Aixtron Se Unsp/Adr

The conference is now being recorded. Ladies and gentlemen, welcome to Extron's fourth quarter and full year 2024 results conference call. Please note that today's call is being recorded. Let me now hand you over to Mr. Christian Ludwig, Vice President, Investor Relations and Corporate Communication at Extron, for opening remarks and introductions.

Thank you very much. A warm welcome to Extron's 2024 results call. My name is Christian Ludwig. I am the head of investor relations and corporate communications 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. All documents referred to in the call can be accessed via our website in the investor relations section. Please take note of the disclaimer that you find on slide one of the presentation document as it applies throughout the conference call. This call is not being immediately presented via webcast or any other medium. However, we intend to place a transcript on our website at some point after the call. I would now like to hand you over to our CEO for his opening remarks. Felix, the floor is yours.

Thank you, Christian. Let me also welcome you all to our full year 2024 results 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 new guidance. Let me start by giving you an overview of the highlights and key business developments of the year on slide two. The most important messages of the day from my point of view are, in 2024, we have outperformed the market by achieving revenue growth of 1% to 633 million. That translates into a CAGR of 24% since 2020. We thus delivered on our adjusted 2024 revenue guidance, meeting the lower end of our financial but also our initial guidance given in February 24. As indicated before, we finished the year with an outstanding Q4 24 performance, even better than last year's extraordinary Q4. This marks a great achievement of our operations team as it indicates the ability of Axtron to ship way over 200 million euros of revenue in a single quarter. Mainly due to negative product mix effects and cost under absorption in operations, our gross margin was down 6% to 262 million euros. EBIT was down slightly more at 131 million as a result of this. Overall, Extron delivered a good operating performance in a weak market environment. Our outlook for the year 2025 is based on expected continued weaker market environment. We expect revenues to come in at a range of 530 to 600 million euros, with a gross margin between 41 and 42%, and an EBIT margin between 18% and 22%. 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 a G10 SIG. We have achieved layer thickness and uniformity values, which puts us in a leading position in the industry, not only in productivity and cost, but also in terms of uniformity and run-to-run stability. We have also made significant investments last year to prepare the company for the next growth waves in our end markets. Specifically, for gallium nitride, we see the next technology step on the horizon, the move to 300mm wafer technology. We have started work on 300mm GAN early and shipped first tools to sales customers already. And we've built a dedicated clean room, our innovation center, for the 300mm technology. This was all done on time and in budget. In our 300-millimeter single-wafer reactor, we leveraged the multi-year experience and core elements of our 200-millimeter GAN technology, combining it with 25-plus years of show-ahead technology know-how. This puts us in a unique competitive position to keep our strong market share in the GAN market. This concludes the short highlight section, and I will now hand over to our CFO, Christian Dunninger. He will take you through the full year 24 financial question.

Thanks, Felix, and hello to everyone. Let me start with the highlights of our revenue development on slide three. As Felix mentioned, revenues in 2024 were up 1% to €633 million. Our strategy of serving various uncorrelated end markets with our equipment proved successful in 2020. We saw strong growth in the LED area, both in traditional LED technology and in equipment for nice LED applications. This compensated for the weaker demand for equipment for silicon carbide and gallium nitride power electronics. A breakdown per application shows that 55% of equipment revenues come from Garmin SIGpower, 28% from LED, and 12% from OctoElectronics, and a 6% contribution from R&D Tools. The after-sales business contributed to total revenues with a growth of 13% to 111 million euros. The after-sales share of revenues grew to 17% up from 15% a year ago. Now let's take a closer look at the financial KPIs of the income statement on slide four. Gross margin decreased by three percentage points versus 2023 to 41%, which was primarily due to a less favorable product mix, which included a high share of lower-margin traditional LED systems, and also some inefficiencies and costs under absorption in the operations area due to much lower output as originally expected. Accordingly, gross profit was down by 6% year-over-year to €262 million. As we had planned, our investing to R&D in the year 2024 increased to a total R&D spend of 91 million euros, driving our OPEX up to 131 million euros. Combined with the lower gross profit, this resulted in an EBIT of 131 million euros, which is 16% lower year over year. Net profit was down 27% year on year at 106 million euros. The disproportionate drop versus EBIT is due to higher tax expenses. This increase in tax expense is mainly due to the reduction in deferred tax assets on tax loss carry-forwards, as these are expected to be utilized to a lesser extent in 2025 due to the reduced earnings expectations for 2025. This results in an effective tax rate of 20% in fiscal year 2024. This is only partly cash-relevant, though. Cash taxes are on a similar level as in 2023. For modeling assumptions, we recommend to apply a tax rate of 20% to 25% in fiscal year 2025. A clear positive are our Q4 2024 revenues at 227 million euros, which even bet the very strong level of 214 million euros in the same quarter of last year. Orders in the quarter and the year came in slightly weaker, and thus our backlog was down due to the mentioned softness in demand. Now to our balance sheet on slide five. We ended the year 2024 with a total cash balance, including other financial assets, of 65 million euros, which was well below the 182 million euros last year. There are a number of factors driving this decrease. Inventory levels at the end of 2024 came down to 369 million compared to 448 million mid of the year and 390 million euros at the end of 2023. This is the result of our adjusted supply chain strategy and corresponding measures after initially front-loading the supply chain in expectation of stronger revenue. So last year, we had to heavily change gear mid-year and adjust our supply chain to the lower demand situation. And of course, we target further reduction of inventory levels throughout 2020. We've seen a Q4 increase in receivables due to the disproportionately strong sales contribution in the last quarter, especially in the last month. These receivables will be collected in the first month of the fiscal year 2025. As a result of putting on the brakes and our supply chain is stated, the amount of payables have come down towards year-end. Advanced payments received from customers were significantly down year-on-year at 82 million euros due to lower orders as well as a shift in the regional customer base, but also driven by the key date effect. Already in January, we saw an increase of around 20 million euros again. Down payments represented about 30% of order backlog. As a consequence of all these factors, operating cash flow improved by around 70 million euros year-on-year to 26.2 million in the financial year 2024. As already mentioned in the previous course, CapEx increased in 2024 due to the construction, mainly due to the construction of the Innovation Center, and also the acquisition of the Italian side. As a result of the high capex free cash flow, although improved by almost 40 million euros year on year, was still negative in 2024 at minus 72 million compared to minus 110 million in the year 2023. That said, please keep in mind that this was the key date view at year end. We expect a strong reversal of cash flows in 2025. Lastly, we are proposing a dividend of 15 cents per share entitled to dividends. The proposal is lower than in the previous year because we plan to use the expected cash inflow in 2025 to rebuild a strong cash position. We have an intensive phase of growth and investment behind us in which the innovation center loan incurred expenses of 100 million euros and the buildup of inventories tied up with 150 million euros. in the period 2022 to 2024. In addition to the current inventory reduction measures, we are working on operational improvements to be best prepared for the next growth phase with a significantly lower inventory builder. Our top priority for the use of cash will continue to be the implementation of our strategy. We will apply our core competencies and abilities to markets with high growth, differentiation, and margin potential, in order to sustainably increase the value of the company. With that, let me hand you back over to Felix.

