Navitas Semiconductor Corporation (NASDAQ:NVTS) Q4 2022 Earnings Call Transcript

Navitas Semiconductor Corporation (NASDAQ:NVTS) Q4 2022 Earnings Call Transcript February 23, 2023

Operator: Thank you for holding. And welcome everyone to the Navitas Semiconductor Fourth Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I will now turn the call over to Stephen Oliver, VP, Corporate Marketing and Investor Relations. Mr. Oliver, please go ahead.

Stephen Oliver: Good afternoon, everyone. I’m Stephen Oliver, Vice President of Corporate Marketing and Investor Relations. Thank you for joining Navitas Semiconductor’s fourth quarter and full year 2022 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 fourth 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.

Gene Sheridan: Thank you, Steve and welcome to everyone on the call today. I’m very pleased with our Q4 results, which came in above our midpoint guidance across all key metrics. For 2022 in total, I’m especially happy with the dramatic expansion and diversification we achieved both organically and through acquisitions. Navitas entered this year with a solid position in five major growth markets with leading edge GaN and silicon carbides, along with complimentary silicon drivers and controllers. Such a position give us confidence to reiterate our expectations to double our revenues in 2023 as compared to 2022. This month, we completed the buyout of our Silicon Control, our joint venture, constituting our third transaction in just nine months.

All major steps in building up portfolio of leading edge GaN, silicon carbide with silicon-based digital isolators and analog controllers optimized for wide band-gap materials, which we believe is unequal in our industry. This pure-play focus on next-generation power semiconductors without any distraction or dilution by traditional silicon power devices, uniquely positioned Navitas for growth and leadership in next-generation electrified systems from EV and renewables to industrial and appliance markets to mobile consumer and data center segments. In total, these transactions have expanded our market opportunity by 75% from $13 billion to over $23 billion per year by 2026. 2022 is an extraordinary year for our company. We rapidly expanded into these new market segments transitioning from a company in 2021 that was 100% mobile consumer focused to a more diversified set of markets resulting in 2022 revenues with approximately 30% in appliance and industrial, 12% in solar and storage, 5% in EV, and 40% in mobile and consumer segments.

With these diversified markets, also comes a diversified regional footprint with 24% of our 22 sales in North America, 32% in Europe, and 44% in Asia. Let me explain further about our joint venture controller transaction. Elevation Semiconductor was a JV created in 2021 with Halo Microelectronics. The JV was started to create application-specific silicon antelope controllers optimized for high frequency GaN and silicon carbide to enable even higher efficiency, density and integration at a lower cost. As you know, Navitas has a unique capability with organic integrated circuits. Much of what we’re integrating again has traditionally been designed into these silicon analog controllers. With this new capability and controllers, we can accelerate our pace of development and innovation with the optimal partitioning and integration between the silicon controllers and again, power devices to deliver more value and a more complete solution to our customers.

The initial products from this venture target mobile chargers, consumer adapters and appliance auxiliary power supplies. Over time, we expect this technology will be introduced in all of our target markets, including EV, solar and storage, data center and more industrial applications. We closed the Elevation transaction last week with 20 new employees joining our company, composed mainly of design applications, products and test engineers. The first generation products were introduced last year and already have generated dozens of customer lens and appreciable ramping revenues. These products will be rebranded as Navitas plus we will launch a new generation family in March at the APEX Expo Electronic show. Let’s turn our progress to each of our target markets.

In EV, we’ve established a strong position with our silicon carbide technology in ultra-fast roadside chargers. Our level three DC fast chargers deliver up to 350 kilowatts of power or up to 20 miles per minute of charging, and at 10% to 80% charge in only 18 minutes dramatically reducing range anxiety concerns for consumers. Our silicon carbide differentiation resides in the technology itself in which we deliver industry leading in-circuit efficiencies and cooler temperatures. Furthermore, level three charger architectures are moving to a higher bus voltage from 1000 volts to 1500 volts, which helps to increase power density, simplify designs, and further improve efficiency, reliability, and cost. A 1500 volt bus requires up to 3,300 volt silicon carbide device capability.

