Aixtron Se Unsp/Adr

The conference is now being recorded.

Good afternoon, ladies and gentlemen, and welcome to the conference call regarding the nine-month 2024 results of Axtron XSE. 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, Christian Ludwig.

Thank you, Marek. A warm welcome to Axtron's Q3 2024 results call. My name is Christian Uthig. I am the head of Investor Relations at Extron. With me in the room today are our CEO, Dr. Felix Gawart, and our CFO, Dr. Christian Danninger, who will guide you through today's presentation and then take your questions. This call is being recorded by Extron and is 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 also take note of the disclaimer that you find on the presentation document as it applies throughout the conference call. This call is not being immediately presented by a webcast or any other medium. However, we will place a transcript on our website at some point after the call. I would now like to hand you over to our CEO, Felix, for his opening remarks. Felix, your turn.

Thank you, Christian. Let me also welcome you all to our Q3 24 results presentation. I will start with an overview of the highlights of the quarter and then hand over to our CFO, 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 update on the key business developments of the second quarter on slide two. The important messages from Q3 are, we have delivered a robust Q3 24 and recognized solid orders with 144 million euros. We concluded the quarter with revenues of 156 million. We came out in the lower half of the guided range because a customer requested to push the delivery of one larger project into Q4. The growth margin came out at 43%, strongly improved versus H1 due to an improved product mix. Our equipment order backlog at the end of Q3 remains high at 384 million. For the fiscal 24, we confirm our adjusted guidance published in July 24. For fiscal 25, visibility remains low. Revenue for the next year is likely to be flat or even slightly below fiscal 24. But more importantly than the shorter numbers is for us that we could further expand our strong position in the silicon carbide and gallium nitride. As you know, our market position in silicon carbide has been strengthened throughout the last quarter. In particular, we have made further technical progress with the G10 silicon carbide. Early October, at the International Conference on Silicon Carbide and Related Materials, called ICECREAM, in Raleigh, North Carolina, we presented these improvements on layer thickness and uniformity, which put us in the leading position in the industry. not only in productivity and cost, but now also in terms of uniformity and run-to-run tool stability. For gallium nitride, on the other hand, we see the next technology step on the horizon, the move to 300 millimeter wafer technology. AI and other large volume applications drive this opportunity. We at Extron have anticipated this, and we are well prepared. We leverage the multi-year experience and the core elements of our 200 millimeter technology. In addition, we have built or we can build on 25 plus years of shower head technology in our 300 millimeter single wafer reactor. With this, we are in a unique position and therefore we have started work on 300 millimeter GAN early and built a dedicated clean room, our inner center, for our 300 millimetre technology. I will elaborate on that in more detail later. Christian will now provide a detailed look into our financials on the following pages. Before I then take over with an update on our market. Christian? Thanks Felix and hello to everyone. Let me start with the financial highlights of our income statement on slide four. We had a good quarter with revenues at 156 million euros compared to 165 million last year. We came out at the lower end of the quarterly guidance as the delivery of one larger project was pushed before a customer request. In the first nine months of 24, we recorded revenues of 406 million, almost in line with last year's nine-month revenue number. Gross profit in Q3 24 was at 67 million, and EBIT for the quarter was at 38 million euros. Gross margin in Q3 was at 43%, showing a strong improvement versus H1 due to a better product mix. After nine months, gross margin was 39%, down four percentage points year over year. primarily due to a less favorable product mix, which included a high share of lower-margin traditional LED systems. OPEX in the quarter went up to €30 million, primarily driven by higher R&D spending compared to the previous year. As we said earlier, we have a double load in 2024, as we're currently finalizing the development work for the G10 series, while we have started the development of our next generation systems like the 300mm GARM platform already. Now to our key balance sheet indicators on slide 5. We have now seen the start of the decrease in inventories to €427 million compared to €448 million at the end of Q2 2024. And as stated in the Q2 call, Even stronger inventory reductions will materialize in Q4 and throughout 2025. Trade receivables at the end of September were at €116 million compared to €158 million at the end of 2023 and flat versus the number end of June. The advance payments received from customers at quarter end were at 190 million euros, representing about 31 percent of order backlog, a similar range as last quarter. Moving to our key cash flow indicators. Our operating cash flow improved both in Q3 as well as in the first nine months, as the inventory build has stabilized and reduction has started. After nine months, operating cash flow stood at 28 million, an improvement of 94 million versus last year's negative 66 million euros. In the third quarter, we generated 50 million euros of operating cash flow, an improvement of 10 million versus last year's 5 million euros. Free cash flow also improved on the back of the improvement in operating cash flow. In the first nine months, we came in at still negative 58 million euros, The improvement was less pronounced than for the operating cash flow as our capex after nine months was at 86 million euros and therefore significantly higher than the last year's number of 17 million euros. This is primarily due to the investment in the innovation center. In summary, we will see further improvement of inventories in Q4 when the larger shipments are planned, which will result in an improved operating cash flow. At the same time, capex will come down as we approach the completion of the innovation cycle. These two effects should result in a strong free cash flow in the