Felix? Thank you, Christian. I will continue by giving you a brief summary of the key market trends we saw last year before I moved to our expectations for 2025. With our G10 tools heavily introduced in the market since September 22, we have a state-of-the-art product offering that offers best-in-class cost of ownership. The G10 family covers all our key end markets. Overall, we are very pleased with the market traction of our G10 series. The G10 family made about 50% of our equipment revenue in the full year 24. This is a very strong adoption roughly two years after launch, given the required qualification cycles in all applications we address. This confirms that our strong focus on technology and innovation is paying off. We aspire to continue this strategy in the years to come. Let me first start with silicon carbide. The technical progress with our G10SIG system in 24 was remarkable and has been confirmed by multiple customers, as you have seen in the press releases we issued with customers earlier last year. Early October, at the International Conference of Silicon Carbide and Related Materials, ICECREAM in Raleigh, North Carolina, We presented major improvements on layer thickness and uniformity performance, which puts us in the leading position in the industry. We anticipated cost pressure and commoditization in the silicon carbide market from the beginning, and our expectations are being confirmed. We are very happy that we decided right from the beginning for a multi-wafer batch tool all the way back in 2018. Our tool, the G10ZIC, has established itself as the most productive tool with the lowest cost per wafer in the market. Since 2024, now also with the best uniformity performance in the industry, we maintain a clear number one position with a growing market share. Our recent technical advancements have led to numerous new customer wins in silicon carbide, including significant volume from China. In 2024, we were able to convince several additional customers of our tool, including an additional sixth player out of the so-called top five and several players from Japan. Most recently, developments in the EV market have led to a slowdown in silicon carbide capacity expansions. However, the situation varies strongly customer by customer. Some of our customers have been hit hard by the slowdown in silicon carbide and have idle production capacity at this point in time. Other customers that we have are closely linked to the EV car makers in China and continue to order at Extron at high pace. It is these customers that drive the Extron silicon carbide volume in 2025. Mid-term demand for our silicon carbide deposition equipment will be driven by further growth in e-mobility and the increasing share of silicon carbide inverters instead of silicon inverters in both pure electric vehicles and plug-in hybrids. Furthermore, we now very recently hear from multiple customers that on module level, silicon carbide now starts to come close to cost parity with IGBTs. This starts to open additional opportunities for growth of silicon carbide in the market for IGBTs as well beyond the electric vehicle. With this, let me come now to gallium nitrate. GaN has expanded since its very entry into power electronics from selected applications such as high-voltage devices for smartphone chargers now into the broad market of efficient silicon power devices. We have seen voltage ranges expanding from the initial 650 volt to now 100 and 200 volt. These products have now become part of the portfolios of most of the big gun players. This comprises DC to DC voltage stages used in data centers, but also in automotive, solar panel inverters, and most recently, low-voltage motor drives, be it in battery-driven consumer applications or even in low-speed electric vehicles. In 2004, in the last year, we have seen GaN enter into three market segments with tremendous growth potential. In June 2024, Texas Instruments has launched the first GaN IC for driving three-phase power inverters. Such devices allow to massively boost the energy efficiency of home appliances, air conditioners, refrigerators, washing machines, which all constitute together a very big market. Furthermore, in 2024, we have seen the first commercial EV onboard chargers, in short, OBCs, going into production. Here, gallium nitride competes with silicon carbide and with traditional silicon power devices, but it has benefits when it comes to bidirectional charging. The most exciting market segment opening up for gallium nitride in the year 2024 is what we call powering AIs. Everybody knows about the energy hunger of AI. GaN is now starting to be used in power supply chips for the GPUs. This has the potential to cut energy conversion losses for AI by up to 50%, and this segment has the potential to become the single largest application for GaN switches in the years to come. Our positive view on GaN was supported by news last September when a major power electronics player has publicly announced to go towards 300 mm with gallium nitride as well. We can now state that they used our tool to achieve this. In our view, this underlines that the market for gallium nitride is expected to grow into a size where 300 mm economically makes sense. We at Extron will address the 300 mm market with a single wafer showerhead reactor. We built upon more than 30 years of experience in GANs with this type of equipment, and we can transfer the most recent experience from our 200mm technology to the 300mm GAN platform. All this makes us confident that we can capture the growth opportunity that the GAN market provides to us. With this, let me come to the markets for LEDs and micro LEDs. In 2024, we saw a wave of investments into traditional red LED capacities ongoing. What we saw happening is that players which have been traditionally only serving the blue LED market for lighting or backlighting have now been investing into red capacity to address the display market as well. Our G4 is here the tool of record across the entire segment and a natural selection for new customers due to its track record and very low chemical cost. On micro-LED, despite the surprising news from Apple and AMS Osram in Q124, the industry continues to work on micro-LED technology full steam. We reported on the Gold Supplier Award by BOE HC Semitech, the largest Chinese display manufacturer, and there are multiple such collaborations. In 2024, Extron's micro-LED revenue was driven by several customers building R&D and pilot production lines to commercialize the micro LED technology. As of today, timing and volume predictions for the micro LED volume ramp continue to be uncertain. But various customers are looking into 2027 or 2028 for the production ramp, which would correspond to external tool shipments in 26 or 27. Finally, let me speak about optoelectronics. In the optoelectronics area, we saw stable demand in 24, which was driven by demand for datacom and telecom lasers. Datacom lasers are critical to data centers to meet the higher demands of AI workloads, both for intra-data center and data center interconnect requirements. Extron maintains a clear number one position in the laser market with a strong market share, and we are very well prepared with the G10 ASP to secure this position. I also wanted to give you a quick update to our innovation center on slide 12 of the slide deck. The reason why we decided to invest in our additional clean room is the upcoming 300 millimeter opportunity I already talked about. The InnoCenter has been designed and built solely with 300 millimeter 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 has progressed well, and as you can see on the picture, we had an opening ceremony end of December 24. The Innovation Center adds 1,000 square meters cleanroom space to our R&D operation. We have moved our first systems into the cleanroom already last year and expect the first wafers to come out any day now. First joint customer projects are already scheduled for this quarter. Finally, let me now present you our full year guidance for 2025 on slide 13. We expect revenues to come in at a range of 530 to 600 million euros. At the midpoint, this would be around 10% below 24. We expect a 2025 gross margin at 41 to 42%, so roughly around last year's level. and an EBIT margin between 18 and 22%. Included in our gross margin and EBIT margin guidance is a mid-single-digit million euro amount for severance payments for a voluntary leave program in the operations area that we have initiated in January. Let me elaborate on this a bit. As stated, our market position remains strong and the long-term growth drivers are well intact. However, As I also explained before, demand in the markets addressed by Extron is currently weaker, significantly weaker, than we had originally been planning for. In total, this will result in a reduction of about 50 headcounts in the indirect operations area. We expect a mid-single-digit million-euro amount for several payments, which will be recognized in Q1 2025. Going forward and in the years to come, this measure will result in a similar situation mid-single-digit million-euro permanent annual savings corresponding to roughly one percentage point cost margin and an EBIT margin improvement. On Q125, in line with the usual seasonal pattern, sales in the first quarter of the financial year will be a bit lower than the annual quarterly run rate. In Q125, we expect revenues between 90 and 110 million euros. This is slightly below the previous year's levels in line with the overall reduced expectation for the full year. For the sake of completeness, we have lowered our USD to Euro budget exchange rate at which we record US dollar denominated orders in the backlog to 1.10 US dollar per Euro. This has just a minor effect on orders and backlog as only less than one third of those are recorded in US dollars and we have a high natural hedge. With this outlook, I will pass it back to Christian.

