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Welcome to the Soitec Half-Year Results 2025-2026 presentation. Today's conference will be hosted by Pierre Barnabé, Chief Executive Officer, Albin Jackmont, Chief Financial Officer, Steve Boborek, EVP, Chief Strategy Officer, and Alexander Petivary, Head of Investor Relations. For the first part of the conference, the participants will be on listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to Pierre Barnabé to begin today's conference. Please go ahead.

Hi everyone and welcome to Soitec H126 Results Conference. I'm Pierre Barnabé, Soitex CEO, and I'm very pleased to be with you today, as well as with Albain Jacquemont, our Chief Financial Officer, Steve Beverick, Chief Strategy Officer, and Alexandre Petrovary, Head of Investor Relations. Before we begin, please take a moment to read the disclaimer included in this presentation. We have a lot to cover today, but before we start the formal presentation, let me share a few words about the current fiscal year. Fiscal year 26 is a special year for Soitec. As you know, I have decided to leave the company at the end of March after four years, and I personally recruited Albin as our new CFO giving him a clear mandate to strengthen our financial discipline and clean up our balance sheet. This job has already been done and done very well. H126 reflects that discipline and the priorities we set back in May, meaning focus on what we can control give absolute priority to cash, and take deliberate, sometimes tough, actions to correct inventories and improve cash conversion. These actions have been fully launched, but their impact has just started to materialize. We are being methodical and sequential, managing our own inventories, optimizing working capital, and adjusting our cost structure accordingly while maintaining selective investments in strategic areas. At the same time, we are progressing on multiple fronts, expanding our product portfolio, preparing for new end markets, and rolling out our new client and product-centric organization. which positions us to capture the next phase of growth. Our incubators, introduced last May, are also delivering promising results. We are identifying significant opportunities as key players explore SOI for advanced computing applications and memory. This is a large and fast-growing market, and we are at the forefront of materials innovation, combining cutting-edge R&D capabilities with the ability to industrialize rapidly and produce at scale, a unique differentiator for Soitec. This initiative comes with a high risk-reward profile, so we will remain prudent in our until we see clear customer engagement. That said, recent developments confirm that our efforts are well targeted and aligned with where the market is heading. As you will see, I have asked the teams to continue executing this disciplined plan, combining financial rigor and strategic focus, so that Soitec emerges stronger and ready for its rebound. Let's begin with the main highlights of our first half year. Our H126 performance reflects the actions we have taken to strengthen cash generation with lower production volumes to support the reductions of inventories. Revenue reached 231 million euros, down 29% organic compared with last year. Our 34.1% EBDA margin mainly reflects the smaller revenue base and the temporary increase in inventories supported by continued volume production. Initial cost measures have had limited impact so far, as expected, given their recent implementation. Their benefits will start to materialize in the coming quarters. Finally, our €26 million operating cash flow reflects our effort to reduce production volumes to correct inventories and a temporary increase in working capital as inventories rose in H1 to support our H2 deliveries, partly offset by lower capex. Looking at revenue by quarter, Q2 confirms the expected rebound from our low Q1 26 with a 47% sequential organic increase. Our first half revenue reflects different dynamics across divisions. Strong growth from AI-related product, with the Edge and Cloud AI division up 34%, organic year on year, excluding the impact of the anticipated major SOI phase out, offset by continued weakness in mobile and automotive. Let's start with mobile communications. H1 revenue reflects the continued inventory correction at certain foundry customers as anticipated. RFSOI inventories remain high, but they are going in the right direction. We expect further correction in H226 and fiscal year 27. We also continue to expand beyond RFSOI. DUI remains a major growth driver, with 11 customers in production and 12 in qualification. While we saw a temporary slowdown in Asia after a very strong initial ramp last year, adoptions continue to expand among leading fabless companies, supported by new design wins for flagship smartphones. Beyond RFSOI. we continue to make solid progress in next generation communication product with FDSOI adoption advancing in Wi-Fi 7 SOCs for premium smartphones, confirming our position in future communication architectures. We are also progressing in our 18 nanometers FDSOI roadmap, as shown by the announcement on Tuesday of a design win from a key customer. FDSOI technology brings advanced low-power computing with high level of reliability, which is critical for satellite communications applications. Our Edge and Cloud AI divisions continues to show strong momentum. In the first half, revenue reached 96 million euros, flat-ish organic year on year, but up 34% when excluding the anticipated imager SOI pays out, reflecting robust demand for AI-related products. The increase was mainly driven by higher photonics SOI sales, benefiting from AI-driven investment in data center infrastructures, and by strong demand for FDSOI across both edge and cloud applications. On Photonics SOI, we are leveraging the AI acceleration across the industry, supported by large-scale CapEx investment. The technology stands out as the most efficient solution for high-speed optical interconnects, including co-packaged optics, which enable faster, more energy efficiency and cost-effective data centers architectures. Photonics SOI continues on its fast growth trajectory, from a very low point in fiscal year 22 to approaching $100 million in revenue for fiscal year 26. On FDSOI, our product portfolio continues to expand, supporting new generations of AI computing devices and edge applications with strong customer engagement and committed capacity investments. On IMAGER SOI, we completed the phase out of first generation product in H126, which represented an impact of around $32 million. Residual purchase order in Q226 generated a few million euro revenue. Let's move to automotive and industrial, where market weakness continues to weight on activity. In a challenging automotive context, we continue to see increasing adoption of our products and rising content per vehicle, driven by infotainment, autonomous driving, functional safety, and electrification trends. PowerSY sales were impacted by inventory adjustment at customers following a strong restocking at the end of last year. We are preparing the transition to 300 mm to meet growing demand for battery management systems and vehicle electrification applications. FDSY adoption continues to progress. Supported by leading foundries and IDMs developing automotive solutions for ADAS, and edge computing in radars, microcontrollers, and wireless connectivity. On SmartSIC, we have revised downwards the market perspective set when Soitec launched the program in 2021, reflecting intensified competition from Chinese MonoSIC players. We are continuing. to qualify five customers. While we are seeing growing interest in SmartSAC's efficiency benefits for next generation power supply and data centers applications, these opportunities are unlikely to materialize in the near term. Let me now say a few words about our new organization. which the entire executive committee has been working on for several months. This new client and product-centric structure strengthens Soitec's readiness to expand into new SOI and beyond SOI and markets and applications. It is built around four key pillars. One, the acceleration of our product portfolio expansion and diversification. structured around five established product lines, ready industry standard, all on their way to becoming so. FDSOI, Photonics SOI, RF SOI, POI, and Power SOI. Recent progress on the product development front supports our strategy to enter new markets and new applications with SOI and beyond SOI. Two, a more balanced customer, supplier, and geographic base, expanding our ecosystem's influence. Three, an innovation powerhouse driven by more targeted R&D investment focused on future growth opportunities. And four, agile industrial capacity management, ensuring optimized utilization for state-of-the-art production tools and greater asset fungibility across sites. Let me now leave the floor to Alban for the financial review. Thank you, Alban.

