Aixtron Se Unsp/Adr

Good afternoon, ladies and gentlemen, and welcome to the conference call regarding the results of the fourth quarter and of the financial year 2022 of Extron SE. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Guido Pickert.

Thank you very much. Welcome to our Q4 and full year 2022 results presentation. I'd like to welcome our CEO, Dr. Felix Grabert, and our CFO, Dr. Christian Daniger. As the operator indicated, this call is being recorded and therefore considered copyright material. As such, it cannot be recorded or rebroadcast without permission. Your participation in this call implies your consent to this recording. Please take note of our safe harbor statement, which can be found on page two of our results presentation slide deck, as it applies throughout the conference call. This call is not being immediately presented via webcast or any other medium. However, we will place an audio file of the recording or a transcript on our website at some point after the call. I would now like to hand you over to our CEO, Felix Grabert, for opening remarks. Felix? Thank you, Guido.

Let me also welcome you to our full year 2022 presentation. I will start with an overview of the highlights of the year and then hand over to Christian for more details on our financial figures. Finally, I will give you an update on the development of our business and our guidance. Let me start by giving you an overview of the key business developments in the year on slide 2. Demand for our equipment was very strong. resulting in an order intake of 586 million euros, up 18% year-on-year, driven by the strength of the end markets our customers are serving. In fact, the 2022 order intake was the second-best order intake in the 40-year history of Ekstrom. I'm very pleased that the area of silicon carbide and gallium nitride power electronics has been the strongest demand driver, representing the majority of our equipment order intake for the year. Orders for our silicon carbide power solutions have more than tripled year on year. This strong development is a result of major capacity expansion activities of our customers, but also a great success of our new G10SIG multi-waser system. This product is being adopted by our customers in an amazing speed since the launch in Q3 of last year due to its excellent cost per wafer proposition. This is a huge team success, and we now have a highly competitive tool in the market. With this, we very much look forward to the wafer size transition from 6-inch to 8-inch, as this is a trigger point for many customers to look into their tool installations and tool base in new. I think we can say that for silicon carbide and extron, we have also now reached a tipping point of broad market adoption, similar to what we have seen for gallium nitride some years ago. While we have seen an acceleration of demand for silicon carbide, orders for gallium nitride power electronics also continue to grow year on year, reflecting our customers' aspiration to replace the incumbent material, silicon, with gallium nitride-based solutions in more and more applications. In summary, the biggest demand drivers for the quarter are our systems for silicon carbide and gallium nitride power electronics. Demand for laser tools in the area of optoelectronics also remains strong. Demand for tools to produce LEDs is mainly driven by micro-LED production orders. more than offsetting lower demand for traditional red orange yellow led tools as a result of all that and of the delayed export licenses last year due to which we are not able to ship all tools we had produced in 2022 we can report a strong order backlog of 352 million euros up 64 year on year overall we could grow our annual revenue 8% year on year to 463 million. Our cost margin ended up at 42% and our EBIT margin at 22%. With this, we have successfully mastered the global supply chain issues of the year 2022 and also maneuvered around some of the delays in export licenses that required us to shift some production slots back and forth within the year 2022. In this place, I would like to express a strong gratitude to the entire Extron team that had made all these achievements possible in a difficult year 2022. Namely, that we fully delivered on our upgraded 2022 growth guidance in all aspects. Now, I will head over to our CFO, Christian Dunninger. He will take you through the full year 2022 financials.

