INFINEON TECHNOLOGIE

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Transcript : Infineon Technologies AG - Special Call

22/11/2022 | 15:00

Presenter Speech
Alexander Groschke (Executives)

Hello. Welcome, everyone, to Infineon's Power Roadshow 2022. My name is Alexander Groschke from the Investor Relations department. And with me are the Division Presidents of IPC and PSS. And with that, I hand over to Adam. Yes.

Presenter Speech
Adam White (Executives)

Thank you very much, Alexander, and a warm welcome to everybody, and thanks for showing a strong interest in Infineon Technologies, enabling green power and driving decarbonization. Myself, Adam White, I am the Division President for Power & Sensor Systems. And with me, I have...

Presenter Speech
Peter Wawer (Executives)

Peter Wawer, I'm heading Industrial Division IPC since 2016.

Presenter Speech
Adam White (Executives)

Okay. Thank you, Peter, and we'll share the presentation. And what I will do initially is give a brief overview on Infineon and the power strategy. Then Peter will walk through the IPC division, including the silicon carbide. I will then walk through the PSS division, including the gallium nitride, and we will ensure we leave enough time at the end for Q&A.

So as you know, a number of you know that we've actually refreshed now our target operating model. I believe and we are very proud to say that this is a more ambitious financial goal, and of course, also making sure that we are being a sustainable leader also.

Let me just focus your attention really into the segment result margin. Here, this is one of the major fundamental shifts in the target operating model. We actually improved this from the previous 19% now to 25% throughout the cycle. Revenue growth is now showing greater than 10%. And on top of that, we've added the adjusted free cash flow as part of the operating model.

Moving forward now. So basically, let me just give a brief introduction about the revenue by division. So Peter and myself are effectively representing just over 40% of the company's revenue here within PSS as well as IPC.

On the right-hand side, we really wanted to highlight the 5 key applications, which account for 60% of the growth. But as you can see here, we're very well diversified. We have e-mobility, renewables, ADAS, data center and IoT, just to name the 5 key applications.

At the bottom, we show the revenue growth through the cycle. It's very important for you to understand that by division. ATV and IPC are showing here greater than 10%. PSS and CSS, approximately 10% through the cycle revenue growth.

Next slide. So of course, being a leader here, we, as a company, are putting a lot of focus in moving into power systems. Here, of course, if we understand the system, we understand the application, we then can really offer the customers now a lot more value proposition.

So the interconnect between the controller, between the driver IC, between the power switches, coupled with software and application-specific algorithms really gives us now a value proposition, so we can get eye to eye with the customer and, of course, do value-based pricing ultimately.

At the top is just some examples that we'll do a deep dive in today. For example, we'll talk about the solar inverter. Peter will highlight that, the battery-powered applications as well as the server power, where there's obviously an never-ending appetite for us using more and more data, moving forward.

Next slide. So here, Infineon is a key enabler for the total power. So what I would like to do is just really show that we're the #1 semi enabler for over 50% of the current wind as well as solar.

The next slide here for the installed capacity, approximately 60% Infineon is actually contributing for the semiconductor enabler. And then finally, from the energy conversion and usage, we're #1 for the broad portfolio.

And one example there is in vehicle electrification. So I believe you've all got a brief overview, and now we'd like to do a bit more of a deep dive into IPC. And now I will hand over to Peter.

Presenter Speech
Peter Wawer (Executives)

Yes. Thanks a lot, Adam, for the introduction. I'm happy to be here again after a few years, also delayed a bit by COVID. Happy to be in London, happy to share the call here with you and the update for IPC and PSS.

Let's get started with the first slide. That is the usual overview in nutshell how IPC have evolved. Of course, growth rates were impacted by COVID, but nevertheless, now in the already-ended fiscal year, we were able to grow by 16%, achieving also in the recent years, let's say, in the recent decade an all-time high in segment results.

But let me add also here, this growth was capacity limited. So we could have done better if you would have had more capacity.

And on the right-hand side, you see how the revenue was distributed. We managed to achieve EUR 1 billion sales in ending fiscal '22 by modules, and the remainder is distributed in discrete and gate driver ICs. I think it's worthy to note that this includes silicon carbide, but I will dig down a bit more in detail into the silicon carbide topic.

The well-known key customers, you see on the below side, not to forget that the industrial space is characterized by a huge amount of small- to medium-sized customers. So we are currently serving a couple of thousand customers overall.

Let's jump to the next slide to illustrate a bit about the really longer-term growth potential. We all know what this is about, right? The CO2 issue is affecting all of us, first temperature development that you see now over the time of industrialization is creeping up. And we all know that this is putting major impacts on society on our environment. See recent discussions in Egypt.

And now on the left-hand side, you see the huge potential. We have to confess that still 2/3 is -- of the electricity being produced is based on fossil fuels, namely, major chunk, coal, natural gas and to slighter part, still oil is being fired for generating electricity.

And then think about how long are we in the industrial manufacturing and installation of solar, accompanied this business also for a couple of years, and we are in it as a society since 20 years, roughly, right?

And then look into the share of already-installed solar capacity. It's almost neglectable on the left-hand side. That's the orange part in the pie chart. And in the years to come, we have to go to replace coal and the other forms of fossil generation, just to give you kind of a head start, how long-term oriented this growth opportunities coming from the renewables, wind and solar is.

If we now go into the next slide to the applications of IPC, I would like to briefly comment where we see -- how we see the market outlook for calendar '23. And sorry, the arrows are a bit thin, but let's start from top to bottom.

Automation and drives still being a big chunk of our business, around 1/3, is running very nicely. Very high demand, surprisingly high demand out of this business segment. Nevertheless, the arrow is yellow because we believe that it will not improve further, and we expect rather a deterioration.

We are lucky if it's keeping this high momentum in '23. But since it's typically tightly coupled to GDP, we expect a deceleration in the area of the industrial space throughout '23.

The arrows for renewable energy generation and power infrastructure are clearly going up. These are the areas with double-digit growth. We are sold out for '23 almost in all these applications and at our customers and would be eager to produce and supply more.

Home appliance, the fourth line item is already in a weak state. It's very much coupled to consumer spending. So it was decelerating and already on a lower level since the second half of '22.

And we expect that it remains on this low level for the foreseeable future, at least for the first half of '23. Depending on how 23 overall develops, we might be lucky and see an uptick of this momentum for home appliances during the end of '23.

Transportation and others are also green, also here an upward trend, especially the area of transportation is boosted by strong opportunities from the commercial and agricultural vehicles. So these are not the cars, but the trucks and also, as I said, construction vehicles, which go to be electrified more and more.

Going to the next page, we sum it up. Then you see on the left-hand side the typical industrial business, where we expect also for the next 5 years that it grows with a typical single-digit growth rate over the cycle, hopefully, a bit higher single digits.