A voltage range for Navitas silicon carbide brings unequal performance with limited competition. Our silicon carbide technology has already been adopted by over a dozen roadside charger customers and is being integrated in over 50% of the U.S. roadside chargers, including Electrify America and EVgo. Just one of these customers, we expect shipments to approach a million units by the end of Q2. The total roadside charger potential for selling carbide is estimated to be over $1 billion by 2030, growing at a 30% annual growth rate. We believe this year’s rollout of the Inflation reduction Act, which includes $7.5 billion for EV charging infrastructure, will accelerate this roadside charger growth rate and adds significant upside to this market.

This month, the Biden administration announced a goal to install a half a million EV chargers in the U.S. by 2030 with all EV chargers funded through the bipartisan infrastructure law built in the United States. Also by July 2024, at least 55% of the cost of all components only to be manufactured domestically, which matches well with our Texas based silicon carbide wafer manufacturing with our supply chain partner X-FAB. In addition to the roadside chargers, our silicon carbide technology is in development or production for EV onboard chargers with major customers that include General Motors, BYD, and Mercedes AMG. As previously announced, we have created a joint EV design center with Geely, a rising China-based EV player with almost 10% of worldwide EV sales in 2022.

Photo by Jonas Svidras Unsplash

This center will initially co-develop next-generation onboard chargers for Geely, utilizing a combination of GaN, silicon carbide and digital isolators to address both 400 volt and 800 volt battery system. With the Geely Center and our existing EV system design center, we are developing five onboard system platforms supporting 10 customer projects to utilize our GaN or silicon carbide and we are still on track for our first GaN based EVs in production in 2025. Let’s turn to renewable energy. We installed solar power capacity is expected to exceed that of natural gas in 2026 and of coal by 2027 becoming the largest in the world, reflecting a 3x increase in installed capacity from 2022 to 2027. In commercial string inverters, we have over 20 customers in production or development today, including AP Systems, Power Electronics, Chint, Growatt, Sungrow, BYD and X-FAB.

As with EV, DC fast chargers, bus voltages and solar and energy storage are also rising to 1500 volts, driving more of this market to our strength with 3,300 volt silicon carbide capability. As recently announced, has achieved 25°C cooler temperatures and 3x longer expected lifetime in their 4.6 kilowatt solar string inverters. Thanks to our unique trench-assisted planar, silicon carbide technology. For residential solar, microinverters convert low voltage DC to high voltage AC power at 350 to 450 watts per individual panel, here, GaN is still on track for a significant 2024 revenue ramp with multiple solar residential customers. We also anticipate accelerated growth in this segment as the Inflation Reduction Act dedicates over $50 billion to solar, storage and wind starting this year.

Turning to home appliance and industrial applications. We continue to make excellent progress across GaN and silicon carbide, and we now have over 45 customer projects either in production or development. In gallium nitride, our GaNSense half-bridge ICs are shipping in high volume in the appliance market, while silicon carbide is shipping in volume today with high power industrial motor control applications. In total, we anticipate 2023 appliance and industrial revenues will increase nicely as a percentage of Navitas revenues. Here again, the Inflation Reduction Act dedicates $9 billion to upgrade U.S. home appliance efficiencies, which we anticipate will create additional tailwinds in this segment. In data center news, the European Union’s high efficiency requirement for power supplies known as Titanium Plus came into effect on January 1.

Navitas dedicated data center team continues to develop four high performance system platforms to deliver Titanium Plus efficiencies, higher power density and lower system cost compared to legacy silicon systems. These system platforms have enabled 10 customer development projects, all of which target production later this year or early 2024. In mobile, fast and ultra-fast charging for smartphones and laptops, design wins continue at a strong pace despite the market slowdown in 2022. Last year, Navitas and our customers developed nearly 100 new GaN fast charger designs from Samsung, Oppo, Lenovo, Dell, Anchor and more plus the recent 210 watt GaN fast charger for Xiaomi’s Redmi Note 12, which enables 100% charge in a lightning fast 9 minutes.