Thank you, Pierre, and good morning, everyone. Let me begin with the key financial highlights for the first half, some of which Pierre has already touched upon before taking you through the details of our financial performance. As Pierre mentioned, we have mandated teams across the organization to reinforce financial discipline and accelerate the cleanup of our balance sheet. I will update you on the progress we have made on this front. Our first half results reflect the deliberate actions we have taken to initiate a reduction in inventories in the second half of the year and to strengthen cash generation. all while maintaining close oversight of customer demand and inventory levels. We delivered revenue in line with our first half guidance, although organic revenue declined 29% year-on-year, reflecting continued complexity of the market environment. Our EBITDA margin improvement is largely attributable to a lower revenue base and should be viewed in conjunction with a temporary increase in inventories supported by ongoing production volumes. Our net result was minus 67 million euros, primarily reflecting non-recurring items including the smart SIC impairment and the one-off non-cash foreign exchange conversion loss recorded in the first quarter. Excluding these non-recurring defects, current net income was broadly stable at minus 2 million euros. Free cash flow was minus 31 million euros, reflecting seasonality, lower revenue, and a temporary increase in inventories ahead of second-half deliveries, partly offset by lower capital expenditures. Turning to the balance sheet, our position remains solid. We closed the half year with 483 million euros in cash and investment. For format, the repayment of the OCEAN, which took place on October the 1st, October 2025, and with 145 million euros in net debt. This maintains a robust financial profile with 0.5x EBITDA leverage, including leases recorded under IFRS 16, and provides us with ample flexibility to support our strategic and financial priorities. Pierre already addressed the revenue performance, so let me move directly to the P&L. As you heard from Pierre, Reducing working capital and reinforcing cash generation are top priorities, and we have advanced on these fronts. First, we actively managed fat utilization to better align production with plant deliveries, thereby paving the way for a reduction of our own inventories in the coming months. Second, we launched a comprehensive cost reduction program addressing our major cost drivers. Third, we scaled back capital expenditures. These actions are all aligned with our objective to enhance cash generation, improve operational efficiency, and secure lasting savings across the company. while preserving our technological capabilities. The key message I would like to leave you with is that while these actions will take a few months to translate into meaningful results, we will remain relentless, systematic, and disciplined in their execution. Gross margin declined 490 bps Uranure driven by three factors. The disposal of dolphin design representing 120 basis points. Lower fab loading as an initial step towards reducing inventories. And an unfavorable mixed price effect. Going into H2 2026. do expect a significantly lower loading of our fabs, and that will weigh, obviously, on our gross profits. Net R&D expenses decreased by 23 million euros year-on-year, reflecting the disposal of Dolphin Design, a favorable phasing of public funding, and lower material purchases linked to reduced use of pilot lines. Excluding the effects of the dolphin design disposal and the timing of public funding, growth R&D spent was broadly stable year on year, underscoring our continued commitment to technology leadership. SG&A expenses declined by 6 million euros compared with the prior year, driven by lower compensation-related expenses, tighter control of discretionary spending, and the disposal of dolphin design. Other operating expenses totaled 46 million euros, and include a 41 million euros in payment loss on smart SIC, non-current assets, following a downwards revision of business prospects as a result of increasing competition from Chinese players, and a 3 million euros downwards adjustment to the earn-outs related to the disposal of dolphin design. As a reminder, the Smart SIC program was launched well before 2022, at a time when prices for alternative competing products were significantly higher than they are today. Dolphin Design acquired in 2018 generated 40 million euros of operating losses over the period since its acquisition. We also incurred a 17 million euros one-off non-cash foreign exchange conversion loss in Q1 of our financial year. This loss results from the reevaluation of balance sheet foreign exchange exposures following the depreciation of the U.S. dollar against the Euro, with the Euro-USD moving from 1.08 at the end of March 2025 to 