What you see then now the renewables, power infrastructure, EV charging business really massively adds on. And here, we expect more than 20% growth out of this green segment, pushing our market -- addressable market growth for IPC to more than 10% overall.

So in a nutshell, key facts for IPC regarding growth are more growth due to the given reason of dynamics of our market; more silicon carbide, I will touch on it in more detail; and more profitability.

So maybe another glimpse on how the CO2 is affecting the globe. Meanwhile, in the developed countries, United States, China being the #1 CO2 emitter already today and Europe have declared carbon net zero targets, of course, on a different time scale.

Once again, you see the main drivers of this CO2 production on the right-hand side. And I don't want to dig too much into details. But again, you see here the electricity topic, which I mentioned before as a part of the pie chart, namely being the biggest one, close to 40%, but also industry transportation and the others setup.

Now going to the next slide, we see the huge potential in the area of generation infrastructure and consumption and the whole green energy chain until 2030. These numbers are borrowed or used, based -- mostly based on the IEA net zero scenario. And you see here a huge amount of additional generation from PV and wind.

Then, of course, the infrastructure topics grid network and grid storage, adding up 660 gigawatt. And of course, more than 30 million of EV chargers. And also upcoming in the second half of this decade, we expect a significant boost in the area of hydrogen generation here, the electrolyzers.

And on the consumption side, heat pump, of course, got a recent boost due to the energy crisis caused by the Ukraine war plus adoption of H2 fuel cells and then, of course, also emerging applications like eAviation and eMarine, where it's still a bit questionable for us to what kind of impact will be generated.

And we tried, on the next slide, to also update a bit, giving you an idea about the semiconductor content. That slide, in a slightly different way, focusing on wind, solar and the storage topic, we already shared during the next -- the last Infineon Capital Markets Day. And it's now expanded by the additional applications that I just mentioned.

And it's just to give you a glimpse on how big the addition's in 2021 where -- that's in the first gray column. And the second one, what is expected as CAGRs until the end of the decade. And these are all tremendous double-digit CAGRs giving us enormous growth opportunities.

There's a second important message in this chart, and that's the color code. So the bluish green indicates those applications which are very much prone to the adoption of silicon carbide. And the other green, green ones indicate those which have the high likelihood will stay with IGBT for the foreseeable future.

Of course, drives, another topic, is not here on this chart because as I said it has the single growth rate projection. These are the high-growth topics, and that's the message. The high-growth topics to a large extent, namely the blue green ones, rely on the adoption of silicon carbide or request the adoption of silicon carbide.

And with that, I would like to jump to the next slide, where we then can see what we -- now talking only for PSS and IPC, what we see as growth potential not here talking about the drivetrain, the [ XDP ], right? That is with our colleagues at the ATV, at division.

But only for IPC and PSS, we foresee a CAGR of more than 40% for the years to come, which would enable revenue of more than EUR 1 billion in 5 years from now, meaning something like EUR 500 million in -- topping EUR 500 million in the year '25, which is only 3 years from now.

So we are very confident that we are on a good path, and I will give you some more details now in the slides to come.

First of all, very comprehensive, very shortly, why are we confident that we have a good strategy? I'm talking about the industrial markets, the topic of silicon carbide raw material supply.

It's a thing where we are very confident that with our Siltectra Cold Split technology and the portfolio of already qualified high-volume suppliers plus additional supplies that we do have in the pipeline, we will nicely be able to manage our silicon carbide raw wafer supplier.

Superior trench technology, the second one, I mean we are now since 5 years in volume production in the industrial market. We have expanded massively the product portfolio, and we're going to bring the next generation of silicon carbide device technology, the shrink based on the now high-volume manufacture Gen 1 to the market in the next couple of months, maybe even ending this year, maybe beginning of next year.

We have a strong roadmap on technology, which I'm going to show you in a minute. But not only front-end technology, but also packaging portfolio is very important. And simply leveraging what we have regarding packaging portfolio, we basically expand in light speed our product variance also to silicon carbide.

Deep system understanding and go-to-market access, I think goes without saying, not to underestimate the P2S topic, but Adam will allude a bit more on the relevance and importance on the P2S also in the example of gallium nitride.

Looking into the next slide, what are then the facts? In the industrial space, more than 300 products are being qualified and available for our customers. We meanwhile have more than 3,600 active customers regularly purchasing silicon carbide devices, and we have a design opportunity pipeline of around EUR 5 billion as we speak. And that is growing on a quarterly basis significantly.

And let me also highlight here, this excludes, again, for consistency purposes, the automotive drivetrain. So big chunk is EV charging. PV has already mentioned, power supply, onboard charging and others.

And just to repeat a bit what I said before, CAGR more than 40%, expecting also something like EUR 500 million plus in 3 years from now, having active design wins of around EUR 2 billion for the industrial space.

So next obvious question is, would we be able to supply this volume? And here, the good news is while we are being sold out, manufacturing is ramping like hell. Our manufacturing guys are really doing a great job. So we expect EUR 1 billion capacity in '25. That is mainly based on the ramping -- already ramping side in Villach.

And of course, as you can see on the upper right-hand picture, Kulim expansions making really nice progress. We're on time or maybe even a bit ahead of time on the schedule. And so in the next 5 years, the very big additional amount of up to EUR 3 billion total capacity will be added in a very cost-competitive way from Kulim on top.

Digging a bit into the technology topic, I think I already mentioned that we're now going to release the Gen 2 very soon. It's regarding device architecture, the same principle that we use for Gen 1. So it's a shrink where we see cost improvement by around 25%.

That is, of course, on [ die ] level, on package level that's going to be, to a certain extent, diluted due to the package cost. And it's also worth to mention that we are meanwhile already active developing Gen 3 and Gen 4.

Of course, the [ status ] of maturity is different, but we are very confident that we have a clear shrink roadmap for the foreseeable years, let's say, until the end of the decade, where we continuously provide massive productivity out of the shrink of the existing trench technology.

And the good thing there is no miracle behind. Of course, the devil is in the details, but it's not that we need to have huge additional investments into manufacturing infrastructure. It's a very competitive concept where we see this very high degree of shrink potential.

So that is the major factor of driving our manufacturing costs down, but it's not the only one. And let's have a look on the next slide, where we see the impact of Siltectra technology. So we acquired the start-up Siltectra 4 years ago. And we have the target to go into qualification and production in a time frame of 3 to 5 years, starting the counting in 2018 when we acquired Siltectra.

Now I can share that we are already qualified first wafers from Siltectra, pilot line manufacturing still from our R&D site in Dresden are running in manufacturing. The technology is qualified because we also achieved quite high yields of above 95%.

And we are able, as expected, a promise by this technology, to massively increase the cost per split wafer because reducing the cash loss massively compared to the traditional wire saw.