In addition, our GaN technology is utilized in the new OnePlus 210 watt fast charger and Navitas just featured in the global OnePlus 11 5G launch alongside Google, Qualcomm and other major technology partners. And this week we announced the Realme GT 3 with a 240 watt GaN fast charger. Given our market expansion and diversification, we anticipate our mobile and consumer business to be appreciably less as a percentage of revenue in 2023 as compared to 2022. In summary, 2022 was a year of significant expansion and diversification of technology markets and regions. Now with leading edge GaN, silicon carbide, digital isolators and analog controllers, we are uniquely positioned to displace legacy silicon power devices in multi-billion dollar established markets, while also enabling the electrification of major new growth markets like solar, energy, storage and electric vehicles.

Now over to Ron Shelton, our CFO.

Ron Shelton: Thank you, Gene and thanks everyone for joining us this afternoon. In my comments today, I’ll first take you through our fourth quarter and annual 2022 financial results. Then I’ll walk you through our outlook for the first quarter and the full year of 2023. Revenue for the fourth quarter grew to $12.3 million and represents 68% growth from the fourth quarter of 2021. For the full year of 2022, we grew revenue to $37.9 million, representing year-over-year growth of 60%. This was in line with our guidance. Looking back, 2022 was truly a pivotal year for Navitas. As we entered the year, we had most of our revenue coming from GaN based products focused on the China mobile market. We exit the year with our end markets, diversifying beyond that smartphone market into home appliances, solar, data center, industrial and EV.

Not only have we maintained our leadership position in the GaN market, our acquisition of GeneSiC immediately gave us entry into the silicon carbide market with industry leading products for which we are seeing significant demand. Together with GaN, we exit the year as a pure-play next-generation power semiconductor company with a complete set of products, industry-leading technology, organizational scale and our most important asset, a group of incredibly talented and committed employees to successfully address the market opportunity totaling over $23 billion by 2026. Before addressing expenses, I’d like to refer you to the GAAP to non-GAAP reconciliations in our press release earlier today. In the rest of my commentary, all costs and operating expense commentary will refer to non-GAAP costs and operating expenses.

Non-GAAP gross margin in the fourth quarter was 40.6%, an increase from 38.4% in the third quarter as we benefited from a shift in the mix of our product revenue. For fiscal year 2022, non-GAAP gross margin was 40.8% compared to 45.4% in the prior year, as we were adversely impacted during the year by higher wafer prices from TSMC and a strategic decision early in 2022 to absorb lower margins in a targeted new market. Margins in this new home appliance industrial market will significantly expand through 2023 as we transition to cost optimized Gen 4 GaN products. Total non-GAAP operating expenses were $16.9 million for the fourth quarter of 2022, our non-GAAP SG&A expense was $7.1 million, Non-GAAP R&D was $9.8 million in the fourth quarter of 2022.

Fourth quarter expenses reflect a full quarter of GeneSiC operations and continued investment in that business, a full quarter of consolidating results from our joint venture, which we subsequently acquired and closed last week. And as we mentioned in our remarks last quarter, increased compensation including a bonus paid to China employees, which was effectively an additional month of salary. For fiscal year 2022, non-GAAP operating expenses were $56.2 million compared to $35.3 million in the prior year. This increase reflects continued significant investments in new products, technologies and markets, and includes expenses rising from the completion of our GeneSiC and VDD acquisitions and consolidation of our joint venture beginning in Q3.