Thank you very much, Felix. Thank you, Christian. Operator, we would be now happy to take the questions.

Ladies and gentlemen, if you would like to ask a question, please press 9 and star on your telephone keypad. In case you wish to withdraw your question, press 9 and star a second time. And one moment, please, for the first question.

Okay, we're ready to take the first question.

Okay, so the first question comes from Didier Sakamano, Bank of America. Please go ahead.

Good afternoon. It's Didier Samama from Bank of America. Thank you for taking my question. Gentlemen, I just wanted to ask you a couple of questions. First, on the guidance for the full year, If I do the math right, you're sort of suggesting a very strong recovery, probably starting in Q2, but also significantly accelerating in the second half, I think, across your end market. So my question, I guess, is that the right way to think about it? And then from an older perspective, do you have that sort of line of sight for that inflection? And I've got a quick follow-up on the balance sheet. Thank you.

Thank you a lot for the question. I think you pointed out right. So we go in the year, as you can see on the page 14 of our presentation, with an equipment order backlog of around 180 and expectations for after sales of 115, so roughly adding up to 300. So to make up the low end of the guidance, 230. For the high end of the guidance, 300 is still to come in, in terms of orders which come in the year and also is to be shipped in. I think this is what you are hinting at. Yeah. So what we expect in the year is we expect you're also aware of the high inventory levels that we are having on stock. The inventory, of course, is split unevenly across different product lines. But the expectation we have is that all orders coming in in the first half year are shippable in the year. And also even orders coming in the Q3 or a significant part of orders coming in the Q3 is shipping within the year. And we have looked at our order pipeline, what's coming when, a little weaker in the first quarter, but then picking up strongly in the second and the third quarter in terms of orders. And given the expectation driven by the high level of inventory, we expect and we are confident to be able to ship these orders and to bring them home. We've analyzed that quite in detail with matching the order pipeline and our inventory levels per product line.

