Sivers Semiconductors AB (publ)

everyone to the second quarter 2024 webcast for Sievers Semiconductors. My name is Anders Storm and I am the group CEO of Sievers and with me I have Lottie Sachs, group CFO. And we're going to take you through this report. It's going to be a summary, a sales overview, financial overview, market and business update and a summary and a Q&A as normally is in the end of the So if we look at the executive summary, we had some great growth this quarter, 14%. Again, a stable quarter, over 50 million in sales. I remember back eight years when I did my first Q2 report, we were about 3 million sales. So it's a significant change in what we are selling today versus what we were selling at that point. And we are coming from very heavy growth last year with 68%. Wireless was the big driver of the growth with 29% growth year over year. We are also improving our adjusted EBITDA and our EBITDA, 25% improvement, minus 12.4 million. What is also very strong in this report is that we now see a very healthy pipeline again on the 5G side of things. And especially three projects has been announced, one before and two new projects today. One with a major global 5G company for CPE. This is maybe one of the most interesting projects we won. As for the time I've been in the company, it's been a very long RFQ process with hefty competition, but we came out as the winner. Blue Wireless, the track to train project, as well as a Japanese NRE product with a well-known company. But maybe that product is a little bit less big compared to the first one. What is also very rewarding is to see that product sales are up now from, it should actually say 15%, I think, up to 39. And year over year, which is sort of getting us closer to the 80% target in 2026, where we aim to sell more and more product and accelerating the growth due to that. We are also expecting second half to be stronger when it comes to growth than the first half. We have had a little sort of pause in the growth, even if we have a good growth this quarter. And if we look at the long-term expected growth that will be over the coming three years, an average growth that we are in line with the growth we have had over the last eight-year period, that is a CAGR of about 40%. If we look at the first half, it was a solid first half with 108 million sales and improvement in adjusted EBITDA by about 30%. We also have a solid cash at about 55 million, and we foresee much less cash burn also in the second half of the year. Looking a little bit on the growth again, comparing a first half year over the last eight years, we have increased our sales by 16x over this period, which is something we're very proud of. And the average growth over this period has been 42%. And again, I mean, we see this growth being higher in the second half. Always Q4 is our strongest quarter. But also, this also shows that we are in line with the overall plus 40% CAGR over the long-term period. And we have definitely lined up the customers over the eight years, as well as now in this year, we have a very strong sales the first half year when it comes to new customer pipeline. And I will go in a bit more to that, how the pipeline looks like. If we look at the sales then, The Blue Wireless contract, that was a significant event in the sense of we are very committed, of course, to 5G communication, but also sustainable communication. And Blue Wireless and Seavers has a very, very interesting tractor train application that has been rolled out in many places of the world. I'm going to talk more about that. And then the 5G Design Award from the new customer. I'm not going to talk so much about that today, but Just to say that this is probably one of the most significant wins we had so far. And this customer is a well-known customer and we're very, very proud to have won that deal. Another deal we're very proud of is with the Japanese company. We have an NRE product, which will also lead into volume in the future here. And it's also a new customer in Japan, which is also quite famous by name, at least. So looking a little bit on the tractor train project, that is sort of a 5G project on the unlicensed spectrum. This is to provide high-speed broadband communication links. And as you know, we have worked with Blue Wireless for this for quite some time. They are now doing an even longer range solution for us. And we're involved in that. And it's a development project. The trains can exceed speeds of 300 kilometers per hour. It's already been tested and rolled out with the current solution. And the contract revenue for this is not very high, but it's a good chunk of revenue that will be completed in 2024 already. If we look at the overall tractor train systems, to go back to that, I mean, we have seen rollouts. And the most important part is the rollout that's going to happen now during the fall here with the Caltrain, which is going from San Diego to San Francisco on the new electrified piece. We also had recently a rollout in high-speed rail in the northern of Spain, which is sort of the start of that. We see many new things and they've also signed up with new partners where they are rolling out the other things in India and other parts as well. And of course, the carbon neutral, the first world carbon neutral communication system for trains. So by 2025, EVO Rail, who is the supplier, will create that. And of course, reducing CO2 per passenger by train. And you can see here, you know, it's a 10x less CO2 used when traveling by train versus air or car. So I will by that hand over to Lottie and come back with some more information after that.