All of these investments are laying the stage for significant growth in the future. Putting all this together, the non-GAAP loss from operations was $11.9 million compared to a loss from operations of $6.9 million in the fourth quarter of 2021 as we continue to invest simultaneously across new markets in this phase of our company’s growth. Our weighted average basic share count for the fourth quarter was 152.4 million shares. Turning to the balance sheet, it continues to remain strong with high levels of liquidity. After paying off debt of $4.5 million, cash and cash equivalents at quarter end were $110.3 million. Components of working capital will continue to remain a focus and we are seeing progress on that front. Accounts receivable was $9.3 million compared to $10.9 million in the prior quarter, reflecting improved day sales outstanding.

Inventory rose to $19.1 million compared to $17 million in the prior quarter, and that was largely due to the transition from one generation of products to the next. We carefully manage that transition and days in inventory will relatively flat sequentially. Over time, we’re confident that our inventory levels will trend towards our long-term target for inventory turns of better than 3x. Moving on to guidance. For the first quarter, we currently see revenues as relatively flat on a sequential basis. This represents substantial year-over-year growth of approximately 85% over the $6.7 million we recorded in the first quarter of 2022, and it reflects expansion of our product lines and new market opportunities. Our guidance assumes continued strength and demand for silicon carbide products with some limitations in supply and shortened quarter due to Chinese New Year.

As we look further out into 2023, we believe with our expansion of supply availability for silicon carbide products, recovery in the mobile market beginning in Q2 and anticipated expansion into new markets that we can double revenue over 2022. Gross margin for the first quarter is also expected to be relatively flat on a sequential basis due to an increase in GaN wafer pricing from our foundry partner. However, we continue to expect that gross margins will expand over the next few quarters as we transition to Gen 4 GaN products and gain share in new higher margin market segments. For these reasons, we expect our gross margins will continue to grow through the year and trend to the mid-40s as we exit 2023. In total, our non-GAAP operating expenses in Q1 are expected to be approximately $18 million, and this excludes stock-based comp, transaction expenses and amortization of intangible assets.

The sequential increase is due primarily to compensation increases and incremental audit fees. We will continue to invest in growth, but expenses will decline as a percentage of revenue as we scale throughout the year. With that in mind, we expect that expenses will increase at a rate of mid to high-single-digits on a quarterly sequential basis. For the first quarter of 2023, we expect our weighted average basic share count to be approximately 156 million shares. So in closing, we are pleased with the results for the quarter and we are excited about the significant opportunities in front of us. As the only pure-play next-generation power semiconductor company in the industry, we intend to invest resources in our targeted end markets, products and technologies with the intents of becoming one of the fastest growing power semiconductor companies in the world.

Operator, let’s begin the Q&A session.

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Q&A Session

Operator: Our first question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.

Ross Seymore: Hi guys. Thanks for letting me ask question. Thanks for the end market color. The diversification is very impressive to see. Just wondered if you thought by those end markets within the doubling of revenue growth and even the first quarter guidance, any sort of directional color by those end markets.

Gene Sheridan: Yes. Hi, Ross nice to hear from you. Yes, I think each of them are growing. We commented that the mobile recovery we see starting in Q2, but given that recovery is starting in Q2 and flowing into the second half of the year, we see that growing less than the others overall, but each market shows strong growth year-on-year.

Ross Seymore: And then Gene, for my follow up, you talked about the gross margin increasing and exiting the year at about 45% or the mid-40s. Can you just talk about the puts and takes? I know mix is going to be a tailwind, Gen 4 traction. But any sort of color on those metrics.

Gene Sheridan: Really as Ron said, it’s primarily the Gen 4 transition. Silicon carbide prices are stable. Those margins are north of 50% as we’ve commented before, will also benefit from increasing margins as the GaN enters higher margin, higher power markets. So those are the primary factors driving that incremental improvement.

Ross Seymore: Great. Thank you.

Gene Sheridan: Thanks, Ross.

Operator: Blake Friedman with Bank of America, your line is open.

