2023-04-14 08:30:00 ET
Summary
- Revenue for 2022 increased 60% to $38 million, 2X growth is expected in 2023.
- Achieved significant diversification by market segment and region.
- 75 million GaN devices, 9 million SiC devices shipped to date.
- Expect to reach GaN system price parity with legacy silicon in 2023.
Introduction
Navitas Semiconductor Corporation ( NVTS ) designs, develops, manufactures, and markets power semiconductors including gallium nitride (GaN) and silicon carbide (SiC) integrated circuits and associated devices.
I last wrote about NVTS in August 2022 ( The Race for Market Share ). This article provides an update and covers the subsequent two quarters.
The information here comes from the 2022 Annual Report 10K, released on 03 April 2023, and the 09 Nov 2022 Q3 Earnings Call , and the 23 Feb 2023 Q4 Earnings Call , unless otherwise noted. See their March 2023 investor presentation here for additional background.
Investment Thesis
Compared to legacy silicon technology, power supplies built with NVTS GaN and SiC devices offer improved performance and reduced size, weight, energy loss, parts count, and complexity. The end user markets include mobile devices, home appliances, industrial motors, data centers, solar power systems, energy storage, and EVs.
These technical advantages, the achievement of broad GaN system cost parity vs. legacy silicon in 2023, and a macro environment demanding increased energy efficiency and performance (e.g. faster charge times for mobile devices and EVs), should drive growth for NVTS for years.
NVTS has demonstrated the ability to deliver real products. As of March 2023, over 75 million NVTS GaN devices, and 9 million GeneSiC devices, have shipped.
The potential market for their devices is estimated to be ~ $22 billion. NVTS will not capture all of this market, but for a company with 2022 revenue of $38 million, that leaves a lot of room for growth. Indeed, NVTS expects to double revenue in 2023.
As noted in the last article, NVTS is in the right place, at the right time, with the right technology to capitalize on the generational shift from silicon to GaN and SiC in power electronics and earn well above market returns.
It's a Big Potential Market
The current estimated potential market for GaN and SiC power semiconductors is ~ $22 billion per year; 30% GaN, 40% SiC, and 30% overlapping GaN/SiC. The transition from legacy silicon to GaN and SiC is still in its early days; about 30% market penetration by GaN and SiC is projected by 2028.
This provides a very long runway for growth.
Mobile chargers were the foundational market segment for NVTS. They estimate ~ 2.5 billion chargers for mobile devices (i.e. with a battery) are shipped annually. As of March 2023, about 250 chargers with NVTS GaN components have entered mass production, with 250 more in development. All of the top 10 mobile OEMs have chargers with NVTS components in production or design. NVTS revenue is typically ~ $1 for each charger.
As a crude estimate of scale, NVTS might have earned $20 million in 2022 from the charger segment, suggesting a 20 million / 2.5 billion unit share, or < 1%. Achieving cost parity with legacy silicon, expected in 2023, could open up significant additional opportunities here.
In the mobile segment, Q4 2022 smartphone sales were down 18.3% year one year, leaving 2022 annual sales down 11.3%, the lowest annual sales in almost a decade. NVTS saw this decline in demand in Q3 and Q4, but reports a pickup in orders going into 2023.
Similarly, ~ 600 million consumer devices (TVs, desktop computers, etc.) are shipped annually, with ~$3 of revenue for each device using NVTS components.
Power consumption (running and then cooling equipment) accounts for ~ 40% of data center costs. GaN technology offer significant efficiency improvements - less electricity used, less heat to remove. The Titanium Plus efficiency standard for power supplies, in effect in the EU from January 2023, will encourage adoption of GaN solutions. NVTS estimates this to be ~ $1 billion market.
The acquisition of GeneSiC in August 2022 provided immediate access to the markets segments (solar, EVs) demanding higher power levels, and better served (at least today) with SiC. This greatly expanded the potential market available to NVTS, and accelerated segment and geographic diversification.
Germany's KATEK Group provides an example of GeneSic based success in the residential solar market. KATEK's Steca brand coolcept fleX model residential solar inverter converts DC power from a string of solar panels into AC power. Each 4.6kW Steca inverter uses 16x GeneSiC G3R75MT12J SiC MOSFETs.
In EVs, GeneSic is winning designs in onboard and roadside chargers, with traction opportunities - the highest dollar per vehicle wins - later on.
Growing Revenue
Revenues for 2022 were $37.9 million, an increase of 60% compared to 2021. Revenues for 2023 are expected to be 2X 2022 results, i.e. ~ $75 million.
The slide below provides a convenient visual summary of quarterly and annual revenue growth, as well as market segment and region mix.
GeneSiC was acquired for $246 million in stock and cash in August 2022, and appears to be meeting or exceeding expectations. From the Q3 Earnings Call:
I mean, at this point, we are selling every chip we can build. So, we're working with our suppliers to ramp up as fast as we can.