Yes, and as Anders mentioned, we had a solid first half year of 2024 when it comes to revenue and with 14% growth in Q2 in isolation. And as you can see from the graphs, the growth is primarily coming from our business unit, wireless, and from product sales. And we're really happy to see that we're maintaining the balance between the two business units with 56% sales in wireless, 44% in photonics, and with a strengthened split in revenue type, so 39% product, 61% engineering projects. And also when it comes to geography, we have 28% in North America and 71% in Europe. And I think the main takeaway from this quarter is our ability to maintain the higher level of product sales, which is really important to gradually increasing that and getting to a recurring revenue model. So this is a slide with a lot of numbers, but maybe... To repeat a little bit, looking at the product sales, so growth in total product sales in the quarter is 186%. And looking at wireless, it's actually not stated correctly here. It's 213% and in photonics, 163%. So we're growing in product sales in both business units, which is very important. And as you can see, Europe also strong growth, 53% in total. And growth in wireless business units, 27%. And zooming in a little bit on the geographical split, just to recap the differences in our two business units. So in wireless, we have almost all customers coming from Europe. So 97% of the revenue is European customers. And in photonics, we are primarily strong in North America at the moment. So looking at the sales in perspective and the trends, how it's evolving. And again, just looking at the step change that we saw in Q4 2022 coming above 50 million per quarter. which is really, really important to uphold. And we have 52 million in this quarter. The record level in Q4 2023, that's, of course, where we want to be and come back to that level. But we are still on a good trajectory. And on the right-hand side, again, pointing out the importance of the mix in sales. To be able to scale on our organization and operations going forward, we want to maintain the level of engineering projects, but then basically grow and leverage through product sales. So 20 million in absolute value is the all-time high level and 39% of total sales. So we're really happy about that. But we also want to point out at the same time that we are not in commercial mass production with our customers yet. So there will be ups and downs in the level of product sales. But for sure, we will see an increased level overall on an annual basis. Yes, and then just looking at the profitability as well. So as Anders said, we had the 28% growth year quarter over quarter for EBTA. And actually for the first half, the number is basically the same. So 29% adjusted EBTA and 31% EBTA growth for the first half year. So we really see that we are on a continued good trajectory and we're gradually improving on all measures over time. So we look forward to the future with confidence.

Thank you, Lottie. And from there, I'm going into sort of the market and the business update where we are a little bit. This is sort of our customer pipeline, and I would say it's better than ever. And we have announced 100 million in new NRE orders or plus 100 million. This first half year, we announced new design wins with 5G customers that are the best we've won so far. And the prospects are really good. We have over 200 prospects. We have qualified leaders, 70 of those. We have technical engagement with others. We are sort of testing things. and we have 60 plus ongoing customers and and looking at that value and as as we mentioned before you know the total design wins we have when we get into production from 26 to 28 sort of there's a multiple of 100 million dollars possibly in in what will come out of that so and if we just look at you know the first six months this year which has been one of the best ones you could probably say that we have a possibility to get $300 million to $500 million in sales based on those three-year projections that the customer gives us. So NRE in itself is very good, $10 million, $50 million. But however, the possibilities in the product sales is enormous. And Here are some examples of customers. And of course, some of them are winning, some of them are losing. But in overall, we're seeing a positive trajectory now, as you can see also with 39% product sales. So when we are getting into the volume phases for real with the customers, that will be a big difference. Just to give you an example, for example, Allspace, which is one of our most important SATCOM customers. I mean, the content that Severs provides for one terminal is about $10,000. So it's a lot of money per use units. Allspace have sort of started shipping. We've shipped something like 50, 60 million. So far, we have several ongoing NRE contracts, which are moving ahead on different aspects and new chipsets and next generation chipsets and the current chipsets are selling in the first generation stuff. Yeah. I think that they are a little bit softer maybe on the customer end, what they have achieved so far. But in the long run, we definitely see this as our sort of most exciting and biggest volume customer when it comes to Sapcom so far. Also, we have our Fortune 100 customer. And, you know, this is a very, very important customer. We worked with them now for over five to six years now. The total amount they invested is still 18 million US dollars. They are sort of in the phase where they're testing and making sure that everything works. We shipped in Q1 50,000 ships. And they are still under development. But however, the revenue this year is a little bit lower because the NRE has come down on waiting to get to the volume phase where they're doing some testing. So again, this is 30 to 100 million US dollars per year, which is also a base of those multiples of 100 million dollars that we can get when this gets to fruition. We have not got any information yet when this will get into volume. I don't think it's going to be this year, of course, but we're very positive on the technology that we are providing here. And of course, one of the most interesting markets