value proposition that, actually we are able to now looking at how to extend the customer breadth there. And the second one, is they can make odd-shaped batteries. They can make donut batteries. They can make different-shaped batteries, because of their ability to, the way they laminate and the way they stack batteries. So, we have some customer base that actually overlaps that we’re able to now go in and also present some of the silicon anode-based batteries. But some customer base where, we’re able to sell Routejade made, graphite batteries. And so, we will continue to spend more time, and grow the revenue of that company that we acquired.
I mean it’s one team now. So, super exciting and it’s very fortunate us that we were able to get the acquisition done quickly.
Farhan Ahmad: So, yes, touching on the OpEx side, from Q4 to Q1, it should be similar level. From Q1 to Q2, there should be a decline, because of the $18.5 million of the depreciation that we talked about, and also because of the actions that we have taken in Fremont, some of those benefits will come through. So, you should get additional low single-digit kind of a benefit like that should also decline. And then for the year after that, we should be holding it steady, maybe go up slightly towards the end of the year. For the full year, like – if you look at the EBITDA of the company, you should kind of think of it for the full year very similar to what we had in ’23 and fairly steady through the year as well.
Anthony Stoss: Very good. Best of luck, guys. Thank you.
Operator: Our next question comes from Gabe Daoud with Cowen. Please unmute your audio and ask your question.
Gabe Daoud: Thank you. Thanks, everyone, for all the prepared remarks and Ajay for the great video. Raj, I was hoping we can maybe just go back to EX-1M and EX-2M. There has already been a lot of discussion around it, but just curious if you could maybe quantify what the energy density targets are for each and just how that compares to leading edge mobile phones in the market today?
Raj Talluri: Yes. We have not put out exactly a precise target mainly, because we are making the right, I would say, trade-off between energy density, cycle life, fast charge, safety, and then also the fast charge. And that is very important. It will definitely be higher than what is in the market today. I think we put some slide – we put in our investor deck what we expect to get to on EX-2M. Where exactly EX-1M will land, is a decision we’re going to make together with our customers. As I mentioned, it’s not just one parameter that drives a dozen driver design wins. It’s a sum total of all those five parameters that, we need to be thinking about, and that’s where we are focused on. It will definitely improve over what’s in the market for sure. We just want to make sure that we did it right with our customers, because they also are involved now in the trade-off that they actually want to make, to get the right battery in time.
Gabe Daoud: Yes. Okay. Okay, yes that makes sense. Certainly a lot of parameters you need to solve for, depending on the customer. Okay. Then just as a follow-up, very clear on when EX-1M and EX-2M are expected to be shipped for customers to sample. But when will the cells actually be coming off the high-volume manufacturing line? I guess, I’d imagine that some customers would want to see cells off of that line as part of the qualification process too. Is that within the nine to 12-month window that you talked about?
Raj Talluri: The short answer is yes. The good news is our agility line and the high-volume manufacturing line, use the exact same modules. So in that sense, it’s – and also from the same place. They’re both in Malaysia in the same factory that we see where Ajay is right now. So in that sense, there is a lot of similarity. So our expectation is, that once they get samples from one, moving to the other one, it should be a short cycle time call. Because they’re really the same machines. It’s just the scale is different, which is actually a very key part of our strategy to reduce that cycle time. But ultimately, look, we’ll get them the samples, but the exact qualification time, like I said, is going to depend upon phone level of qualification. And when I talk to my customers, they basically tell me, look, Raj, depending upon how good your first samples are and where we put it, it’s anywhere between nine and 12, and that’s kind of what we are looking – working towards.
Gabe Daoud: Okay. Okay. Got it. Got it. Great. Thanks, Raj.
Raj Talluri: Absolutely.
Operator: Our next question comes from Ananda Baruah with Loop Capital Markets. Please unmute your audio and ask your question.
Ananda Baruah: Yes, good afternoon, guys. Thanks for taking the questions. Really appreciate it. I guess the first one maybe is for Ajay, if you’re still online, Ajay. Just to the earlier question about yields, is there a useful way to think about, where you guys think yields, in Fab2 will be in April, May when you start putting out legitimate samples. And then are there yield targets, through the year as well? And I guess I have a quick follow-up, but like what’s the value of the yield target that you guys have as well? And I have a quick follow-up after that. Thanks.
Ajay Marathe: Good question, Ananda. So all the learnings and all the root cause analysis that we have done on the Gen1, yields that for the last whole year that we have been sort of ramping up, ratcheting it up slowly. Where we ended in Gen1, that’s where we will begin in Gen2. All the learnings have been played in into the Gen2 equipment and the design, and what Gen1 could not provide, we – have made sure the design accommodated that here in Gen2. So we will start there. Pretty decent yields, mostly all CPK, windows of the process driven, more than 1.1, 1.2 CPK kind of thing for every process step. There are several yield points during the line, so you can multiply those and you get a pretty decent yield. But then immediately after that, all the fine tuning and within the three quarters, we are going to deliver, upwards of 90% plus yield in the Gen2 line. That’s how we are thinking, and that’s how we are planning actually, and the SAT, SATs are supporting that.
Ananda Baruah: So that’s super helpful. Thanks. Yes, super helpful. And I guess the follow-up is maybe this is for Raj and Farhan as well. Like what, in terms of your margin model, right? So let’s say you hit the 90% plus yield targets that Ajay just spoke to, what, is that at scale margins? Is that in the margin model? I guess, where are you in the margin model when you start shipping, kind of volumes of those kinds of yields into initial customers – at production?
Raj Talluri: Yes, that’s the right number. That’s the right number to think about. I mean, look, this is consumer products, right? I mean, we’ve all done this with the processors and memories, and Ajay and I have done it for, I don’t know how many decades. But you got to get to 90% plus yields. I mean, high 90s is where we really need to get to. But we have premiums that we believe we can command, because of what we’re able to provide. And that will help us for a while. But ultimately, we got to get to those numbers. And I think, we factored that in into how the FAT is done and SAT is done. And that’s kind of the important part here is that the acceptance criteria for the machines is to be running at that level of CPK so that when we get them, and we string them all together, it shouldn’t take, hopefully it shouldn’t take a lot of optimization, to get to target yields. So, that’s kind of what we’re planning.
Ananda Baruah: Okay, awesome. Thanks a lot. Appreciate it.
Operator: Our next question comes from Chris Souther with B. Riley. Please unmute your audio and ask your question.
Chris Souther: Hi, guys. Thanks for taking my question. I just wanted to follow-up on, you talked about a nine to 12 month to qualify for some of these wins. Is that after the EX-1M is already in customers’ hands, or are we already in that like nine to 12 month? Just some of the samples of, prior sales you’ve supplied to some of these customers. And then, should we think about is there kind of a lead time, between design in and kind of a launch that’s a good kind of rough time frame we should expect? I just wanted to kind of get a little bit more on the cadence there.