Blake Friedman: Hi. Thanks for taking my question. Just wanted to follow-up on the gross margin side of the business. Is there any way you can quantify the headwind that’s coming from the higher wafer cost that you mentioned in the opening remarks?

Gene Sheridan: Yes. We had actually mentioned it, it’s been commented dawn by many in the industry. There was a 6% additional increase one-time that kicked in, in January of this year. That’s causing some of the muted margin or flat margin Q4 to Q1. But to put that in perspective for the full year that’s no more than 1% gross margin impact and is quickly offset by our margin expansion and cost reduction coming from Gen 4.

Blake Friedman: Got it. Helpful. And then just quickly following-up, I believe you previously said that SIC-related sales were on track to grow at a 60% CAGR into this year. I just want to confirm that you remain on track with that target for this year.

Gene Sheridan: Yes. We haven’t given a breakdown or a specific growth target for GaN and SIC, but it’s fair to say both are growing very strongly year-on-year, contributing to that doubling.

Blake Friedman: Great. Thank you.

Gene Sheridan: Thanks, Blake.

Operator: Tristan Gerra with Baird, your line is open.

Unidentified Analyst: Hi. This is Tyler on for Tristan. Thanks for taking the questions. Could you provide an update on the adoption rate in smartphones for GaN that you currently see? And then maybe provide a year-end target of where you think adoption rates could go?

Gene Sheridan: Yes. Hi, Tyler. Thanks for your question. Yes, I think as we’ve described before, a few factors. Number one the adoption rate is we don’t have a specific percentage, but it’s certainly very strong in what we call the ultra-fast chargers, 100 watt and higher you saw us highlight a number of them. We see that trend now moving and strong adoption moving into more mainstream in the 60 to 100 watt range. And we see some adoption picking up even below that. But certainly the strongest adoption is in that 100 watt and above, and we think that will continue. The other comment I would make is we’re also on track for system cost parody with silicon chargers that will contribute heavily to accelerating the adoption that mainstream category of sort of 30 to 100 watt range.

Unidentified Analyst: Great. And then for my follow-up, what are the implications of the ramp of AI and data centers on power supplies and the potential benefit for the adoption of your GaN technology in the data center?

Gene Sheridan: Yes. Great question. In fact, we didn’t really give that color, but you have two fundamental challenges. You’ve got these new standards for higher efficiency Titanium Plus demanding higher efficiency. At the same time, the AI intensive data centers are demanding more power. That’s putting a lot of pressure on the power spies that have to deliver on both of those requirements. That pressure of course is great for GaN because silicon struggles to deliver the higher power density, but also struggles to hit the higher efficiencies of Titanium Plus. So we think all of that is contributing to the acceleration in that market. And of course, we’ll be launching our first GaN-based data centers as we talked about, or shipping into those markets later this year and ramping significantly into 2024.

Unidentified Analyst: Great. Thanks again.

Gene Sheridan: Thanks, Tyler.

Operator: Kevin Cassidy with Rosenblatt Securities, your line is open.

McClain Culver: Hi guys, this is McClain on for Kevin Cassidy. Thanks for taking my question. In your prepared remarks, you spoke briefly on this. But could you give us some detailed commentary on the current silicon carbide supply dynamic? Thanks.

Gene Sheridan: Yes, very good question. We didn’t talk much about it, but last quarter we announced that we signed a multi-year long-term agreement with X-Fab and the material suppliers for the silicon carbide substrate, an EPI that enables a 5x increase in supply from middle of last year when we acquired the company throughout this year and ramping into next year. So that’s a major supplier agreement. As you know, we’re shipping all we can build as much of the industry is. And that supply is going to starts in Q1, but it’s for wafer starts and the material to feed those starts. So we actually feel the significant capacity expansion and therefore the commensurate revenue growth in Q2 when all that increased supply goes through the supply chain. So that’s on track. It’s a great deal for us and will fuel a lot of the silicon carbide growth from Q2 and beyond.