Christian. Thanks, Felix, and hello to everyone. Let me start with the financial highlights of our income statement on slide three. As Felix mentioned, orders in the quarter and the year continued to be strong and our backlog was up, fueled by the mentioned strength in demand. Revenues in 2022 were at 463 million euros, gross profit at 195 million, both up 8% year on year. EBIT at 105 million euros and net profit was $100 million for the year, but both up 6% year-on-year. Quarterly revenues at $183 million in Q4 even bet the very strong level of $181 million in the same quarter of last year. Both gross margin and EBIT margin in 2022 were on the same levels as the corresponding margins in 2021, which was 42% and 23% respectively. OPEX in the year went up to 91 million euros, predominantly driven by higher variable compensation elements and higher personnel costs due to more staff combined with slightly higher R&D spending. In fiscal year 2022, Exxon has primarily driven the completion of the new product generation. In 2022, we completed a major publicly funded development project, which is why we recorded less other operating income from grants at Euro 5 million compared to a year ago at 9 million euros. In 2022, we again utilized tax loss carry-forwards and capitalized some additional deferred tax assets in the amount of 9 million euros due to expected future profits. Now to our balance sheet on slide four. Partially due to the shift achievements as mentioned by Felix and mainly due to the preparation for higher deliveries and subsequent quarters, inventory levels at the end of 22 went up to 224 million euros compared to 121 million at the end of 2021. The advance payments received from customers were significantly up year on year at €141 million from €77 million, also indicating higher levels of shipment to be expected. The down payments represented about 40% of the order backlog. All this led to a total cash balance, including other financial assets, of €325 million, which was below the €352 million we had on the books last year. Just a quick word on our free cash flow on the next slide before I turn back to Felix. Free cash flow in the fourth quarter was 8 million compared to 49 million in 2021. The difference compared to the previous year is mainly related to temporary working capital effects like the mentioned increase in inventories and high accounts receivables due to the very late checkments in December 2022. We have also increased our investment in property plant and equipment, especially in R&D-related lab equipment and extensions. With that, let me hand you back over to Felix.

Thank you, Christian. Before giving you our updated view on the outlook for this year, I would like to share some highlights on our market development. The momentum remains strong in all areas. We see capacity build-up or expansion activities in most of our address and markets. In particular, the area of wide bandgap power electronics based on gallium nitride and silicon carbide has developed very strongly, now representing the biggest contributor to orders and revenues, in addition to the contributions from optoelectronics and micro-LEDs. A deeper look at the area of silicon carbide-based power electronics. Here we see the demand accelerating, especially since we launched our new G10 silicon carbide technology solution. Since its launch in Q3 of last year, this tool was received so well by customers that it now already represents the vast majority of all orders for our silicon carbide manufacturing solution, suggesting a similar development in revenues going forward. With the new G10 SICK, we have again made great steps forward in the tool performance. In combination with our multi-wafer output, this enables our customers to produce SICK devices at a highly competitive cost position. And we strongly believe that cost will be one of the major decision criteria in this market. Beyond the current volume ramp of the industry, driven by the fast adoption of battery electric vehicles, We see further demand down the line driven by government policies pushing towards electric vehicles similar to what we have seen from EU lawmakers who have banned the sale of new CO2-emitting cars from 2035. Furthermore, we see the widespread promotion of renewable energy is very positive for the broad adoption of silicon carbide power electronics. Therefore, we believe that demand for our silicon carbide manufacturing solutions will be the strongest growth driver for Extron in 2023 and possibly even beyond. We observe a similar trend for our equipment in the area of gallium nitride-based power electronics, which continues to be in high demand by our customers. We see large industry players expanding their capacities at scale, while we continue to see new players entering the arena of gun power. The adoption of GAN replacing the incumbent material silicon is going full steam ahead. The GAN market volumes are growing steadily, driven by our customers tapping into more and more sub-segments of the vast power electronics space, such as, most recently, the efficient conversion of household solar power. Today's market participants have to increasingly make an active choice between sub-investments into incumbent silicon-based device manufacturing or the novel wide bandgap material, GaN or thick. Besides the much higher energy efficiency, this is the main driver for the acceleration in GaN power. For the gallium arsenide in the phosphide material system, we have just launched our new high-volume manufacturing platform, G10ASP. It marks a major step forward in both the area of micro-LEDs, but also in the segment of high-performance lasers and vectors. To all these three segments, the new G10 ASP offers the value of much lower particles, uniformity improved by a factor of 2x to 3x, and a much reduced consumption of process gases, which translates into a reduction of cost per wafer. Again, costs will be a main driver in the second. In the second half of 2022, we have seen a remarkable slowdown in all consumer electronics-related investments of our customers, while sub-expansions and telecom data comms did continue. Also, we observed that the development work towards micro-LED solutions continue as the vast majority of our large customers, despite spending cuts in other areas of these companies. At this stage, It seems that not all technological challenges for mass production, in particular in downstream processes such as mass transfer of pixels, have been solved yet. But given the focus and dedication of our customers, we are convinced that micro-LED displays will be the next generation of display technology. With that, let me now present our full year guidance for 2023 on slide 6. First of all, It is important to note that we have adjusted our USD to EUR budget exchange rate, at which we record USD denominated orders and backlog for 2023 to 1.15 USD per EUR from previously 1.20 USD per EUR. This has just a minor effect on our orders and backlog, as only less than one third of those are recorded in USD. Secondly, please note that we expect to have a positive extraordinary revenue effect from the shift of some units that have been produced in 2022 and will be shipped and recognized as revenue in 2023. Based on strong customer demand, we expect orders for 2023 in the range of 600 to 680 million euros. In 2023, we expect total revenues in a range of 580 to 640 million euros. This includes the above-mentioned shift of units that have been assembled already in 2022 and ship in 2023. We expect a 2023 gross margin of around 45% and an EBIT margin between 25 and 27%. In summary, we expect a double-digit growth of the extra business in 2023 driven by the strong demand for power electronics, and in particular, from our new G10 Zig tool. With that, I'll pass it back to Guido before we take questions.