last quarter of the year. Our cash balance, including other current financial assets as of September 30th, 24, was stable at 78 million compared to 79 million euros at the end of June. Cash decreased from 182 million at the end of 2023, which was mainly due to the mentioned CapEx project and our dividend payment of 45 million euros in May. With that, let me hand you back over to Philip. Thank you, Christian. I would like to continue on slide six and give you an update on key trends in our different markets. We introduced our G10 tool family to the market since September 22. The goal was that the G10 family covers all our key end markets with exciting growth applications ahead of them. The market traction of our G10 series has been very successful. Already for the full year 24, it will be significantly contribute to our equipment revenue. This underlines that our strategy with a strong focus on technology and innovation is paying off. Slide 7 gives an overview of the markets we serve. I will just briefly touch on key points of the overview and spend more time on the news for GaN and SICK that has occurred since July. As stated before, in 2024, we see a wave of investments into traditional red LED capacities leading to expected high double-digit million euro revenues in fiscal 24 from this market. Companies, which have been only delivering to the blue LED market for lightning or black lightning, are now also investing into red LED capacity. Our G4 is the tool of record in this segment due to its proven track record and low total cost of ownership. Despite the news from Apple and AMS Osram, the industry is continuing to work on micro-LED technology. Driven by orders from several customers building R&D and pilot production lines, our micro-LED revenues for fiscal 24 are also expected to be at high double-digit million euros. All this is well known. New this quarter is that we can share with you that many customers no longer regard The mass transfer aspect for manufacturing the micro-LEDs is particularly challenging. This used to be a key inhibitor for volume adoption. Now we are hearing from various sources that progress is being made and that a pipeline of first products is in preparation. We believe initially smart watches, ARVR glasses like the one showcased by Meta the other day, and TV automotive applications will be the first products to market. Still, timing and volume predictions are uncertain, but various customers are looking into 27 or 28 for their production runs, which would correspond to extra tool shipments in 26 and 27. We talked about the current silicon carbide market dynamics in our Q2 call. Not much has changed since then. We continue to observe that the global market has currently built more capacity than there is demand. Nevertheless, We and our customers remain very positive about the mid- to long-term outlook. Driven by better product offerings, the EV market will continue to grow. The growth is particularly fueled by sharply decreasing costs for the expensive silicon carbide substrates, which make silicon carbide more cost-competitive compared to silicon IGBTs. In fact, while forecasts for the number of EVs have recently been reduced, the penetration of silicon carbide has been increased, due to this change. For example, we now start seeing silicon-carbide MOSFETs even in plug-in hybrids where carmakers try to get more mileage out of the battery charge. Another trend which is driving silicon-carbide adoption in EVs is the new 800-volt battery technology that allows for faster charging. This also relies on silicon-carbide, and more and more cars with this battery technology are coming into the market. We at Extron had anticipated increasing cost pressure and commoditization in the silicon carbide market right from the beginning, and our expectations are now being confirmed. This trend increases the focus on cost per wafer, which plays to the strength of our product. The G10 silicon carbide has established itself as the most productive tool in the market, coming also with the lowest cost of consumables, which means cash costs for our customers. In addition to that, we have been able to improve our tool performance even further. We presented our latest silicon carbide epilayer results early October at the International Conference on Silicon Carbide and Related Materials in short ice cream in Raleigh, North Carolina. With our 200-millimeter battery reactor, we have now taken the lead on both quality of layer thickness and uniformity. not only for a single wafer, but for all wafers in the batch and for many consecutive runs throughout a day, for example. Thus, now we not only offer the lowest cost per wafer, but also a better quality than single wafer tools. As a result, we expect to maintain a clear number one position with a growing market share in silicon carbide. Let me continue in more detail with the gallium nitride power electronics market on slide 9. In this slide, we have summarized the recent development of the GaN market. We have discussed this in depth in our Q2 call. We observed that GaN power switches are taking market share from silicon power switches, application by application and step by step. Some applications have already been around since 2020, like the smartphone chargers. Others are just starting now, like high-voltage motor drives and onboard chargers. Several customers are working with high intensity on increasing the energy efficiency of AI by means of GaN power technology. And others are looking to address the market for main inverters with highest voltage GaN at 1,200 volts or above. These are growth opportunities we expect to kick in around 2026 or 2027 onwards. With our G10 GaN, we have been addressing the 200mm market, which covers all applications alike. Now, in September, a major power electronics player has publicly announced to go towards 300mm with GaN as well. We at EXTROM have been working on 300mm GaN technology for quite a while and are very happy that now a leading customer is providing the confidence to the market that this technology is actually materializing. Hence, let me take some time to share with you our perspective on 200-millimeter versus 300-millimeter GAN and introduce the extra 300-millimeter GAN effort to you. First of all, it is a great sign that the market for GAN is expected to grow into a size where 300-millimeter economically makes sense. Niche markets are typically served from small wafer sizes. We see that with our tools for laser applications, which are still today shipping in 4-inch or 6-inch wafer size. A 