1.18 at the end of June 2025. As background, In 2021, the company began contracting Euro-denominated loans at the level of our affiliate in Singapore whose accounts are kept in US dollars. Converting Euro-denominated debt into US dollars had been beneficial to our financial results as long as the US dollar was appreciating against the Euro. and we repeatedly recorded foreign exchange gains. However, in Q1 of our 2026 fiscal year, the situation reversed, leading to the foreign exchange loss recorded this quarter. Because experiencing significant foreign exchange volatility on our results is clearly not in line with our standards, we took action. As a first step, we implemented appropriate hedging instruments to prevent foreign exchange movements from impacting our financial results. This is now in place. In addition to that, we engaged external advisors to conduct a comprehensive review of our foreign exchange risk management framework, and this review is now well advanced. Now moving to the free cash flow. First, let me note that we have aligned our definition of free cash flow with prevailing market practices. Updated definition incorporates three key changes. First, all tangible and intangible capital expenditures are included in the free cash flow calculation regardless of how they are financed. Capital expenditures that were previously funded through finance leases and therefore excluded from the capex base are now fully taken into account. Second, free cash flow now includes both interest received and interest paid, as well as other financial expenses. Previously, only interest received was taken into account in the free cash flow calculation. Lastly, the free cash flow definition now excludes inorganic capex, which incidentally was nil over the period. Operating cash flow was 26 million euros for the period. down 103 million euros year on year, mainly reflecting lower EBITDA and an increase in working capital driven by higher inventories built ahead of deliveries scheduled in the second half of the year. Working capital resulted in a cash outflow of 57 million euros compared with an inflow in the prior year. This primarily reflects the seasonal buildup of inventories to support second half deliveries and the reduction in trade payables, partly offset by a decrease in trade receivables following the strong fourth quarter 2025 activity. Capital expenditures were largely directed towards industrial investments, including manufacturing tools for SOI and POI products in Burnham and Singapore, upgrades to our industrial facilities, and targeted IT investments to enhance operational efficiency. This results in minus 31 million euros of free cash flow under the new definition. We maintained a moderate leverage ratio with net debt to EBITDA at 0.5 times EBITDA at the end of H1 2026. Let me conclude my remarks with a few comments on the balance sheet. As part of a financial discipline mandate issued by Pierre to the Deems, we have carried out a restatement of a prior account. In accordance with IAS 8, we have retrospectively restated consigned raw materials as inventories with a corresponding amount recorded as trade payables to reflect the transfer of control upon received at our site. This restatement has no impact on the group consolidated income, EBITDA, working capital, free cash flow, or equity. As a result, 37 million euros of additional inventories and trade payables were recognized as of March 2025. For context, this compares with 31 million euros of consigned inventories as of September 30, 2025. As of September 30, 2025, Cash stood at 808 million euros, reflecting a temporarily high level of liquidity ahead of a repayment of 325 million euros OCEAN 2025 bonds, which took place on October 1, 2025. Post OCEAN repayment, net cash was 483 million euros at closing. As of September 30, 2025, we are undrawn on the maximum €150 million use of proceeds loan secured from EIB. Our available liquidity, post-AUSEAN repayment, including our undrawn confirmed revolvers, was €603 million. Financial debt. totalled €953 million, up from €782 million at the end of March 2025, reflecting the new €200 million should shine loans and prior to the ASEAN repayment. This brings my prepared remark to a close. As you can see, we did not shy away from making tough decisions. As I mentioned, Our first half performance reflects the mandate to take decisive actions on inventories, strengthen balance sheet discipline, reduce costs, and improve cash conversion. While the initial measures were implemented in the first half, we will accelerate and amplify these actions in the second half. and expect to see inventory improvement by year end. Our focus remains laser sharp on generating positive free cash flow under the new definition by the end of the fiscal year. At this point, let me pass you on to Pierre to take you to our strategic priorities and guidance.