Okay. Well, I'm not sure I understand the link between inventory levels and orders. I mean, inventories I understand you have on the balance sheet. The question is whether you have the orders. I assume you do. Well, at least you've got line of sight on this. That brings me on to my second question, which is on... Let me just clarify.

Let me clarify. There shouldn't be any doubts or concerns open. This relates to the question how long it takes us to bring out a piece of equipment. So if the majority of parts or a significant part of what we call the long lead items that take a long time to get are already on stock, it's for us just to assemble the equipment and to ship it out, which can go within very few months. If, on the other hand, a customer orders a piece of equipment and we have to order the parts needed for that at our suppliers, and our suppliers also take some more time, then it takes longer. So the high level of inventory for a number of products relates to our ability to ship, let's say, within three to four months, while the normal delivery time for equipment, when we have to order at our suppliers, is more like six to nine months.

Okay, understood. I guess the other question is, over the course of the last couple of years, you've reported significant amounts of net income, but obviously your free cash flow is negative to the tune of 182 million, I think, the last couple of years. Some of that obviously comes from the investments you've made in CapEx to build that capacity, and that's going to come off, so that's perfectly understandable. But the metrics of working cap have deteriorated and it feels like in the quarter your receivables in particular have ticked up. So I just wondered whether you had to give some better payment terms to your customer in order to secure those revenues in the quarter. And the same question applies to payables. I know you touched on it on your introductory remark, Christian, but I guess ultimately the question is, you know, if you think 80% of sales in working cap is an acceptable level, or where would you like to be, you know, reduced to in order to, you know, improve your cash conversion?

Yeah, thanks. There's multiple factors going in there. Let's address each one of them. On the receivables, we had a significant key data effect in the last year because the shipments were extremely late, yeah? So... given the different factors, like customers, export licenses, the typical factors, but this time, very high shipments in the last days of the year, and that results just in a key data effect with very high receivables, so that will come down and we will collect these in the beginning of the year. The payables level, of course, is now a one-time effect, because we have systematically reduced the sourcing level, so now payables should remain at the lower level. The inventory levels are, I mean, without any discussion, they're significantly too high. And we stick with our ambition to get that down to like the 60 to 70 percent of what a backlog. Of course, that's a function now of the shipments going out. But we are clearly on this trajectory and really get that down. So your question, the working capital level is still too high. It's not the acceptable level, but we have a we are on the trajectory to get that down into the normal levels. One effect that also goes into the working capital is, of course, the down payments received. That is also a function of, of course, of the order backlog and the order intake that we have, but also, and that goes also to your question of payment terms. Yes, we have seen a little bit of a regional effect here. It depends always on where the customers are, what type of customer it is, but it's varying from quarter to quarter.

Okay, perfect. And just one final question maybe for Dr. Kravitz. I mean, I know it's not historically a business you've been operating in, but When you look at the metallization opportunities in meeting at Logic and Foundry, you start to see new materials like ruthenium coming in. And I just wondered whether you think that could be something that your tools would be capable of handling or is that potentially an opportunity down the line when those new materials are being introduced or is that too far away from your core business in OCVD?

Honestly, I don't fully get the question. Could you repeat?

The question is, ruthenium is a new material being introduced for the metallization layers in leading-end logic and foundry processes, in fact, also for DRAM and NAND in the longer term. And I just wonder whether that's something that could be of interest for EXPON.

Let me have a look with my technical team. It's a great suggestion. Okay, thank you.

And the next question comes from Martin . Please go ahead with your question.

Hi. Thanks for taking my question. My first question is on gallium nitride. Maybe could you share a bit more visibility on where do you think the GAN segment will start to go back to a growth trajectory? Because it seems that we are in a transition year for GAN where some capacity continues to be added because of continued penetration in consumer home appliances applications, but for your GAN business to grow again, it seems like it needs new markets such as data center or automotive. So I guess my question could also be when do you see the other markets pick up in a significant way?

So thanks a lot. Let me address your two questions. So as you have seen, From our forecast, we expect in 2025 compared to 2024, the GAN shipments to be flat over here. Now, if you listen to the forecast and expectations and capex of Western players, European players, North American players, you may wonder, well, where is Extron shipping to? And it's very clear we are not shipping too much stuff to European and North American players in 2025. That's clear. So for us, the demand for GAN power in 2025 mostly come from Asia, namely from China and from Korea. So we have quite some customer shipments going into these two countries. Sorry, I got caught a bit of a cold. You may hear that. So regionally, it's going into China and Korea. When new market entrants are continuing, either entering the market or continuing to build out capacities, which they have already. Now, in terms of markets, the players I was just speaking about address the market segment, which is well known. But I would like to come to your second question with respect to the additional momentum that we expect in Ghana to come. As you have seen from my speech earlier, Notably, the additional momentum to come from three-phase motor drives. First one. Secondly, additional momentum from onboard chargers for EVs. And lastly, additional gallium nitride momentum for powering AI. So the first of these two, three-phase inverters and onboard chargers, have been introduced already by our customers in the year 2003-2024. Their customers are now in the qualification phase, and I'm personally expecting volume upticks from these segments in 26 and 27 continuing. The market segment for powering AI is a relatively new segment. For the AI today, the power conversion is still being, as we speak, what's shipping today is still based on silicon power devices. So the design in the qualification is just happening at this point in time. I'm personally expecting that the powering AI opportunity is picking up in 27 and 28, but much, much heavier. And as we have mentioned in previous earnings call, we believe the powering AI could be the biggest single market segment for gallium nitride power simply because the market is so gigantic, so huge. And as we all know, AI has also such a tremendous need for reducing the energy consumption and for saving energy. That can be a fantastic momentum 27 onwards. Sorry, a little bit of a long answer, but I hope it addresses your question in full.