300-millimeter wafer offers 2.25 times the area and hence 2.25 times the number of chips compared to a 200-millimeter wafer. The move to 300-millimeter hence confirms the growth trajectory of GAN that we have anticipated. Secondly, We believe that the markets for 200 mm GAN and 300 mm GAN will co-exist for a very long period of time. The dashed line in the figure on page 9 shows our expectation on what applications can be addressed with 200 mm and with 300 mm technology. The overlap between both is about roughly the entire market. From what we see today, 300-millimeter GAN initially starts at low-voltage applications below 200 volts. These are thin layers, which are easy to make on the large wafer. But we also expect 300-millimeter GAN to cover the important and large 650-volt segment. This requires a bit more development work, but we have shown in our Extron lab that this is possible. The market for high voltage at over 1,200 volts is very new and just emerging. Hence, we expect this market to be addressed and open up based on 200 millimeter technology first. Now, what drives customer decisions for 200 millimeter versus 300 millimeter? We believe this decision will be driven to the biggest part by consideration of FAB equipment reuse. The GaN epi tools, such as offered by Extron, need to be newly purchased in either case. Existing silicon tools don't reach the required temperature and don't have the gas control mechanisms needed for GaN. But a big part of the equipment downstream after the epi deposition can be reused, for example, by converting a silicon MOSFET production line into a GaN power production line. This reuse of existing fab equipment may, in our view, become a dominant decision factor for our customers. Customers with a large installed base of silicon power equipment at 300 millimeter may want to convert this to gallium nitride, as they expect GAN to take away market share from silicon. On the other hand, customers with several existing 200 millimeter fabs doing the silicon power production on that today may want to convert these 200 mm FABs in the future to 200 mm GAN, rather than making new investments into a completely new set of tools. What does this mean to Extron? We will continue to invest in our 200 mm GAN platform to further enhance its performance, such that it constitutes also the most attractive offering for our customers in the market. In parallel, we have developed and we continue to develop our 300 mm GAN platform. The goal is to take the leading position both in 200 mm and in 300 mm GAN to make us agnostic of customer wafer size selection. With this, let me come to our 300 mm GAN tool itself on page 10. Extron will address the 300 mm market with a single wafer showerhead reactor. We built on over 30 years of experience in the GAN material system with this reactor type. Initially, developed at Thomas One, a startup from Cambridge University, this technology was our platform for the blue LED market. And for over 15 years, we have applied this technology to a 300-milliliter wafer size. The initial market, 3.5 on silicon, in short TFOS, TFOS, did not materialize, but provided valuable learning and experience. We have now ported. the most recent experience and our secret sauce developed for 200 millimeter technology to this 300 millimeter GaN platform. With this, the 300 millimeter tool starts with a performance on par or even better than our 200 millimeter G10 GaN tools right from the beginning. We call the 300 millimeter GaN tool Hyperion. You will see the name in future communications. As you can see, We build on experience and technology learning of several decades in 300mm GAN and also transfer our most recent technology building blocks into this market. In September, at CENICON Taiwan, we have presented the most recent process results to select customers with very positive feedback. This makes us confident that we can capture the additional growth opportunity that the 300mm GAN market provides to us. Today, multiple Hyperion units have shipped to customers who are working with this tool in their R&D and pilot life. This will take some time, and we expect volume production shipment from Extron starting 2026, 2027. The 300-millimeter opportunity is also the reason why we decided to invest in our additional 300-millimeter cleanroom, our innovation center, on page 11 of the slide deck. With the recent market news, we can talk about this openly now. The InnoCenter has been designed and built with 300mm technology in mind to provide us the space and the right environment to capture this opportunity. It will allow us a much deeper collaboration and co-development with our customers. The construction is well progressing and nearing completion. This will add 1,000 square meter cleaning space to our R&D operation. We have moved our first system into the clean room already, and the hookup is happening as we speak. We expect first wafers out in Q4 this year, and first joint customer projects are already scheduled for Q1 25. With that, let me now give you the update on our full year guidance for 2024. As stated before, we confirm our guidance for 24 as published in July. We expect total revenues in the range between 620 and 660 million euros. We expect a growth margin in the range of 43 to 45 percent, and we expect an EBIT margin in the range of 20 to 25 percent. Our revenue guidance for the last quarter is therefore as follows. For Q4 24, We expect revenues between 215 and 255 million. This includes the larger project that was pushed out from Q3 to Q4 upon customer wish. This reflects the usual seasonal pattern, shipment being Q4 heavy, based on customer plans to take delivery of the system, which are mostly derived from customer sub-completion dates. We have seen a similar trend in the past year, so nothing really new here. Let me also give you an indicative outlook for fiscal 25. The medium and long-term drivers for XTRAN's revenue growth remain fully intact. Efficient power electronics, in particular for applications in IT and AI, silicon-covered technology for efficient electromobility, and micro-LEDs for future display generation. In the short term, however, momentum in the end market remains slow. Therefore, it is possible that 2025 will be characterized by moderate customer demand, while orders for 26 are already being placed today, and some orders are being pushed out towards 2026. As things stand today, revenues for fiscal 25 are expected to be at the level of fiscal 24 or slightly lower. With that, I will pass it back to Christian before we take questions.