Thank you, Albert. That's very clear. Let's now have a word on our guidance. On revenue, we expect Q3 26 organic growth in the mid to high single-digit range, sequentially. For the end of this fiscal year, we expect continued undershipment in our FSY as we pursue the inventory correction. persistent weakness in automotive, and a strong momentum in Edge and Cloud AI, supported by sustained demand for Photonics SOI and FDSOI. On capital allocation, we remain fully committed to a disciplined and agile investment strategy. We now expect Fiscal Year 26 CapEx of around 140 million euros down from the 150 million euros previously indicated and well below the 230 million euros spent in Fiscal Year 25, reflecting our selective approach and focus on cash generation. We continue to leverage the fungibility of our industrial footprint to optimize asset utilization. On financing, we redeemed the 325 million euros OCEAN 2025 convertible bonds on October 1st and successfully secured new funding. Finally, on profitability, Our H2 growth margin will reflect FAB unloading with headwinds from mixed price, FX, and lower volumes. Some important data points for profitability. The 10% decline in FAB loading results in a 300 bps negative impact on growth margin. 5 cents removed in the euro-dollar rates represent roughly 150 basis points impact on EBITDA and EBIT margin. And our net exposure is about 95% aged at around 1.10. as well as deliberately reducing production to bring inventories down year on year by the end of fiscal year 26 while moderating our capex profile. All actions remain focused on securing a positive free cash flow for the full year. To conclude, H126 was in line with our expectations. We are focusing on what we can control, taking deliberate actions to reduce inventories and applying strict financial discipline to improve our cash generation. Our new client and product-centric organization ensures tighter alignment between innovation, product roadmaps, and customer needs, reinforcing Sogtech's readiness to expand into new SOI and beyond SOI markets and applications. We are also progressing on our incubators with strong traction in advanced computing and memory, a large and fast-growing market where Soitec's materials, innovation, and ability to industrialize rapidly give us a unique position. I have decided to leave the company at the end of March, but I remain fully committed until then to deploying our new organization, accelerating the company's shift towards AI-driven market and application, and preparing Soitec for its rebound. We are strengthening the foundation of the company. Our growth potential remains intact in an addressable market set to expand at a double digit pace. I have full confidence in Soitec's ability to deliver meaningful value. This concludes our remarks. Thank you for your attention. Now let's please move to the Q&A.