Yes, thank you very much. Maybe just a quick clarification. When you say AI could pick up in 2027, 2028, do you talk about your customers or do you talk about the ramp-up at your level?

I talk about my customers. I talk about extra revenue.

Okay, that's clear. Maybe also... something on the equipment order backlog on which you base your guidance and it seems like, you know, it would be like 60 to 65% of what your backlog was at the end of Q4. So it's a lower number than in the last few years. So I was wondering if that's just more cautiousness to not take the whole backlog or that maybe because, you know, and you mentioned it in the past that maybe for silicon carbide notably, they expect maybe some shipment in 2026, so that's why it's a lower percentage of the backlog that should be executed in 2025. Thank you.

I think you captured it very well with your question. For everybody, I don't know whether everybody has the numbers, so the backlog is at 289, equipment backlog, and we expect to ship 180 out of that, which leaves over 100 of backlog, which we are not shipping in 2025, but instead, as you hint with your question, which we are planning to ship in 2026. And this backlog has two components to it. The one component, as you have indicated in your question, is in fact a number of silicon carbide customers who have already secured slots for 2026 because they really have a long-term ramp plan and they want this equipment to be shipped in 2026. The other part of this is, in fact, also some gallium nitride power customers, and some of those customers actually with push-outs from the year, where customers have given us a very clear indication, yeah, already towards the end of last year, guys, they're currently in a downturn. We don't need the equipment so soon. We need the equipment only in 2026. So again, that's fully reflected already in our 2025 guidance. All these push-outs affect moving equipment out of 2025 into 2026 are reflected in our guidance. So we don't expect any additional bad surprises. And on the other hand, already they start building now a basis for 2026 in terms of backlog that will convert it in revenue in 2026.

Okay, thank you very much, Kirsten. And maybe the last question for me, if I may, a quick one on silicon carbide. You mentioned China being a driver for silicon carbide revenues this year. I was wondering about your Chinese customer and maybe your main Chinese customer, how do you compare it in terms of size to, let's say, your top five customers?

Let me take the question a little broader because I think it's very important to understand the silicon carbide and the China effect on our silicon carbide revenue in 2025. I think we are all aware that silicon carbide in the Western world is very slow right now due to the much slower than expected EV ramp. And many of our Western customers, in fact, have idle capacity and, of course, have stalled their investment plans. I think this is very well known in the marketplace. and everybody is reading the same reports and getting the same news. We as Extron are involved in the China EV through two routes. We have more than one customer taking our Extron tools, producing outside of China. This is partially in Europe, partially in the US, but also partially in Japan. So we have customers producing outside of China, but have an extremely strong China customer base for their silicon carbide devices and for their chips. So this is the one route. But in the end, we know that 70, 80% of the silicon carbide chips eventually goes into the whatever, BYD, Xiaomi, whatever you have it. And also, we mentioned that already in the second half of 24, we have won a significant number of Chinese customers in China themselves. And we are shipping a significant number of silicon carbide equipment to Chinese customers directly. And year over year, overall, our silicon carbide revenue is flat, 24 to 25, based on solid orders due to this effect. And we are quite happy that we are so strongly involved into the silicon carbide China supply chain, because I think, as everybody knows, EVs in China continue to boom, while EVs in the Western world, I think the ramp is a little bit delayed.

Thank you very much.

Next, I hand over for the question to Gustav Borenberg. Please go ahead with your question.

Hi, thank you, Gustav from Borenberg. Thank you for taking my question as well. I just have one. You mentioned that you want to build up your balance sheet for 2025. My question is, why do you need to do this? You've already been through a phase of investment. So why exactly do you need to sit on cash? Thank you.

Well, as you hear, we are extremely bullish on the potential of our technologies and of our markets. And it can very well be that in the years 27 and onwards, the next demand wave is hitting us. And we then again want to be in a very strong position in order to be able to serve the market, serve the customers and repeat what we've done before. Because we know the growth can come in waves. And it could very well be that the next wave is again a plus 30 or plus 50% year over year. And we want to be ready for that.

Okay, great. Just to challenge that a little bit, though, doesn't that mean, I mean, you should be making lots of profits then if you are growing very quickly, which again should be cash flow. So should we then interpret that as kind of this growth requiring some cash and not being as cash generative? Or how should I think about that?

We expect to be cash generative. 2025, we expect very strong cash flow. And as we mentioned, I mean, our cash basis right now is From our perspective, it's just too low. We need to get back to the levels that we had in the past that are also usual in the industry. If you take a look at the semiconductor equipment industry, all of these players have strong balance sheets in place. Our customers also want us to be there. A lot of customers are fully dependent on us. They want to see us with a strong financial position, a cash position. So there's a clear way forward that we will first build up this cash position, and then once we have that, we will see... One moment, please.

One moment, please. The speakers will be right back. Just a moment, please. Please be patient. The speakers will be right back. Just one moment, please. One moment, please. The speakers will be right back. Just one moment, please. And our speakers are back now.

Yeah. So, Gustav, sorry for the break-up here. Did you get the answer that Felix told you, or do you have to repeat something?

No, I think I got the gist of it. Thank you very much, guys, for answering.