Thank you very much, Felix and Christian. Operator, we will now take questions, please.

Yes, thank you. Ladies and gentlemen, if you would like to raise a question, please press 9 star on your telephone keypad. If you would like to withdraw your question, press nine star again. The first questions are coming in. Meanwhile, I will repeat, ladies and gentlemen, if you have a question to stage, please press nine star. And the first questioner is Mr. Martin Marandon of AutoBHF. Please go ahead.

Hi, thanks for taking my question, and congrats for the strong result. My first question is on microLED. Can you maybe give us a bit more color on your assumption in terms of orders and sales for microLED for 2023? And it also looks like the first smartwatch using microLED may be delayed by a few months. So has this impacted your clients' roadmap in terms of ramping up their capabilities? That's my first one, and I have a follow-up.

Thank you very much on that question relating to the micro-LEDs. So we expect in 2023 to get a decent amount of orders and a decent amount of shipments on micro LEDs because we see that our customers are continuing their, first of all, their R&D efforts, but also we see that customers continue or start to build pilot lines, smaller scale pilot lines, to really gain first experiences with the full production set, including the mass transfer and all these. And with that, I would say, for us, the micro-IDDs might be in the order of 10% of orders and revenues in 2023. This is not yet the large, big volume ramp that could have been expected. Previously, that might be shifted a bit into the future because, as we have indicated, in some of the complementary process steps, which have nothing to do with the EPI, which is the pixel transfer of the fully completed wafer with the micro LEDs on it. We hear that on this process step that follows many steps after the epi-deposition, there is still some technical challenge and topics to be resolved. That's our current understanding.

Okay. Thank you. And you also talked about very strong orders in silicon carbide with your new I was wondering, was it more driven by one or two specific customers or by winning also new customers?

Very much both. We have strong repeat orders from existing customers, very strong. In addition, we have a very large success in winning new customers. Some of these new customers ordering one or two tools, but also we have one new customer which is ordering relatively large quantities of tools at once, so to say. And all this is building up now in a very, very strong pipeline that we see for the G10 SICK.

Thank you.

Thank you. Next we have Mr. Michael Kuhn of Deutsche Bank. Please go ahead, sir.

Good afternoon, gentlemen. Firstly, on the sales guidance, looking at the midpoint, I think you will add around 150 million. Is that... purely driven by power semis or do you expect growth in other areas as well?