At the same time, of course, we have the potential to decrease the wafer thickness from the standard 350-micron going down to 300 or even below. That is not yet baked into this number, that's still under evaluation and which could provide an additional upside.

So we are going now to transfer the Siltectra technology into our high-volume manufacturing site, where together with our bull suppliers, we will be then able to leverage this productivity.

At the same time, we are very open to share and license this Siltectra technology to our strategic partners, which we have reliable longer-term supply agreement. So it's our intent also not to keep it only for our own but to enable productivity also at our suppliers.

And the other thing on the next hand slide, which gives me quite some confidence regarding security of supply and also competitiveness of the pipeline is that, first of all, the incumbent players, reflected here a bit on the left-hand side, have very ambitious plans for CapEx and the expansion of the raw wafer supply business. So today, our -- from the public numbers available from last year, those incumbent suppliers own something like 90% market share.

So they are committed to increase their supply. But at the same time, you see on the right-hand side that the emerging players are really growing fast. And while the incumbents are investing significantly, emerging players invest even more. And if you simply do the math, this is all public available numbers. Then you see that only in the next couple of few years, the emerging players intend to triple their market share in the area of overall silicon carbide raw wafer market. And that gives us confidence that we have ample of supply looking forward and also at a very competitive pricing.

And that's basically the last slide I would like to share you on behalf of IPC and of course, on behalf of Infineon. Here, you see the following: Here, you see the silicon carbide bare wafer projection according to Yole, that's the very colored line on the left-hand side.

And we have highest quotation from suppliers, which is very much in line with the Yole number. Meanwhile, basically, it's on the line as indicated, right? But then there are lowest quotations from very competitive and aggressive emerging players.

And you see the delta, it's more than $250, which they now offer us at a very discount, very competitive pricing, which is, of course, now under investigation and under evaluation. And we, of course, are on our way to qualify and test the quality and reliability of these very competitive suppliers with high priority.

And as you can see also on the right-hand side, meanwhile, we are also yield-wise -- and this is real-life 6-inch yield testing wafer test numbers. We are meanwhile on a level where also the disadvantage of effect density due to processing does not exist anymore out of the wafer process.

So we talk here about test yields in the area of 90%. Only remaining difference is the defectivity which is, of course, different if you compare silicon carbide to silicon. So we are running yields on a very high level, giving us, of course, also competitive edge.

Last but not least, all the suppliers we are talking with are also having a strong roadmap regarding 200 millimeter. And I can also share with you that we have already 2 independent suppliers, which have provided us 8-inch samples.

So also 8-inch investigation, R&D and enabling is starting 2023 at Infineon. When we will go productive with 8-inch is still to be [indiscernible] because it, of course, depends on the cost performance aspect, but we do not use time in that area.

And with that, thanks a lot for your attention and back to Adam on PSS.

Presenter Speech
Adam White (Executives)

Thank you, Peter. So I've heard the presentation a couple of times. But honestly, it's fascinating and an encouraging update for IPC as well as Infineon.

So related to now Power & Sensor Systems, next slide, please. Just a little bit of a review, a reflection point, last year, we continue now to show revenue growth, top line as well as bottom line, on the segment result performance. In fact, the division again did a record year.

Why are we doing that? It is, of course, a function of us winning with the winners, as we call it, with our key customers as well as our distribution partners.

We have the ability now to really stay close to those customers, gives us then the connectivity of understanding their requirements really at an application stroke system level. So this is our ability to really bring in more value. Of course, those results are a function of volume, but also value-based pricing because we bring more value to those customers.

On the right-hand side, today, I'll be focused mainly on the power side, and I will be giving a little bit more of a deep dive on gallium nitride, noting the importance of this disruptive technology. And for those of you that may be interested, I will be at the Mobile World Congress, and we will have the opportunity to hopefully meet to talk about sensors as well as RF.

Next page, please. So really, from a PSS perspective, we are strongly driven by the decarbonization. It is part of our spirit within the division to really heavily contribute to this area. Approximately 70% of PSS TAM is now power-related. And why is that important? Ultimately, the electrification, for example, from cord into cordless is obviously continuing to show an adoption rate, acceleration of renewables as well as EVs, namely on the onboard charger side.

And of course, we're seeing overarching requirements from our customers to drive energy efficiency. And I can give a little bit more of an insight as an example of that within the server application later.

We need -- and our customers are requesting more density within the applications, making sure our [ topics ] become lighter as well as flexible designs. And here, we've got now a broad range of technologies that we can couple together to really get the highest performance to give those dimensions as highlighted on this slide.

Switching frequency, again, can be addressed with the new gallium nitride technology. And on top of that, we've got the leading-edge silicon technology, coupled not just with the switches, but later, I will show you related to the driver, the controllers. And now thanks to legacy Cypress, gives us the ability to really offer topics like the microcontroller, like the connectivity as well as the specialized memory as well.

Next slide, please. Just a little bit of an input on the market. Long-term drivers are absolutely intact. We talked about the mega trends are definitely our friends. In saying that, we're also realistic that we see some slowdowns of the market.

Computing itself and especially in the server area, we see some slowdown in the enterprise, with the hyperscale continues to be healthy. But we need to monitor how CapEx may obviously impact or support the further build-outs of those areas.

PC market is definitely normalizing and remember, on a high level. So we do see a slowdown, but overall, very buoyant, and we believe that there's still a growth opportunity, long term.

Communications, especially namely around the 5G rollouts, North America, Europe, India has been in focus for us. And we're happy to say we're working with a number of lead customers that are taking not only our silicon solutions, but also our gallium nitride on silicon solutions for topics like base stations.

Smartphones as well as consumer, I think that's pretty much documented. Peter talked about, of course, home appliances, which also echoes some normalizations. Industrial, at the moment anyway, stays strong for us.

Next slide, please. So one of the areas that we continue to really add value really from a system perspective is the area of the server market. And as you can see here, there's definitely a strong growth that is forecasted, but also it's very important that the server market itself is also growing at different levels of BoM content.

So whether, for example, you are using AI training, whether you're doing Edge compute, all of these topics means that there's a lot more compute power. There's a lot more current and there's a lot more density requirements.

And here with Infineon, we've gone through a journey of one offering, for example, a discrete offering. Then we moved into integrated OptiMOS Power Stages. We now move into the area of DC to DC modules.

And then the next stage for us will be offering the industry Infineon proprietary packaging, where we are working with the world-leading processor companies today to really continue this incredible journey of offering value and, of course, offering ultimately energy savings for these applications.

Next slide, please. So one such example here is the example that we worked with one of our customers, Supermicro. And this is a MicroBlade server. Now if you look at this content, you can see here the amount of content that Infineon has offered.

This is our ability to really work closely with Supermicro, work closely with the processor company of their choice. And here, we go in from a system level to really offer the ability ultimately to save what we call here actual computing device savings. And we've actually shown here that saved about 56% in data center space utilization.