Okay, perfect. Then we'll move on to the next question, please.

And the next question comes from Michael Kuhn, Deutsche Bank. Please go ahead with your question.

Good afternoon. Thanks for taking my questions. Firstly, on guidance again, I think you already confirmed GAN and SICK around FLAT-ish. On OPTO again, I think there is a little unclarity. In the PowerPoint, it says expected FLAT, whereas in the annual report, it says positive momentum in 2025 from OPTO Electronics. So could you clarify that? what kind of growth we should expect from Opto this year?

Sure. I think there's different segments. Let me walk you through one by one. So as we had illustrated for the LEDs, we had a refreshment wave of customers in the year 24. This led to a quite strong LED result in 24, and it's weakening and getting less in 25. So this is the one for the LEDs. And if you then take the rest, which is the other laser business, the sensing business, but also combine the data comm, the data communications business, on those ones we see a strong uptick in 25, simply driven by the demand of new refreshment waves, essentially in telecom, data comm lasers is going on, driven by the AI. Those segments are growing.

Okay, understood. Thank you. And then on orders, did I understand you correctly that let's say the start into the year Q1 as a whole should be expected rather soft and then we should expect a considerable uptick in order intake from the second quarter onwards?

I think we will start a little soft into the year for sure in the Q1, both in terms of orders and revenues. We typically historically have a relatively soft Q1. I think you've seen that already with our quarterly revenue guidance. We expect orders to pick up in the middle of the year, Q2-ish, Q3-ish, in the summertime period. Whether it's now early summer and the orders will fall into Q2 already or some of the orders more fall into July and August, early Q3 is to be seen. But we have a clear expectation, as I mentioned before, that a big part of this order is converting into revenues in the year, which is reflected in our guidance.

Okay, which means that, let's say, early Q3 orders would still be shippable, right? and the same year, which would suggest lead times of less than six months.

Exactly. A big part of those. I don't see all of it, right? As I mentioned, it depends on the part availability. But for those parts, for those product series where a good inventory is on stock, this message is intact. Yes.

Understood thank you and then last at least on the severance program could you give us an indication let's say in terms of savings expect and when those savings will materialize let's say on the on the run rate?

Well the savings will be in about the same ballpark as the severance cost yeah so Made a single digit million amount, plus minus 5 million. Basically, that's what we are talking about. The program has been agreed on with the Works Council and is in execution right now. So we expect the savings to start kicking in with the Q2 going forward.

Perfect. Thank you.

And the next question is from Madeleine Jenkins, UBS. Please go ahead with your question.

Hi, thanks for taking my question. It's just one that's a clarification. Are you baking in a recovery from the silicon carbide Western players this year in your guidance, or is the incremental capacity totally from China in 2025? And also kind of during 2024, just to kind of some context. Was China already a decent portion of your shipments in silicon carbide, or was the majority still from the Western players? Thank you.

So I didn't get the first one. So let me start with the second one. We did ship already in 2014 some product to silicon and silicon carbide to China. but it was a smaller part. The majority to China is going in 2025. We collected a bunch of orders, as we had indicated in the second half of 2024, but most China shipments is going in 2025. And now, if you could repeat your first question, please.

Yeah, it's just, so for the 2025 guidance, are you baking in a recovery at all from the silicon carbide Western players, or is the incremental capacity just totally from China this year, if that makes sense?

Well, I'm not baking, as I mentioned, some of the silicon carbide shipments in 25 go to China directly. Other shipments go to non-China customers, but serving the China market. Please, please, please take both these segments. And for the traditional Western players being located in the West and shipping to Western companies only, for those ones, we have not been baking in the recovery in 25 yet. We expect that recovery to come in 26.

Okay, thank you.

And the next question is from . Please go ahead with your question.

Yes, good afternoon. Thanks for taking my questions. Just the first one is on capacity, basically. If you think about the existing clean room space that you added, about 1,000 cubic meters, And then the added production facility in Turin. What would, let's say, in an idealist scenario, be your total unconstrained capacity at this point? So maybe in reference to the equipment sales of 520 million, which you reported last year. So that's helpful.

So let me comment on both of these separately, because I think it's to be taken separate. So we built a new cleanroom facility having the 300 millimeter program in mind. For economies of scale, we have built the complete shell of the facility, the complete building. However, of course, we only have equipped now part of the clean room with technical facilities as we're expecting to fill the clean room only step by step as we grow in terms of revenue and in terms of maybe additional market segments that we want to address or additional customer needs with equipment. So the technical facilities is only for part of this clean room. What we have now equipped inside of this clean room is now completely suitable to address our gallium nitride 300 millimeter program as we expect this to unfold over the next, let's say, three, four years. So what we have ahead of us in terms of the visibility, Customer demands, various types of applications our customers are talking about in 300 millimeter. I think I spoke about these topics in the market section. So this is what we have addressed with our clean room. And then if our market is always driven by customers, if in two or three years new ideas come along, then we have the space to equip the additional parts with additional types of equipment so to say, to address whatever comes along. So we have now expansion space, and for economies of scope, it only makes sense to build a complete clean room in full size. Now, in terms of the touring facility, the decision to build that facility, to acquire that, was still having in mind that we were all expecting, I think, along also what the market was expecting, what we saw about a year ago, right? where we were thinking revenue would go towards the 900 million, a billion very soon. So it was thought as an expansion space. Now, of course, market is currently going through a correction cycle, a downturn cycle. So the build-out of this facility is currently a bit more on hold, waiting for the recovery of the markets. And then when the markets recover, we will come and really revitalize that project in terms of modernization, setting up cleaner environment in this facility. But we have now, so to say, at a, I mentioned that at the time of acquisition, at a very good cost, we have a fantastic expansion possibility.