Ladies and gentlemen, if you wish to ask a question, please dial pound key 5 on your telephone keypad. If you wish to withdraw your question, please dial pound key 6. The next question comes from Alexander Petersee from Bernstein. Please go ahead.

Yes, good morning, and thank you for taking my questions. I'd have three to start with. So the first one is if you could explain what drove the relative resilience of your gross margin and your EBIT margin in the first half and how we should think about margins sequentially. You do cite headwinds into the second half on unloading charges. Could you quantify them? And when you say you have headwinds, is that implying a sequential decline in EBITDA margins in the second half? Second question is on your investment in SmartSIC. Is that now a total write-off, or do you still keep assets on your balance sheet that are attached to SmartSIC? And can you also tell us what you're going to do now with Burn-In 4? Is it going to be repurposed? What are you going to do about it? And then final question on your situation with your former licensee, Global Wafers. Now, your press release suggests that the cross-licensing agreement between you and them has been terminated, but it seems to me that they continue to manufacture SOI wafers. They have a big fab being built in Missouri in the U.S., a 12-inch fab that is described in their third quarter results as an SOI facility. So does this mean that they have a workaround, your patents, and if they do it, will others follow? Thank you.

Okay, thank you, Alex. What I propose is the question one regarding GM-ABDA H1 and H2 to be treated by Albert, as well as the first part of your second question of SmartSIC. I will take over the B4 fulfillment, as well as your third question on global wafers. Then Albert, please.

Yeah, sure. Alex, of course, what we are doing will have a meaningful impact sequentially and on the portfolio, on the profitability, very clearly. Like Pierre said, the priority for us is to reduce our inventories. In a market context where revenue is under pressure, it is probably not... not very easy. And what we are doing to achieve our objective is to significantly reduce the loading of our fabs. It's quite mechanical. When revenue is stable or under pressure, if you don't reduce the loading of our fabs, then inventories do not decline. And that wouldn't be consistent with our objectives. Now, when you look at our profitability and our gross profit, I think that the two main key drivers of our gross profit are first, fab loading, which is very important, and second, mix and price. So what we will see in H2 is significantly lower fab loading, whereas typically, the loading of the fab would be higher in the second half of the year for the company. That will not be the case this year. We will see lower process costs, and we will see a much lower absorption of these process costs in the inventories. To answer the question with a different angle, either idle cost or underutilization cost will be significant in H2, and that will weigh on the profitability. So, yes, you should expect a sequential decline of gross profit EBIT and EBITDA in H2. As for your second question, Pierre said that we reviewed Danwood's prospects on SIC, but still the product has great Technical capabilities, and we are in the process of qualifying with some customers. So we do expect some business and the payment that we took against our assets reflect our expectations. And overall, what we are doing is maximize the fungibility of our assets to minimize the financial consequences of these prospects being revised downwards?

I will take over if you don't mind. On the Bermuda 4 capacity. First of all, we need to keep in mind that we're going to continue and we'll have to continue to produce smart SACs. First of all, because we have five customers today under a qualification and pre-advanced qualification, and that is progressing on automotive applications. Second, we are working on a new prospect for new applications in the data centers areas and the lower efficiency management. And third, SmartSAC has a roadmap going to evolve and going to improve because this product is recognized as an excellent product. That's the reason why we believe that despite the postponement in the business plans, this product is going to find several market applications in the future. Then we need to keep a banner for product line for SmartSAC. That said, as you know already, B4 is busy with other applications in our process. Because close to one-third of the footprint of B4 is dedicated for SOI refresh. That is, as you know, a very important piece in our process, a very important milestone in our process. B4 is already partially used for refresh SOI. talking about rebounds before going to be used for the rest of the footprint for any other application, particularly around SOI, if necessary, to produce more of the product we will have to deliver to our customers in the coming years. And we are not concerned by the ability to use, as it is already the case, before for SmartSIC, Refresh SOI, and other SOI production in the near future. Regarding your third question on global wafer, then it has been said that we terminated our license agreement with global wafers. We are today in a transition period of this application. Of course, you can make SOI without using SmartCut and our dedicated and patented processes. Then we're going to observe in the future, in the near future, the way Global Wafer is going to produce SOI products in their brand-new U.S. factories. And we are today in transition and in observation.

That's clear. Thank you very much. You're welcome, Alex.