is our Seavers AI photonics market right now, where the market exceeds a $2 billion per year opportunity. And we have signed recently with several customers and AR Labs, for example, and the other customer we signed here early this year. And this is, of course, a huge opportunity that we will see developing from 25 and 26 and forward, where I think that the bigger volumes comes from 26 and forward. And those volumes could be really, really high compared to What we've seen so far in everything. And I mean, all in all, putting this together, this is why we have sort of shared this data where we're going from 30% revenue, product revenue to 80% product revenue in 2026. And we're very bullish on many of those customers coming to fruition during this period. And NRE, we are going to stay the same in that sense. So there's a lot of things happening also on the NRE front, as well as with funding from governmental organizations where we're also making very good progress and strides. So going into a little bit of those photonics things that I mentioned. So AR Labs, a year ago now, we signed a deal for one of the steps with them for light sources. And this was a very important project, of course. We have a quite good relationship. We are one of several sources into their solution. They are, as you know, funded by NVIDIA, Intel and others. We're working now on to get this to the next step. It's taken about a year on getting these things to and the 16 array working, which is part of this. And we'll demo that soon as well in events that's going to happen this autumn together with AR. But then we need to finalize these products and get them into volume, of course. So this is going to support the next generation of generative AI, and we all know how big that market is currently and all the companies that they are working with. The other project we just closed in March, three months ago, is with a sort of AR Labs type of company, but valued even higher and with a wider portfolio than AR Labs has today. And they're working with some very prominent customers as well. This was a $1.3 million project. We are delivering and testing the things as we speak to get to the next phase. And as we mentioned in that press release, we foresee that these first two phases will lead into sort of a medium volume prototype build, which will give us quite a big growth in the start of next year, if successful. And volume manufacturing is around 2026 with millions of chipsets. And, of course, with millions of chipsets, if we have a price ranging from $30 to $60 somewhere, that is a huge opportunity for us. And as far as we know, we are the sole supplier to this project. I've been talking a little bit about the flexible go-to-market and asset-like manufacturing. And I've got a few questions about it. And we presented in our Capital Markets Day that we were working on this. And at this point, in the end of the year, we deselected one of the three partners and has two partners left that we're talking to and working with. They have both capacity in the range of 20,000 to 40,000 chipsets. One is based in the U.S., one in Taiwan. There's been a scope and cost program down in Q1 and a decision to proceed in March 24. Technology transfer to be able to sort of do all of these things will be happening in the end of 24, as it looks right now. build up from step one to four. However, we are actually able internally to do step two and three with minor investments. So that is where we're looking at now. How do we do those minor investment versus rest and then sort of getting this to manufacturing in the end? And just to get an understanding, it's hard to understand semiconductors, but comparing standard silicon wafers and semiconductors versus indium phosphide that we have, I mean, the average sales price for a full wafer is about $24,000, while for silicon they are at $3,000 to $10,000. So, you know, at only 6,000 wafers annually, we are at 150 million revenue for our fab. So the potential in our own fab is also quite large. And the sales here is, of course, with great margins as well, since the production cost is one-eighth of sort of the cost of a 12-inch wafer. And, of course, a lower production equipment cost than in general. So one question that is, of course, on everybody's minds now, and this is my last report, and we have been working on a recruitment, and it looks very, very good, and I think it will be announced very soon. In my opinion, the final candidate that is picked is a fantastic candidate. And current expectations is that this person will be able to start before the end of August. And as you know, my last day is around mid-September. So in that sense, we have everything lined up here for a great handover. And I think everybody will be quite happy with the new person who takes over for Sievers. So again, summarizing everything here, very good quarter, returning to growth 14%. Even if we grow 68% last year, we are in a good trajectory. YLS sort of was driving the growth now, and they've been for some time. Adjusted EBITDIA is approved and we are moving closer and closer to positive areas here. And as you know, last year, the second half, we were positive. And major design awards. The 5G award with the major global companies is a huge step forward for Sievers and nothing we've been able to win on that level before. Also getting new traction in that, and seeing 5G moving ahead is great. Product sales are up, which is quite important. And of course, we expect to see a lot of things when it comes to much higher growth in the second half as well, and expecting to see long-term growth based on what we see right now. So with that, in total, I sort of going over to the Q&A. But before I forget about it, I want to thank everybody. It's been a great 10 years in Sievers and eight years as the CEO now coming to an end. But I'm very bullish about the company and the company is making great strides in all areas. But it's time for someone else to take over Sievers. And I think we have a very good replacement coming in. So I just want to thank all of you for your support and whatever you supported over the years. But now we're going into the Q&A.