Okay, that's very helpful, Karl. Thanks. Just secondly, on the microlets, in your prepared comments, did I catch it right that you basically said that customers were looking for production ramp in 27, 28, and then therefore there might be tool shipments going out 26, 27? And I mean, we've been reading some on the microlet developments and the progress being made here, but... always helpful to hear your thoughts on the mass transfer issue, obviously. Whether, yeah, we're reaching sort of a breakthrough here that eventually you have more confidence that a production ramp could be happening in 27, 28.

I think you asked the billion dollar question. If I had the correct answer, it would be fantastic. No, we're saying this with a smile. I think this is the hardest to predict of all the market segments. So we do see, as I mentioned earlier, that customers in Asia, not so much in the Western world, but customers in Asia continue their research programs full steam, so to say. I'm getting very positive comments from multiple customers with respect to the progress on the mass transfer. Some customers use laser-based technologies for doing this. Other customers do use microfluidic technologies for that one. So everybody has gone away from what was initially the plan to use some stamps or so. That thing appears to have been dropped. Now, in terms of the markets, nobody exactly knows at which point in time this is coming. 27, 28 is what is the most likely to us for a starting point. Now, the question is, of course... Is this just, let me call it, a smaller pilot series, whatever, a couple of 10 tools, 20 tools? So they say high double-digit revenue for us. Or is this really translating in the volume ramp that we expect, saying many, many dozens of tools, adding up to hundreds or several hundreds of revenue? We don't know yet. The market is still in its infancy, I would say.

All right. Okay, and just a final question, a quick one on what you mentioned in the presentation with regards to the multi-ject technology. I don't know if I'm phrasing that right, but it seems like you're sort of talking about that as a disruptor in silicon carbide. Just interested to hear your thoughts on how that compares to a single wave and maybe its impact on customer yields.

In fact, I think you got it. This is what I was speaking about in my prepared notes and what we also have as a slide in the presentation. We have shown to customers and to the market at this Silicon Carbide conference, we have demonstrated this multi-jack technology. It's a multi-level injection technology. And in the end, it allows us with our battery actuar to achieve better than single wafer uniformity results with the productivity of a batch. So it's, again, like our success sector that we had for many years in gallium nitride, where we have essentially single-level wafer control in terms of the performance and the uniformities combined with the productivity of a batch reactor. And this was the recipe for us having very high market shares in Ghana. And now we've been able to demonstrate this also in silicon carbide. And we have now the best uniformity in the market. And customers, based on this, Some customers achieve 99% yield based on this technology, which is, of course, a tremendous step up from what was in place before. And you can see many customers adopt this technology and everybody wants to have it. And people who have a previous version of the tool without the technology, step by step, are getting upgraded to this technology because, of course, it's a big booster for the efficiency in DevHab operations.

Great. Thanks a lot.

And the next question is from Martin Jungfleisch, BNP Paribas. Please go ahead with your question.

Yeah, hi, thank you. Good afternoon. After questions, please. The first one is on the 300-millimeter GaN tools. Could you share some customer feedback of the 300-millimeter tools that you have shipped and what your expected win rate is for eventual high-volume production and customers? And do you have any visibility on when you would expect first orders for high-volume to come in? This is more 2026. or H2 2025 story? And then also in the meantime, is this holding back demand for 200 millimeter tools? That's the first question.

Thanks a lot. Customer feedback is very positive. Nevertheless, 300 millimeter is still quite in its infancy, I would say. So HVM high volume, I would expect 27 or 28. Not before that. It's clearly not a 25 and not a 26 topic. And in terms of 200 millimeter versus 300 millimeter, we've given a very clear positioning in some of the earlier earnings calls in 24 already. So we see that the customer decisions is essentially almost exclusively driven by a CapEx reuse of customers. So I have some large customers with 200 millimeter FAPs who say, hey, Felix, Great that you have 300-millimeter technology, but I will not buy it for the next 10 years. I will continue to produce 200-millimeter. Hey, I have five old 200-millimeter fabs, and step by step, I will convert them from silicon to gallium nitride. And then I have some other customers who say, hey, Felix, we stopped and ditched 200-millimeter quite a while ago. The little volume that we have left on 200-millimeter, I'm converting that to silicon carbide. So I urgently need your 300 millimeter tool because all my existing silicon footprint is on 300 millimeter. And I want to convert gradually. Everybody has to consensus, right? Gallium nitride takes over the complete silicon market. And they want them to convert the old 300 millimeter silicon fat into a 300 millimeter gallium nitride fat. So that is going forward. We expect to see a coexistence at our customer's of 200mm and 300mm technologies. And for this reason, you can imagine, of course, we continue also to invest in some innovations and we have some ideas, productivity ideas, further performance ideas also on our 200mm products. And we make sure that our 200mm product line stays fresh and our customers also continue to have performance gains on 200mm. So it will be a coexistence, long answer, coexistence of 200 and 300 millimeter and 300 millimeter kicking in with high volume in 27 onwards.

Cool. Thank you. And the second question is more on the spares of service revenues. They were up 13% last year, but the implied growth is just 5% for this year. So I'm just wondering what it is. I mean, industry utilization rates should go up this year. So is there anything that we don't see?