The next question comes from Sebastian Satabovic from Kepler Shoebrew. Please go ahead.

Yeah, hi everyone. Thanks for taking my question. One on the inventory situation, both on RFSOI at your large F100 customers and also on the other hand on auto and industrial markets. Where are you standing right now in terms of level of inventory? In mobile, are you still, in RFSOI, are you still expecting to go back to 11 months of inventory in December. You are a little bit trending behind this target. And the second question is on the first one on FAB loading. What was the FAB loading in H1 exactly? And where do you see the loading trending in H2 based on the Q3 guide and what you can expect for Q4? And the last one is on The OPEX trend for H2, because in each one you had a big severe impact or tax rate, I don't really know, but the OPEX were quite low. How do you see OPEX moving to the back half of the year? Thank you.

Hello, Seb. Then I propose to take the first question and I will ask Albin to relay me on the fab loading and the OPEX evolution. Then, regarding inventories, what we said on July is that the equivalent 8 inches, 200 Wafers in our customers' inventories, Soitex inventories by our customers, were around 2.5 million wafers units. What we are measuring today, what we are observing, is around 2.3 million. Then we are clearly in a trend of depletion. That's a fact. And we want to focus on what we can measure. And this one is measurable. And what we see is a continuous depletion of these inventories, meaning that some of the customers are going to go for a minimum level of inventories. We can translate it in the fact, and this is what we already said on July and we repeat it right now, is that H2 is going to be another semester of depletion to reduce the level of 8 inches wafer inventories equivalent by our customers. But we think also that the year 2026 is going to see even further depletion to reach a level that's going to be pre-COVID. But what we believe is really to give you a maximum of information on what we can measure. And what we can measure is the evolution of the overall inventories by our customers. Then 2.5 million equivalent 8 inches July, 2.3 million equivalent 8 inches September, and we're going to give you another point for the next call on February. For the automotive, of course, we are not a major player with PowerSY, but we see what is observed everywhere in the automotive world. meaning that there are quite big inventories still, then PowerSOI is experiencing a big drop this year. We don't see, let's say, a clear rebound for the year after, for calendar 26. It seems that what we have today engaged with some customers going to be sufficient for this year and next year provided the execution of the existing LTAs. And we don't see, let's say, a clear rebound in automotive before 2027 so far on power SOI. Linked to, of course, a low level of electrification, volumes in units of cars that is not very high, The good news is that we see a shift with more and more qualifications by new customers on 300 mm platforms that are going to give another bubble of oxygen to develop power SOIs beyond 200 mm.

On the tab loading, Sebastian, look, traditionally our loading is much higher in H2 than what it is in H1. For instance, last year, in H1, our loading was slightly below 60% in H1, and it was in excess of 80% in H2. That was for fiscal year 2025. In the current year, in H1, our loading was a little bit lower than what it was in H1 2025. And that was because the actions, the decision actions Pierre referred to, had been taken in July. And there is a timeline for us to, a time lag, sorry, to adjust the production planning. So the decision we have taken will take full effect in H2. For H2, I'm not going to share our forecast FAB loading, but think of it as being slightly lower than what it was in H1 of the current fiscal year. So you see that compared to FAB loading in H2 2026 compared to the FAB loading in H2 2025, is much much lower and that's a very significant shift uh which like i said we will have significant uh impact temporary impact on our uh gross profit in uh h2 20 uh 26 uh fiscal year very atypical for uh for three days As for the OPEX, the first thing to say is that while we are telling you that our profitability will be lower, we do not stay idle and we have engaged a comprehensive program to reduce our cost drivers. Our OPEX line is not very easy to comprehend in our net income because it is OPEX, what you see is a net of our gross OPEX, net of what has been charged to the process cost. So, of course, what we are doing on the production has an impact on the OPEX level that you are seeing. On each one, as you could see, OPEX are down 5 million euros. And for the full year, OPEX will be down as well. And in fact, the financial impact of what we are doing on our SG&A is higher than the 5 million euros that you are seeing, but not fully visible on the P&L because of this charge-out framework that you see that we have in place.

The next question comes from Francois Bouvenies from UBS. Please go ahead.