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

Thank you very much. Ladies and gentlemen, we will now start the Q&A session. If you would like to ask a question, please dial 9-star on your telephone keypad. If your question is answered before it's your turn to speak, you will dial 9-star again to cancel your question. Please press now 9-star to state your question. Okay, the first question comes from Madeleine Jenkins, UBS. The floor is open.

Hi, thanks for taking my question. I just have one on your new single wafer GAN tool. I was just wondering kind of how the transition was going from batch to single, kind of what difficulties you're facing and also what feedback you've been getting from customers in your kind of initial pilot line phases. Thank you.

Thank you very much. Good question. It's going very well, and the tool is giving us, until this moment, fortunately, only positive surprises. It's been a joyful ride, I can say. So, to put more color on that one. So, what I mentioned before, we take the elements, the building blocks, the modules, so to say, that we've developed on 200 millimeter technology, and we have brought them into the 300 millimeter tool, so to say, all these ingredients are in there, And based on that, we've been able to achieve really fantastic results in terms of the uniformity of films, the crystalline quality, and everything that you can imagine. And what I mentioned before, in some cases, we have achieved, in fact, results on the much larger wafer, which, of course, is more difficult to handle, in a better quality than we have seen it in our 200-millimeter tools. So it's going very well.

Okay, great. Thank you. And then just to follow up, I guess given the dynamics of now in gallium nitride but also in silicon, are you considering a tool to develop a single-wafer silicon carbide epitool kind of for the – I realize it will be long-term, but for the future, or are you comfortable with your batch proposition for now? Thank you.