Well, we're expecting the downturn at our Western customers to continue throughout 25, as I had indicated in many cases. Some of our Western customers have seven tools, and one of them is running. Others have 25 silicon carbide tools, and three are running. So we have those bad situations amongst our customers. I think many of you know that by reading their reports or writing about them, right? And for this reason, we've been a bit conservative about that. Okay, thank you.

The next question is from Walter Schaumann, Warburg Research. Please go ahead with your question.

Yes, good afternoon. The first one is on the working capital again. When I look at the down payments you receive from customers, they seem to be relatively to the order backlog at the lowest level in a couple of years. So the first question would be around your ability to secure customer down payments and then more specifically, maybe you can share a number of how much in working capital reduction you strive for in 2025 and then mid-term if you could share dedicated targets where working capital should be relative to your sales.

It's extremely difficult to predict the timing of receivables and down payments. That is just nearly impossible, yeah. On the inventory, we stick to the intermediate target that we formulated, 60% to 70% of order backlog. That, of course, then depends on where is the order backlog. But that seems to be a healthy level. The down payment is also very difficult to predict because it really depends on geography segment industry. What is the end market? What is the individual customer? Which region? You have different in Japan, different payment terms than in China than in the US. So that's why it's nearly impossible to formulate such an overall target. So on the inventory level, that's the clearest one to formulate. The payment terms are really dependent on how the markets and the customers develop, to be honest.

Okay. Would you say that it has become more difficult to secure down payments, or was it just maybe kind of a coincidence due to the customer product mix?

No. No, this is really due to the customary payment terms of specific industry segments and regions. So it's different if you sell a lot of LED tools to China than selling power tools, silicon cover tools, or gun tools to US players.

Yeah, okay, sure. The second question is around dividend policy. I mean, you changed dividend payout. I mean, you had a pretty consistent dividend policy in the past couple of years, and all that has been changed. What are your thoughts for the future? Do you want to stick with lower dividends and then maybe add share buyback to the mix, or do you think about going back to the historical? policy and more specific to share buybacks, what would be your requirements you want to see in your wallet balance sheet to maybe think about initiating share buybacks? If anything plays out as planned, then free cash flow should come in pretty strongly during the course of the year. Maybe not in the first half or first quarter, but definitely by the end of the year.

I think, first of all, we don't have a dividend policy, right? I think don't repeat that, right? I think we like to say we take it as it comes. And as Christian mentioned, we want to build up that strong cash position, and then we'll see where it comes.

Not a lot to add. First, we need to build up the strong cash position again. And beyond that, of course, I mean, all the time in the table, there's no question, but first we need to get it.

Okay, okay. Fair enough. Me, thanks.

The next question comes from Michael Krundeitsch, Bank. Please go ahead with your question.

Sorry, not quick enough to withdraw. It was exactly also on share buyback because a few quarters ago you told us you're actively looking into it at much higher share prices. Now we're like around €12, but I guess there will be no comment from you on that topic today.

Maybe to repeat that, yeah, I mean, we always said, well, I mean, we've looked into all of these options to be prepared when it comes, when the right time comes, yeah, but we are not actively pursuing this right now before we have reached our target cash levels. First, we need to get the cash in, and then we need to see what we do with it.

Okay, at the moment there are no more questions. We still have time for one last question. So if you would like to ask a question, please press now nine and star. And the last question comes from Oliver Boyan, MWB Research. Please go ahead with your question.

Yes, thank you for taking my question. Looking at the progression of order backlog quarter to quarter, there's a pretty big mismatch between the calculated number and the reported numbers, so like 25 million euro missing. Maybe you could put some color on what the reason is, whether it was caution on your side or customer cancellations.

Well, there's a fairly easy explanation for that. We had, as Felix also mentioned, we had the one or the other cancellation from orders from the past. So there was one larger order that was received in the year 2023 that was canceled by a customer. That was canceled in Q4. So that's a correction in the order book. But that was order intake recognized in prior years, yeah? That is probably what you're referring to.

Yeah, exactly. So just taking the order backlog end of Q3 and then adding the order intake and subtracting your sales typically gives a quite good indication of the order backlog of the following quarter, and this time there's like 25 million missing.

Yep. Here we're following exactly what we've been doing in the past year. If we have an order in the same year that is canceled in the same year, we'll be corrected in the order intake of the year. If an order is canceled where the order intake was recognized in prior years, the correction happens directly in the order book because otherwise we would distort the order intake of the year. This happens from time to time. This time was a larger effect, was one order. that was pushed out into the future. In this case, it was really canceled. And that's basically it.

I think, and maybe to all, I think we had questions throughout the year 24 about cancellations and push-outs. I think it's quite remarkable we have managed to have the cancellations essentially from like little stuff, single, low, single-digit millions left and right. We've been, even though going into the downturn, have really only like one large cancellation, the one that you have seen here in the numbers. All others, so to say, have either shipped, many customers have been taking the tools, or as we spoke, some have been moved from 25 into 26. So we are honestly quite happy about the result that we could manage the down cycle so well. And I think now we are probably pretty much at the bottom and now we can really rebuild and rebuild it up. I think this is what we clearly see.

And would it be fair to assume that the cancellation is from the silicon carbide segment? No, this is wrong. It was gallium nitride segment. Okay, great. Thanks.

As this was our last question, I will now hand back to the company for closing remarks.

Thank you very much. Thank you all for your questions. We will be back with our Q1 results end of April. Happy to talk to you then, or we'll see you in the meantime at one of the various conference roaches we'll be attending. If there are any questions left open, please contact the IR department. We will be at your disposal. Thank you very much, and goodbye.

The conference is no longer being recorded