Thank you very much. I have a couple of quick questions. So maybe on this, you know, cost saving program that you are also delivering on top, can you quantify a bit the cost saving program that, you know, what benefit you could bring maybe for 27 once the know it's fully implemented or a bit more timeline and details around this cost savings at the group level and then you know the gross margin i mean what kind of course margin do you target you know in terms of range uh you know post all these adjustments and inventory correction how should we think about so it takes course margin in the medium term um and then my last question if i may is on poi i mean it seems that you have good prospects and The penetration is increasing, but we feel like now your revenues are under pressure because of Asian customers. How should we think about POI trajectory from here? Is it going to recover like in the second half of the year, or would that take longer? Thank you.

On cost savings, we did tell you that we did not shy away from strong reactions. To give a little bit of color, we have agreed with the unions about a furlough being put in place across the company. That does include absolutely everyone, not only the production, but also the innovation, and also the BG&A and functional departments. So it shows, it testimonizes how resolved we are at driving costs out of of a system. That was the first thing. Second thing is that incentive related and profit sharing related expenses will be lower and will reflect our results. So the impact of this is significant. is significant and is above the 5 million savings that you see in H1. The third thing that comes on top of that is that there is frugality which is being put in place under the direction of Pierre across the company. And all in all, we expect the savings to be significant on the year. As for fiscal year 2027, we will see lasting impact of the savings, but we don't want to hamper the potential of the company for a recovery by doing inappropriate cuts into our resources. It's too early for us to guide on 2027, obviously.

François, on PY, to take your question, PY experienced a very, very intense growth last year to equip our Asian, particularly Chinese customers. and that really made our PY as a standard in this area. And we see clearly a relay coming from Western world customers for flagship smartphones. This year being, as we already said, a transition between these two, let's say, these two moves and two shifts of, I would like to say, continents. But we clearly see and we continue to see a 20% growth CAGR on POI. because we see more and more adoptions in more and more customers. Then plus 50 may be flattish for this fiscal year, but we see over the years clearly a strong growth around 20% CAGR and more and more adoption.

Thank you very much. And on the gross margin potential for the company, I mean, what kind of target do you... Anything you can give here?

I will try to answer this question and help you with modeling. The first thing is that We don't want anymore to guide on the gross margin. And the reason for that is not because we don't have visibility on what the gross margin will be, but we don't want our action on the inventory reduction to be hampered or constrained by the guidance we give to the market on the gross margin. So we don't guide. need to model what our gross margin will be and and will help you in so far as we can so a few things a few things for you to know when you look at our our cost of course raw material cost is a 100 percent variable so needless to elaborate on this when you look at our direct manufacturing cost and indirect manufacturing cost, I would say that around 30% are variable, 70% are fixed. If you combine these manufacturing costs with the raw material, it's one-third fixed, two-thirds variable. And to go a bit further, helping you with the modeling, when you look at our cost split in terms of cash and non-cash, that may be useful because we fully realize how difficult it is to model. I would say that our manufacturing costs are approximately 70% minus cash and 30% plus non-cash. And I hope that helps.

Very much. Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. Please limit yourself to two questions. The next question comes from Jakob Bluestone from BNP Paribas Exane. Please go ahead.

Great, thanks for taking my question, guys. Firstly, you made a comment, I think it was part of the SmartSIC write-down around increasing competition from Chinese players. And I just wanted to clarify, is that just purely for SmartSeq, or are you seeing broader competition emerge from Chinese players? If you could maybe just clarify that comment. And then just secondly, I think you mentioned further inventory stocking in FY27. So maybe if you can maybe put that in the context of where do you see the $2.3 million kind of going next year and is that your expectation that that's the bottom or just kind of what are your thoughts around FY27 in the context of the comments you made on inventories?