So let me get the questions up here and then we'll see.

Any news regarding the contract with the $425,000 from the top tier SATCOM network provided from the 14th of August, 2013? Yes, that project is going on. It is a little bit delayed. I think we've invoiced about 50 percent of it. And we are very, very well received from that customer. And that might lead that sort of standard solution that we're building for them might lead to some good future sales as well. Any news from the tier one customer of India regarding Intel YSIG networks? So YSIG are in a phase where they've sort of built out. They are now at the funding stage of the next phase, and they need to get funding to get into production volumes. So that is the Intel stuff. The NXP software is not in any solution today yet. It is actually in a solution that we're looking at for satellite communication things that we're about to sign. But in that sense, it's not up and running. Please, after you said about future volume, time, answers, et cetera, for thorium space. So, as you know, we signed, was it $3 million second phase for thorium just here in Q1, which is a very important step. We are working on the production part. And as we said before, the plan is to get that out in 2025. We haven't shared any volumes, but we are sort of compared to Allspace. We expect sort of medium type of volumes rather from them than what Allspace has been showing. Any news on the antenna on display for Cremo? Cremo has been quite quiet lately, and I think that's connected to everything around. 5G has been sort of a bit more softer, as you know, and we've just stated that we see more and more 5G things happen. So hopefully we'll see something new coming up there as well when things are changing now. What's happening with the Allspace customers, our next generation antenna? So Allspace, as I mentioned already, we are working with them. They are a little bit softer with the current customers, I would say. We are working on, as we closed the $5 million deal on the next generation stuff. That is, of course, going ahead and moving ahead. Does the CP award have anything to do with the previous design win that was lost, cancelled? Could it be a similar product like the one that was lost, cancelled, even if it's another company? It has nothing to do with that company. This company is 10x bigger and more safer company, I would say. And the possibilities is... If they succeed, I would say bigger than that company we had that order with. So that win, as I said, is the most sort of difficult win we had, but also a quite large company. How is the test and qualification process for the 100 customers going? Yeah, we are, you know, as I mentioned, we have shipped the chips to them. And I think it's more on their side now how their solution could be finalized on their side. Will Sievers select potential outsourcing partners before a firm order from F-Handler, Volume, Ramp, from IOLabs, et cetera? Will Sievers select also? Yes, I think we already, as I showed you now, we're looking at, we have selected two partners, and how much we're going to do with each of them is not decided, but we'll go ahead. But the cost for this, this is an outsourcing partner, is not very high. It's more the cost of the qualification in that process. Lately, Intel has spoken a lot about their own silicon photonics solution for data center, which does not look like the previous FPGA solution. Do you know if it's Intel has developed the solution by themselves or they are using AR Lab solution? So Intel is a large company. They have different pieces. And as you might know, Intel was doing silicon photonics before on sort of a transceiver level. That piece of Intel, which is not connected to the piece of Intel that buying things from AR Labs, has developed their own type of silicon photonics product. uh they are using a solution that is uh you know where they have the lasers uh close to the gpu and cpu which is a different way of doing it than ar labs and and it also locks in if you if you lose something so it's not really pluggable optics in the sense that ar labs has so it's a different way of doing it but it's uh it's in some way a competitor but We don't know if Intel, you know, CPU, GPU side is actually using any of that. Do you know if Intel has their own in-house manufacturing capability for advanced lasers that need silicon photonics? Yes, as far as we understand, they have a possibility to manufacture those. Why can you never name the companies you're winning agreements with? That's a very good question. It comes down to the customers that they are very secretive. For example, in these two latest projects that we announced now in this report, the customer are telling us that they have previous suppliers. They don't want to upset those previous suppliers anyway for the current solutions. And we are replacing those, for example. And therefore, they don't want to mention it. Also, in many other cases, they don't want to tell anyone else what the secret source is and what they're doing. And they want to have sort of the things out to market before anyone else does. So it's a lot of different reasons why customers don't do it. And that is unfortunate for us because