Oh, I haven't looked now in the detailed split of that. I would let me give you a qualitative answer without now having the detailed numbers in front of me. I would say the very strongest contribution by far comes from the power semis, as we highlighted also in our introductory remarks, to some extent by gallium nitride, which really continues to accelerate the ramps. But now, as just discussed, in silicon carbide, which is really adding an additional segment and additional growth, this is by far the biggest growth driver. On the remaining optoelectronic business, as indicated before, we see a continuation of the business of micro-LED, not yet in an accelerating manner. That might come a year later, not for 2023, but we see that on a good and a stable level continuing. We see in the year 2020 through no or minor business in the area of red, orange, yellow LEDs. If you remember, that used to be always a certain part of our revenues. That was also dragging our margins down a little bit. You may have seen and remarked the 45% cost margin. Now we got rid of this diluting effect, so to say. That helps us a little bit so that that falls out in this year because of the weakness of the consumer electronics market. And we do see continued momentum on the other optoelectronics business. Namely, we do see that the optical datacom business continues a very steady, a very solid growth path. And we expect that further to continue also in future years because we all know that the volume of data and data traffic is exponentially continuing and expanding. You know that we have a very strong market position in this one. So we continue to serve that market. It continues to be growing. However, in absolute terms, the number of tools here are smaller than what we see, what needs to go into the silicon carbide power electronics. Just bear in mind. into one silicon carbide wafer can just serve a couple of electric vehicles, while one wafer of optoelectronics, I don't know, can serve a couple of thousand optical transmitters, and that gives you already an idea why the silicon carbide is currently now adding so many tools and so many units. Maybe that helps you a little bit.

That helps, definitely. One quick follow-up on sales mix. In the fourth quarter, the LED slash micro-LED sales, was that micro-LED only, or did you still ship, let's say, old LED tools in the fourth quarter?

Mostly micro-LED. The red, orange, yellow LED was towards the end of the year and in 2023, almost dead, I would say.

Okay, fantastic. And then a few more on P&L and also CapEx. CapEx went up quite a bit to around about 30 million last year. Is that kind of a new run rate or do you rather expect a moderation here this year?

Well, CapEx is primarily, as we indicated in the report, is primarily related to R&D activities, lab extensions, also tools that go into our labs and that just goes in parallel with all of our R&D efforts continuing at around that level, rather going up slightly.

Metrology solutions to measure particles, defects. Some of these tools are horribly expensive, sometimes costing a couple of millions for just a metrology tool. So I would rather say that the run rate will rather go up.

Yeah, and we still stay with our message. We have not changed our asset-light operating model. So this is primarily R&D-driven and not operations-driven. So you can expect that its CapEx requirements are not significantly driven by our volume growth, but it's really driven by our R&D activities. Okay, that's good.

And then... Maybe one more. You showed, I think, about 17 million of overdue receivables, which was quite an increase year over year, but you still regard them as recoverable. Can you add a few more details on that position?

No, there's no concern on unrecoverable accounts receivables. There might only be timing effects, but there's no concern at all here.

All right. And then very last one. On the payout ratio, 35% this year and last year, is that a new permanent number we should look for? And how do you more generally think about shareholder participation, both in terms of dividend and also potentially buybacks?

To your first question, we continue to not give out a formal dividend policy. However, after the strong year 2022, we wanted our shareholders to for sure participate well in the good result of the year. And we did not want to go down with the percentage from the prior year as a percentage of net income. But that does not formalize a policy into the future. And in general to cash allocation, of course, we are planning in general to continue with paying dividends. And we're also considering share buyback programs. Right now, I mean, you've seen our cash flow in the last year, which was primarily driven by this working capital effect. Okay, now when we turn that into cash, especially the receivables, but also part of the inventories, we will realize a strong, most likely a very strong cash flow during the course of the year, and we will consider then how to have our shareholders participate in that in the right form. Excellent. Many thanks.

Next, we have Mr. Adam Angelo of Bank of America. Your line is open.