Yes, we are very happy with our current tool. As I mentioned, we've been able to further boost the productivity and especially the performance of the tool, yeah, We are able now with the batch tool silicon carbide to achieve results which are ahead of what is currently seen in the market from single wafer tools, so there is absolutely no rationale to develop another tool.

Okay, and just in the transition, I know it's really far out, but into 300 millimeter and silicon carbide, would your tool be able to be used for that?

I'm not seeing a 300 millimeter silicon carbide, honestly. I don't expect that.

Okay, thank you.

Next question comes from Olivia Honeychurch from Jefferies.

Hi, thanks for taking the question. A couple from me, please. So firstly, on your 2025 outlook statement, are you guided for sales to be flat or slightly lower versus this year? If I pressed you, which of the two outcomes do you think is more likely between flat and slightly lower? And I guess if they're slightly down, what sort of percentage decline do you think that could end up looking like? And then I've got to follow up. Thanks.

So I think with flat or slightly down, with slightly down, I mean something like 5% or 10%, yeah. And let's say midpoint of the guidance, which is still the most realistic, I mean the 24 guidance, yeah. So that's for the percentage. And now to your question, what is more likely? Honestly, it's really all about the market dynamics and how it further unfolds. I mean, in the end, so to say, the question, how long is the current downturn going to hold? And I think nobody knows that, right? Is the downturn continuing all the way through 25? Like, you know, orders are only coming back at the end of the year, meaning shipments are pulling back and increasing again in 26. Or is it that whatever... towards the middle of the year, the market returns with increased shipments at the end of 25 already. I think nobody in the industry can predict that. And if so, the person probably can make a lot of money out of that.

Okay, that makes sense. Thank you. And then secondly, on the Q3 pushed out delivery, can you give a little bit more color there? What exactly was the size of the revenue delta and what was the reason for that delay? And I guess following on from that, has that tool or that series of tools now been delivered since the start of Q4? Thank you.

It was a customer in the micro-LED space who wanted his tools in December, yeah, rather than October. So I think that pretty much answers the question.

Fantastic. Thank you.

And the next question comes from Martin Merenden-Kaljan from OdoBHS.

Hi, thanks for taking my question. The first one is on silicon carbide. Could you maybe give us a bit more color on which player draws the silicon carbide business? Is it about new customers or existing ones? Sorry, I didn't get the question.

Let's stay on this one. Let's clarify.

Can you repeat?

I didn't fully understand.

I was wondering if you can give a little bit more color on what drove the silicon carbide order intake in Q3. Was it more about new customers that you want this year, or was it more about existing customers?

Well, it's both and mixed. the mix of existing customers and new customers, so I think it's getting very broad. I think for silicon carbide, it's quite interesting. We see across our customer landscape a very diverse landscape. We do see some customers who is running up to 50% of their capacity being idle. And on those ones, the good news is if they are only using half of their tools, the tools which they continue to use is the extra tools. And we love that because it shows us that our tools have the best activity, lowest cost. So they continue to run even if other tools get turned off. And what's also interesting is we do see that some customers are fully loaded and asking us to pull in and to even accelerate their ramp. So we have some customers who have a very strong position in the Chinese EV space. This is not Chinese customers, this is outside of China customers, but they've made design in some of the models which is currently hot in the press about making competition to the European car makers. So this is made on Extron with Extron customers outside of China. And so we have a pretty, and these customers who have made it to get designed into the China silicon carbide supply chain and car industry, you can imagine they are asking us to pull in to accelerate even further. While some of those customers whose factories is half empty, of course, are pushing out orders and don't accelerate. So it's an extremely diverse mix. Just to shine color on that, of course, as always, we preserve the confidentiality of the customer. So I cannot give further detailed indications for that. But that gives you an idea why our silicon carbide continues to be, despite the overall market slowdown, better than you would expect if you just take the average market.

Okay, that's very important. And still on silicon carbide, do you see now other applications outside automotive, like servers, ramping up in volume, or is it too soon?