On the first question, the very fierce competition coming from MonoSAC has impacted our SmartSAC let's say, initial plan that was built in 2021. Then we revised it to really bring SmartSAC as a premium product that fits with the five customers' expectations we have today in the qualification. And of course, competition is everywhere. But so far, so quite good because we are maintaining our market shares everywhere, including in China. As you know, if we look at just RFSY, that used to be our monoproduct a few years ago, and we are still, of course, observing cautiously this market. We are proceeding with many teardowns of smartphones coming from any integrators, any OEM, and we clearly see that SOI is a standard, first, for particularly radio front-end, and more and more for filters with our POI solutions. And in many cases, it is a Soitec solution. then our market shares today are, let's say, protected because we continue to innovate, because we are able to deliver in terms of quality to our customers wherever they are, including in China. But that said, we are not naive, and we are very picky in the observations on any players trying to promote SOI-like solution. But the two-day impact we have clearly disclosed does concern the MonoSAC particular competition that has changing the trajectory of SmartSAC. If we look at the evolution of the 2.3 million 8 inches equivalent inventory Soitec by customers, we clearly, we're going to continue to undership. It means that the trend of depletions is going to continue semester after semester for sure. Then in H2, we're going to undership. And we do believe that even further, we're going to end our ship in the year 26. We don't know at the end of the day what's going to be the objective of each of our customers. It's going to depend on their strategy of inventories, but we are taking cautious assumptions, meaning that we do believe that many of them, a large part of our customers, going to reach the pre-COVID level of inventories. And we prefer to have this cautiousness. Then under shipment, depletion of the inventories, then it is highly probable the 2 to 3 million to decline semester after semester till at minimum end of year 26.

Thank you.

The next question comes from Emmanuel Maytot from AutoBHF. Please go ahead.

Emmanuel Maytot Hello. Good morning, gentlemen. I have two remaining questions maybe for Albin. First, what do you target in terms of inventories in the balance sheet? What normative level would be great given the current visibility you have for the business? I mean, maybe an indication as a percentage of your sales would make sense. And second, has there been any progress in the tax adjustment procedure with the French authorities? Thank you very much.

Very good questions, Emmanuel. The company said in the previous year, I wasn't there, that the normal working capital requirement as a percentage of the revenue should be within a range of 30% to 40%, and I fully subscribe to what has been said. We do not guide for now in terms of components of a working capital requirement, but I do confirm that 30% to 40% is something which is a level which is adequate, which should lead you to the conclusion that there is much cash generation opportunities ahead of us, because obviously as things As things stand today, we are at a much higher level. That's for the working capital requirement level. As for the tax reassessment, we are done, as you know, on responding to the request of the tax authorities. receive an answer to our response, yet we will, they will not forget. In the meantime, we have strengthened our defense, worked a lot with independent experts. I could not say more than that, but it should bring you some level of confidence on this.

Okay, thank you very much, Erma.

The next question comes from Craig McDowell from JP Morgan. Please go ahead.

Hi, good morning. Thanks very much for taking my question. Just the first one on pricing. You've talked about pricing in context of gross margin. I'm wondering whether you can translate that back to what that's doing to your top line. Is this pricing pressure, more negative pricing pressure on particular products or is it particular customers? Any commentary or colour on pricing impacting your sales would be helpful. The second question, just appreciate your thoughts at this early stage on the merger between Corvo and Skyworks. Understand both of your customers. Just if you give any thoughts on what that might mean for both pricing, but also how that might impact your channel inventory worked on. Presumably they'll look at some kind of synergy on inventory if they do merge. Thank you.

OK, on the pricing, then what we can see is that, of course, there are continuous pressures depending on the product. But overall, we are in a low single-digit decrease and quite limited, because we are also promoting more and more high and added value product. We are also having a roadmap of products that is increasing the overall value, and we are protecting, thanks to a good mix and a better mix, the level of prices to compensate the pressures we are getting, and of course as a kind of parallel of this pressure that is We are limiting at the end of the day. We are benefiting from lower prices from the bulk providers thanks to the fierce competitions we have today. Of course, we continue to have this discipline and to invest in our existing roadmaps, to invest in our innovation and R&D. to keep higher the value and the prices of our product and putting on the market new products and new features. Just, I will not comment that much on the Corvo Skyworks, let's say, ongoing project of merger. What we can tell you is that these two companies are our customers, but complementary customers. then we don't see any dis- synergies and potentially rather synergies. But you know, it's going to be a long process and we'll have to, I'm sure, to comment later when it's going to be completed.

Thank you very much.

This concludes the question and answer session. I'd like to hand the program back to Pierre Barnabé for any closing comments.

Then thank you all for following our H126 analyst call and for the quality of your questions this morning. The next date in our agenda will be the release of our Q3 26 revenue on February 4th after market close. In the meantime, we'll be very happy to host you in Shanghai on November 25th. where we'll be hosting our first SoTech China Day with key industry leaders and customers from the China SOI ecosystem. This ends our call for today.