Hi. Can you hear me okay?

Yes, Adam.

Go ahead. Okay. Perfect. Yeah, thanks, and good afternoon. So firstly, I just wanted to touch on Gallium Nitride. So the penetration you're seeing there in different markets, it feels like data center is just starting, really. But I think, you know, in the consumer market, people are a bit unsure. Is that highly saturated now, i.e., are all smartphones coming with fast chargers? So just your view on that would be good. And then, yeah, the future growth drivers for GANs. beyond data center perhaps. And then yeah, maybe start there and continue.

Yeah, I think that's a very good question. I think gallium nitride tends to be associated a bit with the consumer stuff, but I think that really should be taken out of the perception. Because the consumer stuff is a fantastic starter because it doesn't count so much on the reliability of devices. In the end, if your smartphone charger doesn't work anymore, you throw it away and you buy a new one, right? However, if you have a telecom base station sitting somewhere, let me say, on a remote island location, it doesn't work anymore, you need to fly over with a helicopter just to replace a part, and that's a bit more tricky. If a data center goes down, you hit your service level agreement in terms of uptime, and that's really painful with your customer. So therefore, the consumer stuff were the first market to penetrate, but the consumer market in the end is really not the most relevant, also in terms of die size. On an 8-inch wafer, you can put a couple of thousand smartphones to fly with, while in terms of data center, you need much larger chips. You may only be able to serve a couple of dozens or a few hundred of servers from one wafer, just to put that up front. So that being said, I think the real interesting adoption for gallium nitride just started. It started with data centers and telecom base stations, which is, I would say, a traditional high-voltage, high-powered solution. Also historically in the silicon business, that used to be key market drivers. They are step-by-step now converting from silicon to gallium nitride simply because these devices are operating essentially 24-7 the entire year round. A server never gets switched off. And when you can realize a benefit in energy efficiency, you see the benefit in your P&L. But also we see right now that additional areas are getting penetrated. One of the biggest areas that's currently taking off is the area of solar. Also, a solar inverter is essentially running, I would say, maybe half of the hours of the year, always when the sun is shining, right? And now with solar inverters, you need very big die sizes, very big converters you have in there. You achieve a benefit in efficiency, which you see in the individual P&Ls. And the dynamics is very favorable here for the gallium nitride. So there's new market segments coming. And these market segments are, on the one hand, being served by both the established big players. I think everybody knows who the big three, four established players in gallium nitride are. They continue to accelerate their capacity expansion. And on the other hand, we see now new entrants coming into this market, being attracted. Typically, the new entrants focusing or having a very narrow focus on one of these segments, having a unique go-to-market or application benefit, and now looking into building out their own FAP capacities. So it's an acceleration of the demand in this market.

That's very helpful. Thanks. Just wondering on... the power electronics business, if you could roughly quantify the size of gallium nitride versus silicon carbide for maybe 22 revenue and then moving forward into 23, either in terms of order or revenue, where you think it lands.

I would say in 2022, for XTRON's power electronics revenue, it might have been 40% silicon carbide, 60% gallium nitride as a relative split. And I think in 2023, it's probably the other way around, 40% gallium nitride, 60% silicon carbide, just as a rough, rough, rough, rough, rough, rough indication.

you see getting knighthood is continuing to grow and silicon carbide is clearly adding on top and and the biggest single single biggest individual growth driver for the year so to say yep that's very helpful and one more if i if i could just squeeze it in um i think he talks about potentially getting to 50 percent market share in silicon carbide uh in the past is that still the number you're looking at or you know given the positive momentum you're seeing um Yeah, how are you viewing that number now? That's all for me. Thanks very much.

I think that's a decent number to look at.

Okay, great. Thank you.

Next we have Olivia Honeychurch of Jefferies. Please go ahead.