McClain Culver: Okay. Thank you. And then kind of as related follow-up. Could you just give us the provider qualifications for your new substrate provider?

Gene Sheridan: Yes. We haven’t revealed the name or disclose the name of the supplier. So there’s not much more color to add about the substrate and EPI suppliers at this point.

McClain Culver: Okay. Thank you. That’s all.

Gene Sheridan: Thank you.

Operator: Quinn Bolton with Needham, your line is open.

Trevor Janoski: Yes. Hey guys, this is Trevor Janoski on for Quinn. Thanks for letting me hop on and ask a question. So on the EV silicon carbide announcements, and sorry if I missed this, but when do you expect the roadside charger and onboard charger opportunity to begin ramping and become material part of revenue?

Gene Sheridan: Yes, that ramps already occurred. We were shipping even last year when we acquired the company. In fact, we commented that EV last year and that’s only with a quarter and half benefit of the GeneSiC acquisition was at 5% of last year’s revenue. So that’s almost all OBC onboard charger as well as roadside charger. And we highlighted that both of those are growing nicely and really will be accelerated by our EV design center both the general ones supporting customers globally as well as the new GLE collaborative one that we’ve created. And we gave a number of comments about significant position and roadside chargers and why that’s moving up into the right.

Trevor Janoski: And can you comment on the ASPs for these solutions?

Gene Sheridan: Yes. Silicon carbide, it depends on the power level and the application, but in general, the silicon carbide devices tend to have ASPs that’ll range from anywhere from $2 to $20. It can extend, beyond that range. It depends on the power level and oftentimes you’re paralleling many of them in some systems, depending upon, again, the application of power level. It can be dozens of devices and dozens of dollars, if not $100 of content per system. But it really does vary depending on the power level and application.

Trevor Janoski: Okay. Thank you. And a quick clarification, you stated that the mobile charging should be less of a percentage of revenue in 2023 relative to 2022. Did you mean total revenue or GaN revenue?

Gene Sheridan: No, total.

Trevor Janoski: Total. Okay. All right. Thank you.

Gene Sheridan: Yes. Thank you. Trevor.

Operator: Gould with Gould Tactical Growth, your line is open.

Dick Gould: Hi. Yes, this is Dick Gould. As a follow-up to Kevin’s question on the silicon carbide supply, can you give a sense of how much the insufficient supply in silicon carbide held back your revenue? It sounded like you could have shipped more had you had the substrate available.

Gene Sheridan: Yes. Are you referring Dick to Q3, Q4 last year?

Dick Gould: Yes. Yes.

Gene Sheridan: Yes. I don’t think we gave specific numbers. It’s always hard to judge because there’s quite a bit of demand there that could have been shipped. But certainly 1 million or 2 million per quarter is sort of a conservative estimate.

Dick Gould: Okay. And then just to follow up on the GaN side, can you also describe your supply situation? I understand you are adding to supply over the course of this year, I guess, I mean, I’m assuming similarly to silicon carbide ramping gradually from first quarter on?

Gene Sheridan: Yes, actually and last year we had announced this that TSMC had tripled the capacity last year. Most of that capacity was added I think by the end of last year when you couple that tripling and we took a big share of that capacity as their leading customer. With the softening and the channel mobile market that we saw middle of last year and the second half of last year, that opened up a lot of capacity. So it’s a pretty different situation. We enter the year with a pretty strong capacity situation. We are not supply limited in the case of GaN and we expect that’ll continue throughout the year.

Dick Gould: Terrific. Thanks.

Gene Sheridan: Thank you, Dick.

Operator: Sam Peterman with Craig-Hallum, your line is open.

Sam Peterman: Hey guys, thanks for taking my question. I think I heard Eugene say in response to a question earlier that mobile as an end market was going to show growth in 2023 over 2022. I guess that was a little surprising to me just given kind of the run rate that you’re exiting the year at. Can you talk about I guess, did I hear that right? And then can you talk about kind of the assumptions that are baked into your mobile outlook for the year?