Honestly, it's a bit difficult to say which ones, but yes, I can give you a qualitative answer. I don't have a quantitative answer. I leave that to the market analysts of Jolent and Gartner and these guys, yeah. So, what we do see is that, of course, the EV main inverter is the main indication. Yeah, that is there for sure. We get more mileage out of the battery. That's for sure. We do see that the both wide band gap, GAN and SICK, are fighting with each other in the onboard charger, which also is a decent volume. I think they make a hard time for silicon pushing that out. Silicon carbide having a big benefit from the falling wafer prices, especially now due to China pushing hard on the wafer prices. This makes silicon carbide cheaper, and with that getting cheaper, silicon carbide gets more attractive and wins market share, very clear. But also gallium nitride, I think, is doing a good push on that one. Where we do silicon carbide currently gaining momentum and again attractiveness coming from advanced technology but also decreasing prices is the market, the industrial market of higher voltage classes. So here you speak about devices in the 1.7 or 3.3 or even 10 kilovolt range where silicon carbide is taking away market share from silicon IGBTs and the applications you find in large wind turbines, large solar plants, and overall energy conversion, as well as in large super high-power motor drives, whether this is stationary motor drives or whether you find them, for example, in rail traction like high-speed rail and trains and so on. And yes, we do know this market is increasing. We see also increasing customer demand coming to our laboratory and saying, hey, Exron, can you help us? and we work with customers now, what part of the market that makes, I cannot give you the details. But I do see a strong momentum from that segment.

Okay, thank you very much. And maybe the last question, if I may, maybe more of a question for Christian. On the gross margin, I mean, if we look at the guidance for 2024 today, applies a very strong gross margin in q4 around 50 percent or slightly above which would be a record can you help us maybe reconcile how we get to that number is it linked mostly to mix to the new g10 systems yeah yeah very clear that this question is on the mind of a lot of people um yes i mean uh just doing the math uh this requires a very strong q4 yeah

This will be supported on the one side by the pushed out. I mean, these systems are pretty much ready for shipment. Yeah, the pushed out systems. And then at the end, we're talking about the similar level like last year. So the main contributors here to achieve that will be the improved mix that will benefit to the gross margin. On the other side, also better fixed cost regression, so some operating leverage in there. And, of course, the volume effect of the just pure high volume. So with all of that, we believe that we will come out within the guidance range where exactly time will show as it depends on which tools really shift them at the end of the year. But overall, we're on a good track here.

Okay. Thank you very much, Christian.

Next question comes from Gustav Froberg, Bierenberg.

Thank you for taking mine also. My margin question was just answered, but I have two other ones on silicon carbide and on 2025. Starting with silicon carbide, you talked about broadening your customer base. How many customers do you estimate that you have in silicon carbide right now? And have you started the process of selling into Chinese, either wafer makers or chip makers as well? I know this was talked about in the past. And then a question on phasing in 2025. You say flat to slightly down versus midpoint guidance year on year next year. Does this require a lot of growth in the second half of 2025, or do you see this being more evenly spread throughout the year next year? Thank you.

Thanks a lot for your question, but they're difficult to answer because it's all about numbers, which honestly I don't really have. So let me try nevertheless and fill in qualitatively where I don't have the exact figures, if you allow me. Honestly, I don't know how many silicon-covered customers we have. The customer base has broadened significantly. I can really say that. I can say the truly global footprint is, I think we all know, it started off pretty much in Europe and the US, but by now our customer base also has broadened very well, I would say, in every space where the semiconductor industry is located. We have a decent number, multiple in Taiwan, we have multiple in Korea, not only one or two, but multiple. We have multiple, if not even many, in China. And to your question about China, yes, we also have quite significant orders from Chinese customers, both in the number of customers, but also a few high-volume customers, meaning large customers, yeah, in terms of multi-tool orders. And with multi, I mean like a dozen or more than a dozen, yeah, so not just five or six, yeah. So I would say you can consider this by now a broad, global, and diverse customer base in terms of footprint, size, geography, and application. And allow me that I don't have precise details. I can just say it's all over the place. Maybe that helps you already. Now, with respect to the exact revenue distribution in 2025, honestly, I don't have the numbers, but, I mean, you know our seasonal patterns. Typically, you can for sure expect a strong Q4. I mean, you've seen it in the last year, so you've seen it this year, you've seen it last year, and you can definitely repeat that to come. Deriving from that, for sure, I would expect the second half to be a bit stronger than the first half, but I don't have the exact numbers, and I think a lot is still in the flux. Yeah, so let's see how it comes.