Hi, thanks for taking the question. Apologies in advance if there is a little bit of background noise. Just on the overall outlook, maybe to ask a previous question in a slightly different way. You said that Power70, Silicon Carbide and then Gas are going to be the main drivers of the growth this year, rather than MicroLED. For MicroLED, you're seeing a lot of revenue from your first major customer this year, but it does feel, Sam, that there may be a tail-off in 2024 without there being another big order. I guess the question is, Do we see enough demand in SCAN and SICK into 2024 and 2025, being able to keep driving good strength in the business, even if we do get a little bit of an impact of it in micro energy?

Sorry, I can't understand the question at all. Maybe you should email it to Guido and we just pick it up from that one. Background noise, no chance to hear what you say.

All right, okay, I will do.

Good. All right. So we'll come to that. Just bring it up in here when it arrives in your inbox. Operator, next question, please.

Of course. The next questioner is Mr. Malte Schaumann of Warburg Research. Your line is open.

Yes, good afternoon. First question is a follow-up on the micro LEDs. Could you share maybe a number with how many customers or potential active players, active customers you're currently discussing on projects besides your a large commercial customer?

Very good question. I think we're talking really about a double-digit number of customers. As mentioned before, the research and pilot line activities continue to be very strong on the micro-LED side, and it's clearly all the display makers who are currently in the display business But we also work with the large consumer electronics companies here. And given the weakness of the consumer electronics market, we have heard from some of these large giants about job cuts. I think that went around through the press. especially in the fourth quarter in Silicon Valley in the Q4. But we were very happy to then see that none of the micro LED programs has been affected by these job cuts that we saw in the consumer area. And so those activities are ongoing. As mentioned, display makers, consumer electronics players, but then, of course, also a number of technology-driven startups who drive and develop new technology, of course, with a clear aspiration and a clear idea that when it comes to the ramp, they either sell or license that technology or they get bought up by one of the giants who has the cash to put down double-digit billion investments into fabs. That's clear.

Mm-hmm. Good. And if these customers build a pilot line, are they ordering all colors from your side or do they kind of mix and match and just pick, I don't know, red or something from you and then blue from other ones or are they going with one supplier here?

So those players who do the full color game are ordering all colors from us, RGB. Nevertheless, we also know that there are some players who work with color filters. So they only do blue LEDs, and the green and the red is being created by color filters or some other color conversion methods. This is a different approach. So these ones are also ordering tools from us.

Yeah, OK, good. And with respect to the technical delays we see in the industry, from your point of view, do you think that will be sorted out in the next, let's say, six to 12 months? Or have there been some serious threats that could lead to a larger push out of the technology adoption?

Honestly, I have to admit we are not very close to this step because it's not directly connected to what we do. So everything around the API and the steps directly before or after the API, we typically know from close collaboration with customers. But this step, as mentioned before, is clearly many, many process steps after our step. So therefore, we don't have, let me say, original, genuine insights or market insights. And I wouldn't therefore want to give a qualified opinion.

Okay, fair enough. Then on the service, spare parts business, you're guiding for an increase to 100 million this year, which is quite substantial. Nevertheless, you're still growing revenues quite substantial as well. So should we expect then another strong rise in the future years, 2024, 2025, or do you expect that level to be more or less sustainable at the 100 million you're expecting?

No, I expect further growth in this area.

more or less in line with top-line growth, or is there a different function?

Oh, there's multiple sectors involved. It grows with the installed base of our current series of tools, which, of course, is growing step-by-step as we grow the revenue. But it's not directly connected to the revenues.

Yeah, okay, good. Then a question on the... tax losses. I saw that the tax losses have apparently, according to the annual report, increased quite substantially. I was wondering if you could, what's the explanation for that? I think they've gone up from 150 to 160 million. So what's the reason?

Yeah, Christian here. I take that quite detailed question. Good catch. There has been no change in the tax loss carry forward. It's a pure disclosure topic. So in this year, if you read very closely, we are now disclosing the absolute amount of tax loss carry forward, which is the $283 million that you find in Note 14. While in the prior years, we disclosed actually the deferred taxes on these losses. It's a technical difference, yeah. It's just because this IFRS standard here actually requires this disclosure, so there's no content-wise change. It's a pure disclosure change. And, yeah, does that answer your question?