On top of that, there is a 40% -- 45% in CapEx and actually a $13 million saving in year in electricity. So again, this could only be achievable of really working with the winners and in this case, Supermicro really wanted to bring in green servers.

And in order to do that, they chose Infineon technology at a system level to enable these metrics. Huge amount of BoM content for us, and there will be a lot more of that coming through as the world continues to consume more and more data every year.

Next slide, please. The other area we just wanted to highlight within PSS on top of that, we are supporting here the residential solar systems. Here, we focus on the PV micro inverters. We also have a system offering for the DC-DC optimizer as well as the string inverter, and we also support the energy storage.

And what I was mentioning before, this is now not us going at a discrete level. We're offering right away through the broader portfolio from MOSFETs through the isolated gate drivers for silicon as well as gallium nitride, and we are also then working on packaging and integrated monolithic packaging there for power stages.

And again, digital isolators is giving us a new access to new opportunities with these world-leading companies.

Next slide, please. So now let me move into the area of gallium nitride. This is an incredibly exciting opportunity for the industry. And I'm very happy to say that Infineon also has a strong ambition to continue to be a world leader in power management.

And then to do that, of course, we have silicon. We have silicon carbide. But in some applications, as you can see from this market research company, the market itself is due to grow to EUR 2 billion by the year 2027.

Next slide, please. So why do we believe it is very, very important to us? So I really put the focus on the gallium nitride. And you can see here with the onboard charger, the generic chargers, 5G base stations as well as servers for the high voltage, we believe that there's going to be an adoption rate, for example, from silicon, maybe to silicon carbide.

But in the case of the onboard charger, there will also be a clear benefit from a system perspective when it moves to gallium nitride.

Why do we say that? It's higher efficiency, and we're driving with the who's who of the industry to ultimately get to lower system cost as well.

Next slide, please. So here, Infineon is very well positioned. And why do I state that? There's two dimensions I'd like to leave with you today. The first one is we are a pure integrated device manufacturer. We, of course, own our IP, which we'll talk about in a moment.

But this IP is very fundamentally important also in the epi processes. And for that, we've obviously got our own epi capacity, our own epi IP. And we've also got the know-how, which is also very important to get scalability.

We move now to the 8-inch, and this will ultimately give the big potential for bringing costs down. And on top of that, we've been asked by our customers, which we are now supporting to make sure that we've got dual source in-house production. And that, again, is very, very important.

On the right-hand side is about the intellectual property. Of course, we've got a lot of innovation generically in power. Peter articulated earlier about the main knowledge that we have, the application levels for many, many years.

And here, we've also got this capability of the domain knowledge also in gallium nitride. We've got the #1 patent portfolio with around 300 patent families. And of course, we continue to innovate and do the right filings.

And what I will say is that ultimately, in the gallium nitride area, we will and continue to work with any companies out there that we potentially believe that may be infringing our patents. And we'll be having, of course, healthy discussions to work out how we can move forward.

Next slide, please. So one of the key topics, again, we just want to really leave with you in our recent analyst call, Jochen Hanebeck and the Infineon Management Board also highlighted that we have now a good design pipeline of greater than EUR 1.5 billion.

And for us, this is a huge landmark within the power as well as the RF applications because it really gives us confidence that there is a tipping point happening in the industry.

And a little bit like what Peter was alluding to is silicon carbide. We have a very similar now topic that we need to continue to work on in how we can obviously further scale and support to our customers with this technology.

One thing with gallium nitride. And here, I just brought with you just one example of a 120-watt charger. And the only way that could really be supported with our customer anchor was us working with them also on topologies on the best way to unleash the benefits of gallium nitride.

And then ultimately, it brings in density. It brings in efficiency with, of course, the desired outcome of overall cost benefits for that application. And we've now shipped the first revenue related to GaN on silicon for RF applications.

So we feel very strongly about continuing this journey. We are, I know, teaming up because we fundamentally believe within Infineon as well as the PSS division, that all of the 3 technologies will find a value proposition at a system level within these applications, namely of course, silicon, silicon carbide as well as gallium nitride.

But it is essential we continue the journey to really understand the systems, the interconnects that we need to do between the switches, the drivers, the controllers, the software, the microcontrollers, right the way through to connectivity, memory, of course, security to -- and finally, and very importantly, the sensors so we can then communicate from a human machine interface perspective.

So thank you very much for listening today. And now I will hand back to Alexander, who will now help us work through the Q&A session.

Answer
Alexander Groschke (Executives)

Yes. Hello, everyone. Q&A is open. Please raise your hand. And yes, we are going to start with Francois Bouvignies.

Question
Francois-Xavier Bouvignies (Analysts)

Okay. Cool. So I have two quick questions, if I may. The first one, maybe it's for you, Adam. I mean, on GaN, GaN has been around for some time. And I mean, [ intentional ] rectifier that you know particularly well at the gallium nitride. It seems that it's getting more and more traction by listening to you. I mean that we are maybe moving to a turning point in terms of adoption.

Can you -- do you agree with this assessment? I mean, you showed the revenue backlog that you had in terms of design wins, but can you maybe flag if you see a specific application or what's the turning point of gallium nitride in terms of adoption right now? And I have a second quick question after that.

Answer
Adam White (Executives)

Yes. Thank you very much. And yes, and thanks for the question because it really resonates with us now within Infineon. So gallium nitride again, in the right application with the right topology can really add significant benefits to a number of applications.

So on Page 33, please, you will see here that we are now actively working on converting the onboard charger, the chargers as well as the 5G base stations as well as server high voltage.

I'm happy to say that we've got a number of design pipelines that have already been confirmed to us with the customers that their intentions and they are looking to ramp. And we believe, yes, with a design funnel there that I showed you over 1.5, we are reaching the tipping points. So this is very much an in-focused topic for Infineon.

And then with the winners' mentality, the who's who of our customers are really bringing in Infineon in now because they recognize that, one, we're in IDM; two, that we've got a strong IP portfolio; and then three, we've got the system understanding.

Question
Francois-Xavier Bouvignies (Analysts)

And maybe one quick one for Peter. I mean you talked about the silicon carbide roadmap excluding EV auto, and it seems to be a very steep revenue growth as well. Now if we look at most of the forecasts, which are competitors or industry, they are looking more into a very heavy auto-driven market for our silicon carbide within 3 to 5 years.

It seems that we kind of underestimated the industrial side of things. So can you elaborate a bit on the silicon carbide for industrial? Why you would think that maybe it would be bigger than people expect, at least in terms of industrial versus auto split?

Answer
Peter Wawer (Executives)

Yes, Francois, and thanks a lot for the question. I mean let's move to Slide 16, which maybe indicates this a bit as I tried to explain. I totally -- first of all, I totally agree that the EV drivetrain is a big thing. No doubt about that.