Gene Sheridan: Yes, no, you heard it right. It will grow strongly not as fast as the other markets since it gets sort of a slow start with that Q2 recovery just starting next quarter. But it does benefit not only from that market coming back, we see inventory levels on the channel quite low. We see forecasts and even backlog coming back and indicating that Q2 recovery in a stronger second half of the year. We also highlighted nearly 100 new GaN chargers developed with our customers last year, adding to the ones already released in the market, that puts us at something like 250 plus GaN chargers released to production, many of them ready to launch as that market comes back. And we still got another 250 in development behind that. So there’s a lot of positive things there that will drive that growth, but we’re still cautiously optimistic and planning that growth as I said, good growth year-on-year, but even stronger growth in the other markets.

Sam Peterman: Okay, that’s really helpful. I guess as a follow up, I wanted to ask on the data center market, you talked before about I think last quarter $5 million purchase order that you thought would ship in the back half of this year. Is that still on track? And then more broadly, I know you have, I think you said you got 10 programs right now. I think you had nine last quarter. What are you seeing in terms of design activity and just in that market? I know there’s certain areas that spending is slowing in the data center, but I mean, you guys obviously being at the leading edge may not be seeing that, but I’m just curious, how you’re seeing the data center market?

Gene Sheridan: Yes, that particular program we highlighted last time has delayed into 2024. But with that said, as you pointed out, we’ve actually increased the customer pipeline, including that one from nine to 10. So trending up a little bit there, we don’t see any signs of slowdown. I think that one program that pushed to 2024 is kind of unique and not a reflection of any macroeconomic trends that we can see. So I think it looks positive, but as you say, we’re early in that market. We’re not the best indicator of it. We see all upside coming from zero and we see a lot of strong tailwinds between Titanium Plus and the earlier comments about the AI data centers demanding more power from these power supplies.

Sam Peterman: Okay, great. Thanks guys.

Gene Sheridan: Thanks Sam.

Operator: Jon Tanwanteng with CJS Securities, your line is open.

Ross Kesselman: Hi, this is Ross Kesselman in for Jon. A quick question, could you maybe specify on the traction you were seeing from policy changes such as the IRA and different funds for renewables and the titanium standards for Europe? I know you touched upon it, but do you think you could add a little bit more color?

Gene Sheridan: Yes. I think that titanium standard is a unique one that’s already in place started January 1. It’s specific to EU, but most of these power supplies are designed to meet global standards. So I have to meet the minimum required standard out there, which is €“ or the toughest standard I should say, which is the titanium one in Europe. So that one is clearly driving strong trends for us, we have actually four different customer platforms, server platforms, four data centers in development, all of them meeting that titanium standard, working closely with those 10 customers that I talked about. I think Inflation Reduction Act is a little different. It’s huge amounts of money. As we highlighted over 50 billion, 60 billion in our target markets, it is just rolling out this year.

So I think it’s early to talk exactly what the impact’s going to be. Those are big numbers. They’re bound to have an impact in each of these areas. Sustainability or I should say renewability and solar in particular. Upgrading home appliance energy efficiency and also the EV roadside charger infrastructure but I think time will tell exactly what that impact will be as we see those dollars flow to consumers, to our customers, and then ultimately to our business.

Ross Kesselman: Got it. I know you’ve mentioned previously that there’s been a kind of a constraint on the silicon carbide products. Have you seen any indications of improvement in that area?

Gene Sheridan: Yes, I’d go back to the long-term agreement we signed last quarter that now starts this quarter and it translates into increased revenue capacity to support that revenue starting next quarter. And that’s a 5x increase. It’s not a step function, but it’s 5x from middle of last year when we acquired GeneSiC and ramping throughout this year and into next year. So that gives us a lot of headroom to do more if we can do it.

Ross Kesselman: Got it. Thank you so much for the additional color.

