matdesign24
Coherent (NYSE: COHR) announced its results for the first quarter of fiscal 2024 on November 7, 2023. Revenue came in at $1. 053 billion, above the midpoint of its guidance of $1. 0 billion to $1. 1 billion. Non-GAAP EPS of $0. 16 was above the midpoint of its guidance of $0. 05 to $0. 20.
Coherent’s guidance for our fiscal second quarter 2024 ending December 31, 2023 is for a gain of approximately $1. 075 billion to $1. 175 billion, which would constitute a 6. 8% quarterly expansion over the medium term. Non-GAAP earnings consistent with the consistent percentage are estimated to be between $0. 14 and $0. 32, which would constitute a quarterly expansion of 43. 8% over the medium term.
Data communication transceivers for AI in the communications market of its network reports are key for Coherent. The company stated in its letter to shareholders:
“Driven by the structure of AI-enabled knowledge centers, the order book for Datacom 800G transceivers increased particularly from the already very extensive point of the last quarter. The increase in orders for Datacom 800G transceivers in the first quarter resulted in a more than 200% backlog in our 800G order book for the first quarter of fiscal 2024, editing the intensity and breadth of our business related to Datacom 800G AI.
Figure 1 shows the forecast for the data communication transceiver market. Transceivers with an awareness rate of 200G and above > 65% of Coherent’s revenue, and transceivers with an awareness rate of 800G and above > 50% of the overall market will be available through 2027.
Coherent
Table 1
I discussed Coherent’s achievements in AI and 800G in a June 26, 2023 Looking for Alpha article titled Coherent: Benefiting from Migration to AI/ML-Attached Ethernet Switching.
But due to Coherent’s announcement about the spin-off of its silicon carbide (“SiC”) business, this article will focus on SiC.
Companies in the electric vehicle (EV) chain have been hit hard following recent third-quarter earnings announcements due to fears of a recent recession. Arguably the leader in the electric vehicle sector, Tesla (TSLA).
There is a strong synergy between EV market fitness and SiC chips. Silicon carbide is known for its incredible potency over the higher voltages used in electric cars. As a result, SiC parts are becoming more prevalent in traction and DC inverters. -DC inverters used in electric cars. Chipmakers noted that this increased power translates into reduced weight, less battery wear, and prolonged diversity for electric cars that incorporate SiC technology.
EV stocks saw a drop following Tesla’s third-quarter earnings report, which revealed a decline in margins sequentially and year-over-year. Tesla, a major player in the EV industry, is also continuing its competitive quest for market share, which could affect average EV sales prices in the near future.
In the third quarter, Tesla reported production of 430,488 vehicles and deliveries of 435,059 vehicles. The company cited a sequential reduction in production volumes, attributed to planned downtime for plant upgrades. Notably, Tesla is maintaining its full-year delivery target of 1. 8 million. automobiles.
Despite beating consensus expectations for its third-quarter results, shares of SiC chipmaker ON Semi (ON) saw a decline of around 14% on a disappointing fourth-quarter outlook. The company reported $200 million in SiC chip sales due to the slowdown.
In a clear example of how the road works (or doesn’t work), in my opinion, Wolfspeed (WOLF) stock is up 22% after the earnings call report for the first quarter of fiscal year 2024:
Coherent stands out as one of the few global corporations with full vertical integration in SiC manufacturing. Our functions range from SiC wafers and epitaxy to powering devices and modules, offering a complete production process.
Coherent has made significant capital, research and development (R&D) investments for SiC over the past two years. This investment is consistent with its 10-year, $1 billion commitment first announced in August 2021.
As I noted in my December 12, 2022 Searching for Alpha article titled Coherent: Gaining Momentum in Silicon Carbide from Partnering with Infineon, COHR was able to secure a multi-year contract to supply Infineon with 150mm silicon carbide substrates for force electronics on August 12. December 23, 2022. A week earlier, Coherent announced that it had entered into a contract worth more than $100 million to acquire Dongguan Tianyu Semiconductor Technology Co. , Ltd. , with 150mm silicon carbide substrates to be delivered starting this quarter and running through the end. of the schedule. year 2023.
Coherent’s silicon carbide business, which manufactures wafers for industries and electric vehicles, is expected to secure a significant $1 billion investment from two Japanese automakers.
This investment values the silicon carbide unit at approximately $4 billion. DENSO Corp. (OTCPK: DNZOY) and Mitsubishi Electric (OTCPK: MIELY) will contribute $500 million, securing a 12. 5% stake in the unit, while Coherent will retain a 75% stake. % of participation and continue to operate as an independent subsidiary.
The main objective of this agreement is to enable a flexible flow of money to Coherent, allowing it to execute on its capital allocation priorities. The planned investment of $1 billion will be used to fund the company’s long-term capital expenditure needs.
He had already discussed, among other topics, the company’s debt following its merger in a June 2, 2023, Looking Alpha article titled “Consistent: Near-Term Macro Headwinds Have Overcome Silicon Carbide Tailwinds. “Coherent paid off $19 million of debt in the first quarter of 2023.
