The feedback we’re getting from folks is that China is doing a lot of investing in silicon carbide. They’re doing that from silicon as well. But the feedback, we’re also getting is that they’re not automotive-ready at 150, let alone 200. So I really don’t anticipate a demand being below supply for any time in the future, really the next couple of years for sure and probably the next half a decade.
Operator: Thank you. Our next question goes to Christopher Rolland of Susquehanna. Christopher, please go ahead, your line is open.
Christopher Rolland: Thanks for the question. I guess today a competitor talked about a fairly large downtick in [indiscernible] for them. I guess my question for you is and you might have just addressed it Gregg, but is your backlog covering all through 2024 and into 2025? Do you have any problems with customers that are looking for pushouts et cetera? And would those pushouts if you experienced them would they be fungible or transferable to someone else?
Gregg Lowe: Yeah. Let me start with an answer and then I’ll kick it over to Neill for a little bit more detail. The only area of softness that we see is industrial and energy basic that primarily has China and Asia. Everything else is pretty strong. In fact, when we wanted to just kind of give some of the numbers.
Neill Reynolds: Yes. So if you look at the revenue outlook as you go into the second half of the year, in fact from an auto perspective as Gregg said very, very heavy demand and I think that’s across the US, that’s in Europe, that’s in Asia. So we’re seeing they’re ahead of demand there, that’s really a function of how fast we ramp along that and ramp capacity. We are seeing some softness in industrial and energy areas, particularly in China and Asia, bring out China represents about 20% of our total revenue, again primarily in industrial and energy space. But in conversations with customers that’s really just kind of I mean inventory timing. We’re still seeing growth there, still very heavy demand from automotive customers, from China as well.
So we’re really just working through the revenue, sorry, the inventory timing, if you look out into the industrial side. And the third piece to that is our material side, as Gregg mentioned, we’re still seeing very strong demand for 150-millimeter wafers as well. So we’re seeing I think demand heading in automotive devices, demand is heading in 150-millimeter substrates. Little bit of softness in industrial and energy perspective, but we’re just looking to match up supply and demand there right now. So there are pockets where we can take that supply, match it up to where the demand is, it still remains strong, in industrial and energy, and that’s really what we’re looking at it right now in terms of the outlook.
Operator: Thank you. The next question go to Natalia Winkler of Jefferies. Natalia, please go ahead, your line is open.
Natalia Winkler: Hi, thank you. I wanted to ask about the new design-wins this quarter that you guys have seen. Could you possibly kind of help us figure out where most of them are? Is there a way to think about maybe kind of an increase in industrial activity or automotive? And just broadly any additional color would be really helpful.
Gregg Lowe: Okay. So just from a clarification perspective, we call our design-ins and that’s when a customer awards us the business. And then we say design-win and that’s when a customer transitions into production. Specifically, they have to get those purchase orders for 20% of the first year as anticipated volume that they declare during the design-in phase. So we had $1 billion worth of design-wins, which means customers were transitioning from — they awarded us the program to they’re beginning to ramp into production. That’s an incredible number by the way, it’s happening faster than we anticipated. I believe that was 230 different projects. Many of those were automotive projects and the other sprinkle around industrial opportunities, but I would say the majority of those were automotive.
Operator: Thank you. The next question go to Matthew Prisco of Evercore. Matthew, please go ahead, your line is open.
Matthew Prisco: Thanks for taking the question, guys. How should we be thinking about the gross margin path from here? Particularly given the commentary on underutilization potentially taking higher, is low to mid 20% still the right range. Exiting the year and kind of what would be the primary risk drivers that figure at this point, either upside or downside. Thanks.
Neill Reynolds: Thanks, Matt. Let me just — Maybe I should have had the gross margin a little bit as you look here. So obviously in 1Q, we had a good quarter from a gross margin perspective at the high end of the guidance range. This is really driven by strong performance from a materials operations team and just very, very good cost-yield and outperformance both on 150-millimeter and 200-millimeter substrates. So that was solid. And if you go back to 4Q’24 we reported gross margin of approximately 29% and when we divested RF, we picked up about 200 basis points of improvement. Excluding the RF business. So the baseline back in 4Q was about 31% and we just saw about 200 basis points of improvement in gross margin quarter-over-quarter when you exclude that underutilization.
So I’d say overall good quarter from a gross margin perspective. And with that a little bit of a lower impact from underutilization. Although as I said earlier, you might see that tick-up a bit more towards the end here as we bring on more capacity. So with that, if you look out beyond that, we will see an uptick in gross margin as you kind of get into 2Q, we’ll see continued solid performance offset a little bit by some of the auto mix that we’ll see come into this business to continue to support that demand. We’ve talked about underutilization being $35 million at the midpoint, might tick up again as we get out to the end of the year. But as we get out towards the end of the year, 20% or so gross margin target for the end year still makes sense.
I think even with that in there, which really going to see apart from how much volume we can drive through Mohawk Valley. We said many times although it need to beat the Mohawk Valley and I think from a market perspective, that’s the case as well. So I still think that’s a good target to think about as we move into the back half of the year.