Okay, great stuff. Thank you. Good.

Next question comes from Michael Kuhn, Deutsche Bank.

Hey, good afternoon. A few follow-ups from my side. Firstly, let's say maybe on the end markets that were not so intensively covered so far. Obviously, we have seen a little drop comeback of the old LED business over recent quarters. Is that continuing for now or are we coming down again here?

The LED business is typically lumpy. We still have some in the order pipeline, but you never know when exactly it's coming. What I mentioned already in my speech is that we have seen now quite chunky orders from a few large customers who in the past have in China only been addressing the blue LED market and now as signage these last-ditch displays are coming and then of course the roadmap is to shrink them eventually then calling it micro LED. So some of these LED players have now been completing their portfolio In the past, they only used that gallium nitride-based LEDs, which is blue, yeah, and now they complete that also by green and red, yeah, and red is based on our G4 tools, so to say. Yeah, so this is what's currently happening. Yes, there is some more to come. We expect that. But again, given that this market is lumpy and always was lumpy, if you pull back to the last time we had red LEDs, we were always talking about lumpy, lumpy big orders. So typically you get a PO and the customer wants 22 in a shot. And then you have a few quarters, nothing, and the next customer comes and the minimum order price from these guys typically is a 10 or a dozen, sometimes even more. So there is more to come, but when exactly and how it is distributed, I cannot say.

Given, let's say, the implied Q4 gross margin guidance, I would assume there's hardly anything from the LED side involved.

Of course, the end market mix and also the generation mix in Q4 will be significantly better. I cannot exclude the few LED shipments in there as well. I mean, we're talking about 255 million euros. But overall, the mix will be significantly better.

Understood. And then one more. I mean, obviously, let's say the sluggishness in some of the end markets is now taking a little longer than you had initially anticipated. I mean, we all know you're a very focused company still. Is there, let's say, any opportunities outside your traditional core markets that you would probably... take a look at or any, let's say, other diversification opportunity just to, let's say, drive growth and get a little more diversified, maybe.

You know, there's always something in the pipeline. I think by now you know us, hence also your question. However, We all know in our market, which is highly technology, highly innovation-driven, some things materialize, others don't materialize, and I don't like to speak about things before they're really there because it's very much fluent. So let's take it when it comes. I think the key message I would like you guys to take home is I think we have a pretty cornering around 25, at least based on what we see today. This is our best estimate now. The real guidance will come in in February of 25. And I think we've provided you quite some indicators that we really see 26 and then 27 with many of our addressed core markets today kicking back in. Silicon carbide is our expectation to come back. Micro LED to materialize in the next momentum. And GaN to materialize both in 200 and also in 300, yeah. So I would like to leave it at this point. Yeah, yeah.

Next question comes from Martin Jungfleisch, BNP Paribas.

Good afternoon. Thanks for taking my questions. I have two, please. The first one is on the orders. You mentioned that there was a push-out for revenues into the fourth quarter. Was there a push-out for orders into the fourth quarter as well? And maybe, could you provide any color on your expectations for Q4 orders? Should they be relatively on par with Q3, slightly better, slightly worse? That's the first question.

In terms of orders, let me try to take your first part. So I understood your first part. Let me make sure that I got it. I'm not sure. I took your question whether there was a push-out of orders or only a push-out of revenues, right? Yeah. Did I understand that? Yeah, there was only a push-out of revenues. It was a push-out from a customer shipment. The customer said, I don't want your units in October. I want your units in December. That had nothing to do with the order. The order had already long placed.

Okay, thanks. And then just on the any color you can give on the fourth quarter orders? Would that be relatively on par with T3?

In this market environment, I think everybody is just, you know, putting their hands up and going, I mean, listen to what our customers are communicating to the market also. So to say, right now I just read all their news, and I think the key message they provide to their shareholders is we are pulling down on our capex. We are very disciplined, and I hate no message more than that, yeah, because my customer's capex is my order. We probably get the same. So let's really see what comes.

Cool. Thanks. And then second question from this Italy site that you acquired earlier this year. Can you provide some color on the ramp of the production there? And if you would incur any idle cost for this site in the beginning?