Yep. Okay. Fine, thanks. And quickly, the last one on the R&D budget, maybe you can share a number. Obviously, the R&D budget is expected to go up quite strongly this year. So will it exceed $70 million in 2023 or come close to that number? It will exceed the number. Okay, good. Thanks.

Ladies and gentlemen, if you still have a question to stage, please press 9 and start. Meanwhile, we have received the questions of Olivia Honeychurch.

Thank you, operator. So on the overall order outlook, you said that power semis are the predominant driver of orders rather than micro-LED. For micro-LED, you're seeing a lot of revenue from your first major customer, but it sounds like that may tail off slightly in 2024 without there being another big order yet. The question is, do you see enough demand in GaN and silicon carbide into 2024-2025, being able to keep driving good strength in the business, even if there is a bit of an air pocket in micro-LED?

So I understand the question relates to the years 2024 and 2025, so beyond 2023. I would expect that we continue our growth path also beyond 2023. because we see the strong demand on the GaN and the silicon carbide side. And yes, in fact, the micro LED topic is shifting or has shifted somewhat in terms of the big wave coming. But we see the micro LED continuing on the basis like 2022, so it's not going down. It's rather staying stable on a stable level, rather accelerating. but sometime in 2024 or sometime in 2025, the micro-LED will kick in in addition. The timing, we can't tell, also relating to one of the previous questions we just had, but at some point it will also kick in.

Okay, a follow-up question here on another question before. New silicon carbide customer ordering relatively large quantities. Is that a Chinese customer or perhaps a European-based one?

The majority of our silicon carbide customers is based in Europe and the U.S. This is where we currently see also the strongest momentum. On the one hand, we know that Europe is traditionally very strong on power electronics in terms of the device makers. I think we all know the name. And also the U.S. is very strong in power electronics. And we see further momentum now, of course, from the U.S. Chips Act with U.S. customers also expanding their facilities.

Okay, and one more question on the gross margin. You've previously said that the 45% was a midterm aspiration, but now you're guiding to it in 2023 already. Does that mean we can now assume that the medium-term guidance should be higher, or is that about the level we should expect going forward?

It's a very good but also a very difficult question because we all know that there is a different market forces at work. On the one hand, we have achieved the 45% much faster than we had expected to the fact that the diluting red, orange, yellow business has now fallen off. On the other hand, along with the growing volumes that we see in our markets, our customers are driving for further productivity and further cost. We have to see how that develops. I would say 45% is for sure to be set. There might be an uptick in the years to come. Let's see. That's the question we've had now. Go to the operator. Olivia, does that also answer all? If there's others, just let us know. Operator?

Of course. Thank you very much. Next we have Jeff Bernstein of Colum. Please go ahead.

Hi. Thank you for taking my question. You guys have an investment, I believe, in an Australian company called Blue Glass that was developing an RPCVD capability on your tools, and I guess they've gone commercial with high-power blue and green lasers. Can you just talk about what you see as the importance and the opportunity there?

Thanks for the question. Just to clarify, we do not have an investment in this company. Blue Glass in Australia is a customer. They have purchased a tool. They work on a specific technology. I don't want to reveal the details because I don't know what they have revealed themselves. And we serve them as a regular customer as we serve other customers. Now, of course, all the collaboration and all what they aspire to do is under an NDA, as with all the other customers. So I could not reveal in this place now details about what they do, what specific they try. Of course, I do know that, yeah, but that would not be the right thing to disclose it here in public. I think you would need to approach their board directly and their management team.

I understand. Thank you.

Mr Adam Angelo has a follow-up question the floor is yours yeah hi sorry just a very quick one and thanks for letting me back on just wanted to check on the export licenses where you're at have you fully received everything that maybe was slow to come in the tech map for 2022

Yeah, we see that the missing licenses are now coming in one by one, and also now the units that we spoke about are shipping step by step. Not all of them are yet there, but we see that the situation, it starts to be relaxing.