But it's a market that still needs to develop itself growing, of course, with a double-digit CAGR. On the industrial side, there are already quite big markets existing. And today, they are silicon, namely IGBT-based in the high-voltage area.

And we all know that having existing market changing due to the value proposition of a new technology typically happens to -- take place with a much, much higher growth rate or can take place with much higher growth rates compared to developing markets.

So in the case of solar, I would predict much, much higher reduction in growth rates of silicon carbide because for high switching application like solar, the value proposition is completely clear.

So for EV charging and the grid sale -- grid scale battery storage, of course, as for the EV, the market itself is evolving. It's really exploding, and it's growing big time. And there are other markets which are not shown here also in the industrial space like UPS, where silicon carbide has a very strong value position.

So my personal conviction is that these existing applications, which are from a value proposition are very well suited for the adoption of silicon carbide, are in many market models underestimated.

And therefore, I think that the share of the industrial market from a growth perspective, but also in absolute terms, is significantly higher than that what is currently being shared in the typical market models.

I don't want to be misunderstood. The lion's share definitely will xEV, but I think it's different if you think about industrial space, 20% of the total market or maybe 40%. And I think easily, it can be much, much, much larger the share than those very often shared 20% to 25%, I believe, and significantly more.

Answer
Alexander Groschke (Executives)

Then our next question comes from Janardan Menon.

Question
Janardan Menon (Analysts)

Just on the silicon carbide side, looking at, again, automotive versus industrial. Given that the joint guidance is for about EUR 1 billion of revenue by the mid-20s and further on beyond that towards the EUR 3 billion mark as we've told some time ago.

How do you allocate capacity? Because I get the feeling that both the IPC division as well as the Automotive division are capacity-constrained in silicon carbide.

So I was just wondering what are the puts and takes internally within Infineon on how this capacity is being allocated, especially keeping in mind that the margins are probably higher on the IPC side compared to the ATV side. Is that a factor at all? Or if you could just run through how that...

And then on the gallium nitride, I just have a question as well. Can you give us a rough breakdown of the EUR 1.5 billion of design win pipeline that you have in terms of applications. I just want to get a feel for how much data center -- I mean, servers as well as onboard charger is within that portfolio.

Is the bulk of that still sort of adapters and smartphone charging and things like that? Or for Infineon's case, is the percentage of data center and onboard charger are much higher than the industry breakdown you gave on one of your charts?

Answer
Adam White (Executives)

Yes. So let me just take, if I may, the gallium nitride one first, and then I will obviously hand over the microphone here to Peter.

So we don't actually break down the percentage at the moment of our pipeline, but I would like to give you confidence, it's not in one application that is dominating with the pipeline. We are getting a lot of diversity now of designs because customers are willing to work with Infineon on new topologies as I was alluding to, to really unleash the potential of the gallium nitride.

So of course, we saw an early adoption within the chargers. But now, moving forward, we are really now beginning to see the pipeline enriching, as I call it, in the areas of the service for data center. Edge compute could also be something that for the high voltage that is continuing to happen.

And we're also seeing the BPA applications, battery-powered applications, also very much in deep research and projects that have been sponsored by those customers.

Now of course, when we are getting a little bit more confidence in the conversion of that pipeline, we will be able to provide a little bit more breakdown detail. But my message really is, yes, early adopters in adapters, but now other segments are really converting and we're looking to ramp up. And I must also stress the area of solar as well. This is another area that we've got deep interest within the industry. Peter, over to you...

Question
Janardan Menon (Analysts)

And just a follow-up on GaN, if I might. Have you already secured onboard charger design win? And if so, by which year would that be shipping?

Answer
Adam White (Executives)

So we are actively working in that application. I'm not, at the moment, going to give any more details on that. But what I would say is, our system architects and customer system architects are very buoyant about the value proposition, and we will talk a little bit more about the ramps of the onboard charger at a later date.

Question
Janardan Menon (Analysts)

Understood. Yes.

Answer
Peter Wawer (Executives)

Yes. Maybe before I come to this other question, just on a side note, we have also the first modules, IPC modules containing gallium nitride chips at selected customers for investigation, R&D purposes on the system side.

And I just can confirm what Adam says. So far away from big design wins yet. But the customer interest in the area of 650 watts, definitely, they're also in for the modules. But coming back to your question on silicon carbide.

I think you hit the point. That's a topic of big debate. We underestimated now the demands, either from automotive and from industrial side, in the subsequent years. So we are completely sold out. And I think it's a very heated debate inside Infineon how now to allocate capacity. I think we have agreed on a rule.

But I would say, so far, I'm a bit confident with the share I get for silicon carbide being able to differentiate via the product portfolio offering and generating very accretive margins and also accretive compared to IPC's silicon business.

But of course, now with the recent very big design wins on automotive side, the discussion is heating up. And it's -- to be honest, it's still under discussion. So I cannot share now with you a certain rule because, as Adam explained, we have raised, of course, our financial model.

So it's very important that we execute on growth, but even more important that we execute on profitability. While you have now to optimize the best of both worlds, right, maximizing profitability, but on the other side, of course, securing big design wins, which are securing revenue growth perspective on the automotive side also long term.

It's not an easy equation to be solved and still in discussion with the Infineon Board. And maybe at the next occasion, you also ask our Board, our CFO and Jochen on the topic because, of course, we all have individually ambitious targets, right? And if you ask me, I would love to get more share on silicon carbide with no doubt.

Question
Janardan Menon (Analysts)

And just one -- sorry, last follow-up. On the 650 watt gallium nitride, before the end of the decade, by 2030, would you think that gallium nitride is going to be a material part of the IPC revenue stream? Or is that too early?

Answer
Peter Wawer (Executives)

Yes. Yes. No. Now if you ask me, I expect until end of decade, I expect 3-digit million revenue also based on gallium nitride. Will be, of course, a small portion of the overall potential that Adam has showed. But I would say, a 3-digit million, I consider substantial end of the decade.

Question
Janardan Menon (Analysts)

Understood.

Answer
Adam White (Executives)

And just to top that off from a PSS perspective, as I was indicating earlier, there are a number of segments, applications that will fully adopt gallium nitride by the year 2030. No doubt about that at all.

Answer
Alexander Groschke (Executives)

Then next question comes from Aleksander Peterc.

Question
Alexander Peterc (Analysts)

Excellent. So I'd just like to understand, first, maybe that's for Peter, you say you have EUR 1 billion of capacity in silicon carbide by 2025. But you plan to reach that run rate only by 2027. So I'm wondering, what stops you to get that EUR 1 billion quicker? Is it limited supplier of substrate or is there any other limitation?

Obviously, demand is clearly there, and you say you are fully sold out for your capacity. So I'm just wondering how -- what's the disconnect between that EUR 1 billion capacity in '25 and your actual revenue being there only by '27? And I have a quick follow-up.