I would say that If we would have been able to mention the companies, it would have been a much easier thing to get everybody to understand how far we have come as a company. Since the Fortran customer put on order for design optimization in January, do you believe that this was carried out last year for their sensor did not generate the result that the customer wished for, or was that the reason for design optimization? I don't know the reason for those. I think that they are on a long-term path. to be sort of getting these out. And it's a very important project. It's all the way up to the CEO that is involved in this and it needs to work perfectly. So basically they are doing changes as they go. And the timeline, we don't know yet when it is, but hopefully that this is the last round of optimizations, but it could be more. Is the new CEO US-based? I can't be ahead of the press release, but let's see the press release when that comes out. Thank you, Anders, for being a good CEO and you worked hard. Thank you for that. Yeah, thank you, Robert. You are doing really well. Thank you for your leadership. Can you be close and tell us about your next project employment? So, no, not yet. I've been talking to the chairman of the board there and they want, you know, something to come out when I'm actually closer to start. It's still, you know, a month away, but maybe they want it to come out the day I'm starting or just before. It depends a little bit, but it will soon be really revealed, I think. why does it take such a long time with the Fortune 100 customer? Please tell us a bit more about that. So the main reason I would say is that they are trying to achieve something that never has been achieved before. And this is, in my mind, taking much longer than we expected, of course, from the beginning when we started this project. And this is connected to what they're trying to achieve. And since that has to be very accurate for different reasons, therefore, it takes much longer. And we are as disappointed as anybody else that it takes so long time. But still, we are in a very good position to win it. So independently how long time it takes, we really believe that this is going to be revolutionary. And we're extremely proud to be the supplier of those products. products currently are you working with any uh f100 companies with data centers when do you think you will be able to share any news yes we are and we've been doing that for quite some time we're also working with with other companies around in the ecosystem And hopefully can share more news, you know, by the end of this year with certain things. But, of course, again, we'll probably not be able to share any information around what's going on, so to speak, and the names. Optical IO is a huge paradigm shift. What do you think are the greatest obstacle for this shift? Yeah, so the greatest obstacles are the integration between the GPUs and CPUs. So they are sort of what we've seen now Intel have done with AR Labs. They have their shiplets around their FPGA at this moment. For all other vendors who's going to use AR Labs, they need to integrate their silicon with AR Labs silicon and then make that work. And of course, that is a challenge in a sense, but they have come quite far. I mean, AR Labs has been around for approximately 10 years now and have a working solution. So I would say that this is sort of where the integration work needs to happen. If we look at the Blackwell platform that came out now, they have an NVLink working with Copper today. And at some point, they're going to do that shift. And of course, that's going to be a huge, huge thing. But I would expect that that large type of platforms would probably do that in 2026 somewhere. Any news about the LIDAR project customers? Yes, we are still working with them, especially one of the more prominent ones are in sort of the qualification phase and automotive qualification is more advanced. So we are negotiating also the sort of MSA contract with them as we speak. Could your laser in the F100 sensor application read several different biometric readings, or do you know if it's focused on just one? No, I mean, we can measure, and we have a very broad sort of emitter and detector that can measure, I think it's from 800 nanometer to over 2,000 nanometer. So we can measure a lot of different things, and it could actually be used in very different applications. do you think that F-100 could release the sensor with one initial biometric capability and then continue to develop it, if so, support more biometric capabilities? That is an option, and depending on where they're going with this, it's hard to say exactly, but it's an option, and I've also speculated in that they are actually looking at different type of sensors consumer devices so we'll see yeah it's a lot of questions here but so it's been hard to select ones but now we don't have any more questions as I can see here on my screen it's hard to see sometimes of course but do we have any more questions otherwise I think we are handing it in for this time. And again, thank you so much, everybody, for following. And it's been over 130 people on the call. So thank you so much. And have a great day, everybody.