According to Coherent’s press release:
“Under the terms of the transaction, DENSO and Mitsubishi Electric will invest $500 million in exchange for a 12. 5% non-controlling stake in the company, with Coherent owning the remaining 75%. “
Coherent expects to generate approximately $300 million of SiC in fiscal year 2024 ending June 30, 2024. Under the terms of the deal for SiC’s new subsidiary, it has a pre-money valuation of $3 billion and represents about 10 times FY24E revenue.
The market prospects for SiC, as well as for the wide bandgap material, gallium nitride (“GaN”), are shown in Figure 2. GaN will grow at a CAGR of 53. 2% between 2021 and 2026, ahead of SiC at a CAGR of 42. 5%, according to The Information Network’s report, Global and Chinese EV Batteries and Materials: Technology, Trends, and Market Forecasts.
The Information Network
Table 2
Figure 3 shows the importance of the EV market in the SiC device market, which accounts for 63% of MOSFETs by 2025, according to The Information Network’s Power Semiconductors: Markets, Materials and Technologies report.
The Information Network
Table 3
Chart four shows battery electric vehicle (BEV) unit sales during the quarter between the first quarter of 2022 and the third quarter of 2023. Consider the cyclical nature of sales, which increase from quarter to quarter of the year. Assuming expansion in 2023 continues this trend, we deserve to expect a stronger expansion in the fourth quarter than in the third.
The Information Network
Table 4
Chart five shows BEV sales throughout the month between December 2022 and September 2023. Again, there is some cyclical character, with sales expanding month by quarter, followed by a decline in the first month of the following quarter and then some other increase.
September unit shipments from China and Europe show a slowdown compared to August shipments. The rise in financing prices resulting from emerging interest rates, aimed at fighting persistently high inflation, has all but wiped out the benefits of declining prices.
According to the International Monetary Fund:
“The world’s central banks have unleashed the biggest round of interest rate hikes in decades in their two-year fight against inflation, and they may not be over yet. Policymakers have raised rates across some 400 core issues on average in complex economies since the end. of 2021, and through around 650 foundation issuances in emerging market economies.
The Network
Table 5
In September, global EV battery installations saw a 20% year-on-year increase, totaling 64. 9 GWh. The three most sensible companies in this area maintained their rankings, led by CATL (22. 4 GWh of batteries and 35% market share). followed by BYD (12. 4 GWh, 63% YoY) and LG Energy Solution (9. 3 GWh, -12% YoY). It should be noted that LG Energy Solution’s EV battery installations outperformed BYD’s at the end of the quarter, mainly due to a 5% year-on-year increase in BYD’s EV sales volume and an 8% year-over-year decline in Tesla’s EVs. sales volume. Meanwhile, Samsung SDI’s EV battery installations reached 3. 2 GWh, a 41% year-on-year increase, representing the largest expansion among the world’s six largest battery manufacturers.
Lithium prices have fallen 67% this year, due to spot lithium carbonate prices. Cobalt costs have fallen 20% this year and more than a fraction since May last year.
However, CATL, the world’s largest maker of batteries for electric vehicles, reported a 10. 7% rise in profit in the third quarter, its weakest quarter in more than a year, attributed to reduced demand and intense competition. In September, the CATL market share in China increased to a point seen in more than a year, highlighting the demanding situations posed by less competition and declining demand.
In the third quarter of 2023, overall BEV sales increased by 32. 2%. This includes an annual expansion of 53. 9% for Europe, 50. 2% for the United States, and 18. 3% for China, as shown in Figure 6.
The information network
Table 6
As shown in Figure 3 above, 63% of SiC production will go into automotive, where it is widely used in electric vehicle drive systems, where it improves power and extends vehicle range. SiC is also prevalent in EV charging systems, making fast charging more effective by reducing heat generation. In addition, SiC plays a role in electric force guidance systems [EPS], where its implementation complements the power and reliability of those systems.
In on-board chargers, SiC diodes are used to increase power and reduce energy losses, contributing to the overall sustainability of electric and hybrid vehicles. The integration of SiC into engine propulsion systems increases performance, minimizes energy losses, and extends the life of the vehicle’s engine.
Regenerative braking systems, which retrieve and store force braking for later use, also use SiC diodes and force devices to improve the overall power of the vehicle. In addition, SiC can be found in various sensors and electronic parts of the vehicle, taking advantage of its benefits. Impressive thermal and electrical properties. The widespread use of silicon carbide in automobiles underscores its critical role in improving the power and sustainability of modern transportation.
Since Coherent began investing in SiC more than two decades ago, revenue from its products has generated a CAGR of 35%.
The near-term outlook for Coherent’s silicon carbide business is strong, and a superior source of SiC substrates and epitaxial wafers is required. Revenue expansion in the SiC segment has been constrained by production capacity constraints lately. The company’s long-term confidence in the SiC business and its overall outlook has been reinforced through strategic transactions resulting from a review procedure introduced in May 2023. These developments point to a trajectory for Coherent’s SiC business and for the company as a whole.
I the business as a purchase. Coherent’s strong position in AI-related Datacom 200G transceivers and silicon carbide are two of the fastest-growing sectors in the market, outweighing exposure to cyclical markets.
This loose article presents my research on this semiconductor apparatus sector. More detailed research can be done on my newsletter site Marketplace Semiconductor Deep Dive. You can learn more here and start a risk-free 2-week trial now.
This article written by
Robert Castellano has 38 years of experience analyzing semiconductor markets.