Answer
Peter Wawer (Executives)

Thanks for the question because then the explanation was a bit misleading. The missing thing is the automotive silicon carbide revenue. So as I said in the slides, right, we both believe not to underestimate also the share of PSS. Okay, lion's share's with IPC, but nevertheless, we combined it, right?

We will be able to deliver more than EUR 500 million until '25 -- around '25. Capacity-wise, we are able to support EUR 1 billion. And that relates to the question before, right? The delta is, of course, then ATV.

So very, very simplistic looking, right, assuming we get a clarification. On the capacity allocation question, then you can simply assume and very roughly, right, EUR 1 billion, '25 , half automotive, half nonautomotive.

Question
Alexander Peterc (Analysts)

Okay. Okay. That makes sense. The second -- yes? Yes. The second question I would have is, if you could tell us who are your boule suppliers at the moment? How many you've got and how confident you are on the supply there?

Answer
Peter Wawer (Executives)

So at the moment, I don't share the number of boule suppliers. I can just share that we are now in discussion with another 4. And we see that the interest and willingness to supply us wafers and in conjunction, including a potential deal of licensing the Siltectra technology is higher.

And I expect very recently, meaning beginning of next calendar year that we announced a deal, which comprises a very high volume regarding wafer, boules and also cross-licensing of Siltectra technology. That is already quite advanced in progress, and we will publicly communicate once the definite agreement is signed.

Answer
Adam White (Executives)

Yes. And maybe to your first question, so raw wafer supply and seek is certainly not a limiting factor. So I think part of the question was, can we ramp faster? And maybe, Peter, you can say a word on that. Can we pull in the EUR 1 billion?

Answer
Peter Wawer (Executives)

Yes, the ramp speed is not limited from today's perspective by the availability of raw wafer material. It's completely limited by the ramp speeds due to speed of building of Malaysia and still also the availability and lead time of tools. That is somehow related.

I think maybe we can expect that there is a certain relief on the lead time of tools. But to be honest, I'm not too sure, especially in the area of silicon carbide. Everybody sees this growth potential.

So we are on our way to secure a very big share of equipment needed then also to ramp Kulim with light speed. So it's simply a question of construction of Kulim plus the tools while the ramp speed of Villach is clearly limited by tool availability.

So tools definitely to supply improving, ramp speed is set quite ambitious. So therefore, I disclosed that we think we're going to grow for the next years to come with more than 40% CAGR, which I would say is quite decent, looking into the overall expected growth according to the analysts.

Question
Alexander Peterc (Analysts)

Excellent. And just a very quick one, last one. Do you have a market share ambition to share with us once the GaN market matures to that 2 billion number? Do you have anything in mind like a 30%, 20%?

Answer
Jochen Hanebeck (Executives)

Yes. So what I -- the only way to answer that is, of course, today, we are a leader in power management. And in the future, we want to continue to be a leader in power management. So I'll let you assume the percentages.

But as you can see, we have the desire to remain a very strong overall market share in all of our solutions.

Answer
Alexander Groschke (Executives)

Okay. The next question comes from Lee Simpson.

Question
Lee Simpson (Analysts)

Sorry. Great. Just a couple of things first before I ask. The -- I think you mentioned that the margin was accretive for silicon carbide in IPC. Can you just confirm that? And can you say if that's the case in ATV also?

Answer
Peter Wawer (Executives)

No, sorry, I can't.

Question
Lee Simpson (Analysts)

Right. But it was an IPC? That was clear?

Answer
Peter Wawer (Executives)

The numbers -- I know my numbers, but sorry, I don't know the ATV numbers. [indiscernible].

Question
Lee Simpson (Analysts)

Got you. Okay. Maybe Peter, just -- it was interesting you talked about the Kulim ramp and the availability of tool sets. But do you have a sense for the annual CapEx you would need for ramping up Kulim 3?

And really, just as that comes online, given the demand that you've got, particularly in that pipeline, what do we think, if any unused chargers might materialize around COGS in the subsequent years?

Answer
Peter Wawer (Executives)

You mean then having idle -- to account to idle? Or what is it you want?

Question
Lee Simpson (Analysts)

Yes, idle. Yes.

Answer
Peter Wawer (Executives)

Yes. It's really difficult from the perspective to assume that, that might happen. But we all know, right? It's still a cyclical industry. And now we experienced an extreme boom phase, and now also for silicon carbide for the foreseeable future, the boom continues.

The thing is, of course, we are committed now to purchase a reasonable amount of tools. First tool set would give us the confidence that we can support this growth. But of course, we do not have now a super long-term commitment for many, many years to come being obliged to purchase equipment.

So it's a bunch of tools. It's a very significant bunch, which is planned on the finance side, also related to our capital market CapEx numbers that we can afford that is fully in line. And once we foresee that due to very strong supply of competitors or weakening demand, the thing might change, then, of course, we are able to push the brakes.

So we are not doomed and committed forever. And not to forget, of course, also the Kulim 3 facility can be used for every other kind of technology.

So to a certain extent, of course, the tool set is then dedicated, especially now in the first phase while we go for 6-inch, but all the tools that we now purchase are able also to being used for 8-inch. As you know or might know, Kulim 1 and 2, that is our huge 8-inch manufacturing site. We do not have 12-inch there.

So all the 6-inch ramp that we are now planning for Kulim requires or tools are being purchased for this ramp, which are able also to manufacture silicon 8-inch wafers and of course, also silicon carbide 8-inch wafers.

So we have this kind of inherent flexibility that I'm not too much concerned. If there's an overall massive market downturn that we and the industry might face, then of course, we have to incur idle. That's not normal name of the game, but then it's not a silicon carbide-specific problem. I'm not -- really not concerned on that one.

Answer
Adam White (Executives)

And if I may add, we're in a luxury position that 3 of Infineon divisions actually have silicon carbide demand. So for example, Automotive is clear. IPC has been heavily discussed. But within PSS, we've also got silicon carbide adopting in areas of onboard charger, as well as in AC-DC applications as well for lower voltage.

So here, there's definitely a good trade-off between each of the applications that I believe will benefit the overall utilization of this new capacity.

Question
Lee Simpson (Analysts)

Got you. Maybe a quick one, a follow-on for Adam, if I could. If we broaden the discussion beyond silicon carbide, if we're looking really into 4Q, how are discussions going around with distribution partners? And I'm thinking in particular around the test ordering, perhaps even foundry ordering for 4Q and into Q1, particularly around industrials.

Is there any color you can give us for the strength or any changing patterns that you might see there just now?

Answer
Adam White (Executives)

Yes, it's a good question. So as you know, we do have a high level of our business going through our respected and trusted distribution partners. We do stay very close monitoring our KPIs or distribution inventory.