Well, what we mentioned before is, I mean, we were able to strike a pretty good deal, which is we're able to buy a brownfield site. We looked all over Europe. We were able to buy a brownfield site for for a single million-digit amount. And we are planning to have first shipments out of Italy in Q4 of this year as part of our revenue guidance and then gradually ramp it up in Q1 and Q2. And due to the fact that this was a brownfield site and we are just starting now. We are able to adjust our, let me call it, renovation investments. The facility is there and we have to make some renovations for fitting it out in a clean room style. We are able to do that now step by step as the revenues are coming. And of course, given the currently slightly slower market momentum, we are able to do that just as we are filling this. We build a team up there. But we've not made any big, large investments which come back to us now as idle costs.

Cool. That's helpful. Thank you.

Next question comes from Nigel van Putten, Morgan Stanley.

Hi. Good afternoon. Just to follow up on the growth, but more into next year. Perhaps you can play it off the current quarter, which seems to be the average quarter you need to reach a revenue guide for next year. Would it be fair to also model or put at least 40% into our models for next year as a start, or would that not be correct? That's my first question. Thanks.

We are hesitating to give any indication here. I mean, it's the first time really we have already at this point in time given a revenue indication for next year. With margins, be it now gross margin, EBIT margin, we should really wait until when we come out with the real guidance for next year. We need to see what the mix will look like and so on. I mean, these dynamics that we have discussed in the past about the end markets, lower traditional readily shipments, more next generation shipments, but to be honest, we don't really know yet. I would be hesitant to give more detail at this point in time.

That's understandable. Thanks. I have a similar question on OPEX. Perhaps that's more under your control. As sort of sales are not going to show growth next year, potentially coming down, should we expect OPEX down as well, or are the elements like higher depreciation upon completion of current investments like the headquarters and the refurbishments in Italy you just referred to, that would sort of skew that number higher into next year?

Thanks. I think you ask a question that we haven't even figured our mind out, so you are ahead of the curve. I would clearly say, given that revenue would be flat or reduced, you should not model an increase in OPEX. Whether you should model a down or reduction and how much of that, let's wait, like Christian also indicated, for our guidance that we provide in February. But I tell you definitely there will not be an increase in OPEX.

That's it. Thank you very much.

And the last question for now is from Malte Schaumann, Warburg Research.

Good afternoon. The first one is also on silicon carbide. We can elaborate on your confidence on winning further the other larger customers out of the top five players and what's your take on the potential timeframe when this might happen?

Our confidence is high, and for a time frame, I'm expecting 2026.

Twenty-six. Sounds pretty late.

Well, do you know anybody who's ordering from the last five in 25?

Yeah, true.

Help me the guy.

Okay, good. Okay. And then to... Two tiny ones. First is on the mid-24 guidance, you seem to be shooting rather for the midpoint of the guidance than for the lower end, just that wide. And then another tiny one, how much of the order backlog from the current order backlog you have do you expect will finally be for 26?

I think we've left the guidance range open because both the low end and the high end is possible. So the orders are there, and as always, there's some external factors we cannot influence, which is some parts from suppliers which need to come in on time in order to be able to ship and finish the tools. On some points, there's also some export licenses open, which is normal at this point in time, still two months ahead of the end of the quarter. So these are the two factors. If they're not coming out so good, it's the lower end. If all of that comes in, then we will be at the higher end, and that's the reason why we have the full range.

Okay.

We don't know it. You can toss a coin.

Okay. And on the order backlog for 26, can you share a number how much of the current backlog is probably for 26?

Well, I mean, for this year, we're still, you know, for 24, we are planning to shift about 50% to 60% of the backlog into 26. I don't know if I have that number for us. I think it's more than we usually have because we had some push out by indicators already going into 26. I think it's a low double-digit million amount which we see already for 26.

Okay, fair enough. Okay, thanks.

Thank you very much. Right now we have no questions anymore. Back to Christian Ludwig.

Well, then thank you very much all for your questions. If there are still questions open, the IR department is at your disposal. Please give us a call. And otherwise, if we don't see you before a year to talk to you, then we'll see you or talk to you at the latest with our full year release end of February next year. Have a great day. Thank you and goodbye.

The conference is no longer being recorded.