Gene Sheridan: You bet. Thank you.

Operator: Natalia Winkler with Jefferies, your line is open.

Natalia Winkler: Yes. Hi. Thank you guys for taking my question. So the one I had with for Eugene, I just wanted to understand this joint venture acquisition a little bit better. Is it fair to assume that it’s moving you guys to the parity with silicon in terms of pricing faster against solutions or is that kind of accelerating that parity for the higher voltage application? Thank you.

Gene Sheridan: Yes, thanks Natalia. No, it’s a great question and a good observation. You’re exactly right. Well, what we’re doing there is not only developing leading edge analog controllers that are optimized for higher frequency GaN and silicon carbide, we’re actually co-packaging them with our optimized GaN. When you combine that with the cost reduction and performance improvement of Gen 4, that’s also roll rolling out simultaneously, you get a really nice improvement in performance, reduced size footprint, improved power density, but also helping us on that bomb cost. And it is a factor driving us to that system cost parity compared to silicon, specifically around mobile chargers, consumer adapters. And I also mentioned the home appliance auxiliary power supplies.

Natalia Winkler: Awesome. Thank you. That’s really helpful. And then the other one I had was about the TSMC, Gene, if I understood correctly, you mentioned that you guys saw a 6% increase this January, January, 2023. Is that fair? And then how €“ like, I guess I think historically we’ve heard of maybe some potential kind of annual increases in November. How should we think about that dynamic? Do you have some kind of €“ already expected price increases or contractual ones?

Gene Sheridan: Yes, that’s right, 6% in January. I think you heard that from probably many suppliers. It’s certainly not unique to us in any way we had alluded or anticipated it in earlier quarters. There was a prior 20% as the whole industry discussed and felt. But we do see these as one-time events that are unique in the supply and demand, unique situation for the industry. Obviously the whole industry is shifting. I think it’s shifting to a more balanced place and we look forward to a more healthy cost reduction environment. And that’s certainly what we expect going forward. We certainly don’t anticipate any further cost increases and don’t have any contractual agreements that would suggest any cost increases.

Natalia Winkler: Understood. Thank you very much.

Gene Sheridan: Thanks Natalia.

Operator: Ross Seymore with Deutsche Bank, your line is open.

Ross Seymore: Hi guys. Thanks for let me speak in a follow on here. The end market color again is very helpful. I just wanted to walk through just a little bit of your view on the mobile market. I know you said it’ll start growing again in the second quarter. Can you just talk about where the channel inventory is and if I’m doing my math at all, correct. It seems like you didn’t ship very much at all in the fourth quarter itself into the mobile market. Was that generally correct in order to get the channel inventory down before it starts popping back?

Gene Sheridan: Yes, Q4 and Q1 were both pretty soft, certainly not zero, but certainly soft compared to expectations and even prior quarters, we don’t report channel inventory, but we certainly see that significantly reduced and hopefully bottomed out. And that only adds to our confidence. Coupled with actual increased order intake, we have a very strong backlog fully booked out on Q1, strong bookings into Q2 and an increased forecast from the customer. So all of that taken together leads to our anticipation of that Q2 recovery.

Ross Seymore: And is there a seasonality to that business or is the channel dynamics and China reopening and the prevalence of a huge number of design wins, much more important to think about than any sort of seasonal pattern?

Gene Sheridan: No, I think seasonality is always a factor in mobile and consumer, Q1 is typically soft anyway, independent of this unique situation. You’ve also got Chinese New Year, which always has an impact both on consumption and production. So I think all of that rolls together to add to sort of a softer or modest Q1. And probably then adds to the recoveries that we’re seeing in Q2.

Ross Seymore: Perfect. Thanks guys.

Gene Sheridan: Thanks Ross.

Operator: This concludes the Q&A portion of the call and concludes the Navitas Semiconductor fourth quarter 2022 earnings conference call. We thank you for your participation. You may now disconnect.