We are -- got a target inventory of the -- anywhere between the 10 and 12 weeks of inventory is our preferred target model. And at the moment, we're heading towards the upper range of that. However, we are also actively managing what we're shipping into distribution to keep within the KPI.

I must stress again and for full disclosure, we are seeing different markets react differently at the moment. So for example, in the consumer area, if we got some of our partners supporting mobile customers that may show stronger weakness, and that's something we are working and making sure that inventory still stays within the KPI model that we established.

Question
Lee Simpson (Analysts)

Makes sense. Makes sense. And it wouldn't be a question set without asking about GaN. I think you mentioned your patent families, 300 patent families, which seems incredible Obviously, well benefited by [ IRF ].

It was apparent to us that there was an infringement of a GaN patent in the U.S., and I think you took some action. And I'm just trying to get some sense for your intent to defend your patents particularly in U.S. courts over the next few years as it relates to gallium nitride.

Answer
Adam White (Executives)

Yes. So I won't talk about any specific situation, but what I will talk about is generically, of course, Infineon, we're very proud of our innovation. With that, we obviously do protect the shareholders' value by putting a lot of IP, whether it's from a device or process or packaging, epi, whatever it may be.

And ultimately, if we feel that the industry -- or not the industry, if some companies may be infringing, then, of course, we will look to have deeper conversations with those companies to see if we can figure out a solution for the better good of Infineon and ultimately our customers as well.

So we are pretty much confident and we are very privileged to have such a good portfolio of IP related to gallium nitride. And I know working with a number of the leading customers, they are respecting that and they are coming to us because they do recognize that we are the leader in the IP as well.

Question
Lee Simpson (Analysts)

This was a great call. Thanks for setting it up. Cheers.

Answer
Alexander Groschke (Executives)

Next question comes from Adithya Metuku.

Question
Adithya Metuku (Analysts)

Perfect. Okay. So I've got two questions on silicon carbide and two on GaN, please. So firstly, just a question on the yields that you defined, Peter, in one of your earlier comments, you talked about over 95% yields. And I think you made this comment in reference to Siltectra.

So I was just wondering how do you define these yields? Is this the yields in terms of wafers from a boule? Is this the final MOSFET yield? Just any color on what exactly is that 95% would be great.

Secondly, on your silicon carbide being accretive to margins. What is the driver behind this? Is this a function of premium pricing? Is this because your yields are better than maybe on silicon, which is probably unlikely, but maybe that is the case?

So if you could just comment on what is the biggest driver behind silicon carbide being accretive to your margins versus silicon, that would be helpful. And then I've got a couple of questions on gallium nitride.

Answer
Peter Wawer (Executives)

Okay. Yes. Thanks a lot. So the 95% plus yield, I mentioned, were only related to Siltectra performance, meaning if you have a boule, then of course, you have the process to split the boule.

And naturally, that typically is not 100%. So we did the business case calculation, business case assumptions where we said we need to be above 90%, ideally above 95% for separating the wafers from the boule.

And when I said these 95% plus, then I referred only to the split process, not taking into account further processing afterwards. That's purely getting the boule, of course, with the assumed reduced curve loss, based on the laser-splitting process.

And then if I split 100 wafers, then I get more than 95 good ones, which I then, of course, need still to polish, but that is already included in the yield. And this 95% plus out of the 100 are then put into wafer manufacturing. That is answering your first question.

The other picture I showed that was related then only the -- up to 90% test yield, that was only then related to wafer manufacturing, right, not to misguide you or to irritate you with this topic. And then back to your question on the margin, that is the thing regarding portfolio. My belief is, first of all, we definitely have a quite competitive technology.

So the customers like specific performance aspects of the trench technology regarding drive voltage, threshold voltage robustness. There are a couple of little neat details, which are to certain extent, advantageous compared to the [ plans ]. Obviously, that is appreciated by the customers, but that is not the big reason for having accretive margins.

I mean maybe it plays a role regarding pricing, to be honest, I don't know. The big thing regarding margin and pricing is the portfolio play. We meanwhile have more than 300 products in different voltage classes, different form factors, namely discretes and modules qualified, and that's the way how I think we can differentiate and justify higher margin.

Then the next obvious question would be how long will you be able to sustain it. Honest answer, I don't know. But we play the portfolio game as good as we can. And I think it's not very easy to copy us, given the huge amount of product variance, modules, discrete, et cetera, that we have.

And I would like also to highlight one topic. Because on the silicon side, namely IGBT, we are also in die business for IPC. So to very only few selected customers, there is a long-term trustful relationship, where we supply those customers with silicon dies.

Of course, also here, we pay attention that it's not dilutive regarding margin. But of course, the differentiation on the die level is typically limited. Die is a die, of course, there's again cost and performance and reliability, but the form factor application topic that is then led to the person where you sell the die to.

And we decided now due to the lack of volume, not due to the lack of willingness, but due to the lack of volume from the base perspective, IPC is not in the die business because we have so many opportunities in the packaged environment universe, so to say, where we simply want to fuel the portfolio and play the portfolio game also together with our customers.

So we are also behind doing dedicated customized products based on silicon carbide. That's the thing we learned from silicon. And we simply applied the same systematic now for silicon carbide, where we are willing and do for reasonable business opportunities, where we do customize products dedicated to customers.

And that's a leverage for the customer, how we help them to differentiate against their competitors, and they're willing to pay additional money for it.

Question
Adithya Metuku (Analysts)

Got it. Very clear. Maybe just a quick follow-up on that 95%. That's got nothing to do with the wastage of the boule when you cut into wafers, right? And maybe if you could also comment on what is the thickness of the wafers you're getting in terms of microns?

Answer
Peter Wawer (Executives)

Yes. No, it has -- if I got it right, it has nothing to do with the growth process because that is left to our supplier, right?

Question
Adithya Metuku (Analysts)

No, no. I meant the wastage when you cut the boule into wafers, that 95% is not reflecting what you're able to utilize from the boule, i.e., it's not just 5% of the boule wasted when you cut into wafers. Is that correct? And what is the thickness of the wafers?

Answer
Peter Wawer (Executives)

I'm talking about is -- yes. What I'm talking about is the standard thickness, meaning today, 6-inch 350 micron. But as we speak, we are investigating also the capability to lower the thickness of the wafers. That is, of course, impacting -- potentially impacting then the yield in manufacturing that is of investigation, but we already have processed 200-micron thick wafers.

So we have already demonstrated that we can also handle 200-micron thick wafers. But of course, this has been a yield-impacting manufacturing, and we are currently assessing what could be the optimum.

Having it in our own hands, we are not limited to 350, right, which is the standard thickness for silicon carbide 6-inch. We simply play around and test the water, so to say. And maybe we are even able then to produce 300-micron or 250-micron thick wafers.