Great, thank you.

Next we have Ms. Elizabeth Weisenhahn of Portuguese Investment. The floor is yours.

Yes, hello. I would like to raise also the question of these export licenses, because here in Germany, the economic ministry, they do have some change in their policy towards China. And sometimes I think maybe this slow process in giving out the export licenses is not only because of bureaucratic hinderness, but it is more of a systematic thing. And second, your part of turnover in China was always very high. Does that now change? And how do you look at this from a risk standpoint?

I see two questions. The first, whether there is a systematic change on this policy. We cannot confirm that. We rather see that the licenses are coming. Some are coming a bit faster than expected. Others are coming a bit slower than expected, but they are all coming. So we cannot confirm a systematic change here to your first question. To the second part of your question about the China share of revenues, that's a very good observation. That's related mostly to the end market and the end application and the regional strength of different applications. For the last 10 years, Exxon had a very strong China exposure, driven largely by the LED market and the LED industry, which was mostly located or which is mostly or was mostly in the traditional LEDs. located in China, while we all know that the highly innovative micro-LED topic is mostly driven out of Europe and the US. And we currently see, as mentioned before, the biggest growth momentum coming from gallium nitride and silicon carbide power electronics. Again, an application or two applications where the majority of customers and the real strength is located in Europe and in the US. And with that, we do see the share of China revenue as a percent of overall revenue going down quite strongly. It used to be somewhere 50%, 60%. I think we are now talking 25%, 30%, something on that order. And that's due to the shift of end markets. However, also to be very clear, we have a very good, very strong, also in some segments, very innovative customers in China, which we continue to serve and which we want to continue to serve. And I think it's only a question of time when China is also picking up on these new applications that's currently causing so much growth for us.

Operator?

Yes, thank you. And the last questioner is Mr. Johannes Ries of Apple's Capital. Please go ahead.

Yes, hello. Good afternoon. Thanks for giving me the final question. Only maybe coming back on micro-LEDs, only to have a feeling about the size of the opportunity. I think it is unchanged given maybe technology problems we have now for some time being, but is it still the case that despite silicon carbide and gallium nitride, Especially, say, silicon carbide are growing stronger than maybe one or two years back expected. So this is, in the longer term, your maybe largest market opportunity. Is that still right?

I would see that the market opportunity is really quite balanced across all the three material systems that Extron is offering in its portfolio. And again, there may be certain shifts, but I would say to a very rough order, you could say one-third silicon carbide, one-third gallium nitride, both power but also the LED side of the gallium nitride, and one-third gallium arsenide, both on the lasers, the VIXOS, which is the established market, as much as the gallium arsenide side, the red micro-LEDs. And then in individual years from this one-third, one-third, one-third, of course, it can deviate. And in a specific year, one of those may be around 40% or even a little higher than 40%. But I would say we have a quite stable basis of all three material systems.

And micro-LED, it's the largest opportunity, isn't it?

I wouldn't want to quantify it like that. I think it's nicely competing with silicon carbide if we see all the plans for electrification of everything and the replacement of all combustion engines and burning of fossil fuels with electric things. If you look at the big road driver on everything that needs to be replaced from the fossil economy to an electric economy, you need power electronics, silicon carbide for the very high power, gallium nitride for the lower power. I just read a study in 2050, more than 50% of the world's energy will be produced by solar cells. Not only here in Germany, where we might be pushing this a little faster than others, but also in developing countries. And all these new power converters on the roof, so to say, or on the field, where the solar cell is attached, and all these power converters will be either gallium nitride or silicon carbide. Let's see. I think the future is uncertain, but for sure growing. Great answer.

Thanks a lot. Thank you. Thank you for all the questions. This ends today's call. Our next earnings call will be our Q1 call on April 27th, followed by our annual general meeting on May 17th. We ask you to participate and ideally support us. And until then, I'd say goodbye and see some of you in between. Thank you very much.