And the whole story needs, of course, then to be reassessed and rediscussed for 8-inch because not to forget, of course, you gain productivity with 8-inch, no doubt. Industry will move to 8-inch. But due to mechanical stability considerations, typically the larger wafers are thicker.

So again, the assumption is now for the first samples that we have in-house provided by trusted suppliers. The 8-inch wafer has 500-micron thickness. So material efficiency decreases, right?

And of course, in the beginning, also the [ books ], meaning the single crystals made of silicon carbide are again rather thin, right, not too high regarding first evolution of the technology.

And here, of course, we have another [ knot ] where we can play about -- around with the productivity, where we think we can go also regarding wafer thickness. Too early now to make here any -- set any false expectations. Total focus today is standard thickness.

But once we have this up and running and we are now a set progressing into mass volume, we will closely look into additional productivity coming out of also potentially thinner wafers. Let's see. We'll keep you updated.

Question
Adithya Metuku (Analysts)

Got it. I had two questions on GaN. Shall I ask them or shall I rejoin the queue?

Answer
Adam White (Executives)

Go ahead.

Question
Adithya Metuku (Analysts)

Okay. So just quickly, just on GaN, you talked about Cypress and integration of logic. I think if I heard you correctly, integration of logic on GaN devices, I don't think if I heard you correctly.

Firstly, if I did, what level of logic are you able to integrate into your GaN switches? I know some of your competitors have talked about this as a differentiating factor. And secondly, just the MicroBlade server you talked about, does that use GaN or is that based on silicon?

Answer
Adam White (Executives)

Okay. Thank you, Adithya. So to answer the first topic. So the inherent properties of gallium nitride, it's a lateral device. So you have the ability to monolithically build a number of devices per effectively wafer level. Now here, there's a healthy debate going on in the industry about how much integration you should do with a device.

For example, you can have a switch. You can, in theory, do a number of switches per device. And at the same time, you can also integrate a driver, as an example, into one piece of solution. But you also have the ability to do not the complete driver, but elements. You can partition the driver and only basically integrate elements of that driver as well.

So here, it really is a function of the application. And I know I'm keeping stressing this point, but really gallium nitride is really understanding how the customer, what the use case is, and then we can then determine how much level of integration is required.

We've had some customers who have walked into our doors to say, "Hey, they're very much looking forward -- looking for a fully integrated device," meaning potentially elements of a driver and a switch. And then we've actually shown evidence that in an application, it makes sense to have 2 devices rather than integration.

So that's the first topic. The other topic, one of the reasons why I mentioned Cypress, it's -- we now have a [ course ], thanks to the acquisition, we have a microcontroller. And what we will be doing is working some functionalities into a microcontroller.

That, quite frankly, allows us ultimately to improve the switching frequency in operation of gallium nitride also through the microcontroller capability as well.

So here, we are working now with our R&D and our system experts to make sure the next family of microcontrollers really gets and unleashes the benefits of the gallium nitride. So that's the first question.

The second question, the example I specifically showed on the green server for Supermicro, that is based upon silicon. But we continue to work with the who's who in the industry to look at options on the high voltage, for example, switch mode power supply for gallium nitride solutions as well.

And we're getting a lot of interest, and we're beginning now to even convert the design funnel for switch mode power supplies using GaN-based solutions for such applications.

Answer
Alexander Groschke (Executives)

And the last question comes from Sandeep Deshpande.

Question
Sandeep Deshpande (Analysts)

Sorry if any of these questions have been asked before. The first question I have is -- I mean, I've gone through your presentation, and you did not talk about inverterization of appliances as being a driver. Is this not a driver in the power semiconductor market any longer? Or is the penetration incredibly high at this point?

And my second question is on the wafer business itself. You're talking about the Chinese suppliers in the wafer market. Where are the yields today from the -- when you make a device using these other suppliers because you seem to want to integrate them into your process?

Answer
Peter Wawer (Executives)

Yes. So appliances. Definitely, appliances continue to be a very important basis of our revenue and of our market. But the thing is that the appliance topic, with one exemption, which I'm going to mention, is not growing lightspeed but at a normal speed. And we value it very much, and we intend to support it all the forward looking.

So appliances is an important topic. And also the inverterization of appliances continues to drive semiconductor content. But giving -- all the other very attractive double-digit growth opportunities, maybe it's a bit -- it stepped back a little bit in the perception.

There's one exemption, and there is not, I would say, not the very typical appliance, but it's becoming now a huge boost, that is the heat pump.

So heat pump demand, especially now due to the energy crisis in Europe, is exploding. And the heat pump, if we consider heat pump as an appliance and from the product types and also the power classes, it's very close to the appliance topic. That is the thing which generates huge revenue potential, looking forward.

And here on this slide, the heat pump is indicated at 16%. We had a big debate. I still believe that, that number might be a bit too conservative, but okay. That's on a global scale, and maybe I'm a bit influenced due to the huge numbers coming now from Germany and Europe. And so it might be okay. But nevertheless, 16% is a huge opportunity.

Now that is, I would say, my comment to the heat pumps. And the second question was related to the material and the quality of the suppliers. So we will not do any compromise regarding quality of the material. And the yield assessment, if you maybe go to the yield slide that was my Slide 24, I think, I think that is setting the benchmark.

And with a well-known supplier, experienced suppliers, you know that we have a big contract with Wolfspeed, we are very happy with their supply and quality performance. And we can achieve these kind of yields that is now the test yield approaching 90% on the tested wafer, and that's the benchmark.

And we will not accept any material significantly substantially deviating from it because it's a first-hand indicator also of quality and reliability. What I can share with you that we were very much surprised that the recent sample that we are qualifying, not yet qualified from a new supplier, showed basically the same performance. It was after the difference.

So on par more or less. But we are now currently very curious in looking how the other emerging suppliers where we already have material in-house, which we supply with lightspeed -- sorry, we try to qualify with lightspeed, how these will perform.

The numbers are not yet available. Otherwise, I might have presented here also today, what we expect beginning of next year. Also here is statistically relevant numbers. It's not enough to just manufacture 1, 2, 3 or even 20 wafers. It's a bit more lengthy process, based on our experience. It takes some time because we want to have statistically relevant numbers. Let's see.

From the first indication, I think I'm optimistic that also those aggressive pricing emerging suppliers might deliver decent quality. But it's too early now to make bold statements on that one.

Answer
Alexander Groschke (Executives)

And I think with that, we are about to conclude the call. And yes, thank you for all turning here up here to Infineon. And yes, Peter and then Adam.

Yes. Thanks for the call. And yes, any further questions, please address the Investor Relations department. We are always happy to serve you.

Answer
Adam White (Executives)

Thanks a lot. It was a pleasure.

Answer
Peter Wawer (Executives)

Thank you for your interest, everybody.

Answer
Adam White (Executives)

Thanks. Bye-bye.

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