The chart below provides an indication of NVTS revenue growth in 2022 compared to two power semiconductor competitors.
Y Charts
Progress in Q3 2022
NVTS has continued to report progress in sales and design wins, and there was a lot of progress to report in Q3.
Highlights from the Q3 earnings call:
- GAAP Q3 revenue was $10.2 million, up 19% sequentially from $8.6 million in Q2, and 82% from Q3 2021.
- GAAP gross margin 3.8%, non-GAAP gross margin at 38.4%.
- Non-GAAP loss from operations was $10.3 million compared to a loss from operations of $6.5 million in the third quarter of 2021.
- $125 million cash and equivalents. Essentially no debt.
- 139 million shares outstanding.
- Guidance: potential to double 2022 revenue in 2023
- Mobile market in China expected to continue soft in Q4 and Q1 2023.
- Reached 65 million GaN ICs shipped with zero reported GaN field failures.
- Added over 50 new silicon carbide opportunities (22 in EVs) since GeneSiC acquisition.
- Improved revenue diversification, new business in Europe, the U.S., Taiwan and Korea.
- Next generation Gen4 GaN winning designs in mobile market.
- In home appliances, 15 new customer motor drive projects in development
- Nine customer projects in design for data center applications, including a $5 million purchase order for delivery in Q3-Q4 2023
- In design with two leading residential solar players that will transition from silicon to GaN starting in 2024. SiC is shipping to multiple solar players today.
- In EVs, four onboard charger platforms in development supporting eight different customer projects; expect significant revenue ramps by 2025.
- Announced joint system design center in Ningbo, PRC with leading EV systems provider VREMT. VREMT is part of the Geely group (brands include Zeekr, Volvo, Polestar and Lotus).
- 22 new EV SiC customer projects.
- Demand for SiC devices exceeds current supply; "we certainly expect that business to continue hit at 60% growth rate". Signed a long-term supplier agreement for silicon carbide wafers, which enables a 5x increase in silicon carbide capacity in 2023.
With regard to the SiC business, Gene Sheridan, CEO noted:
At this point, we are selling every chip we can build. So, we're working with our suppliers to ramp up as fast as we can.
And confirming GaN system cost parity with silicon in 2023:
We see that system cost parity being achieved across a number of products in a number of markets and customers.
Progress in Q4 2022
There was further progress to report in Q4, and in summary for 2022.
- Reiterated expectation to double 2022 revenue in 2023
- Diversified 2022 revenue by segment: ~ 30% in appliance and industrial, 12% in solar and storage, 5% in EV, and 40% in mobile and consumer.
- Diversified 2022 revenue by region: ~ 44% Asia, 32% Europe, 24% North America.
- Q4 revenue was $12.3 million, up 21% sequentially from Q3 and 68% from the fourth quarter of 2021.
- Full year 2022 revenue was $37.9 million, up 60% from 2021.
- Non-GAAP Q4 gross margin 40.6%. Full year 2022 gross margin was 40.8%.
- Non-GAAP loss from operations $11.9 million in Q4.
- $110 million in cash, no debt.
- 152 million shares outstanding.
- Guidance: expect Q1 revenue to be ~ flat with Q4, 2023 revenue to be 2x 2022.
- NVTS SiC roadside charger technology has been adopted by over a dozen roadside charger customers and is being integrated in over 50% of the U.S. roadside chargers.
- Expect to ship a million units to one of these customers by Q2 2023
- Roadside charger market is expected to grow at 30% annually, reaching $1 billion by 2030
- Onboard SiC charger development underway with customers including General Motors, BYD, and Mercedes.
- Five onboard charger platforms with 10 customer projects, using SiC or GaN, with first GaN revenue in 2025.
- ASP for SiC devices in roadside and onboard chargers are $2-20, and chargers may have multiple devices, depending on power.
- For commercial solar, over 20 customers in development or production with commercial string inverters, emphasizing higher voltage SiC.
- For residential solar, GaN revenue is on track for 2024 with multiple customers.
- Over 45 customer projects in development or production in home appliance and industrial.
- In the data center segment, four platforms support 10 customer projects, with revenue expected by early 2024; the EU's Titanium Plus efficiency standard went into effect 01 Jan 2023
- Mobile and consumer, new records in fast and ultrafast charging capabilities, segment revenue will grow in 2023 but is expected to be a smaller share of total revenue in 2023, due to growth in other segments. Customers have 250 GaN chargers in production and another 250 in development. Noted that GaN system cost parity will provide a tailwind for GaN adoption in lower power chargers.
- Increased SiC capacity will provide wafer starts in Q1, and revenue in Q2. Currently "shipping all we can build". Estimated could have shipped an additional 1-2 million units per quarter if capacity had been available.
- GaN capacity is adequate.
2023 Developments
In February 2023, NVTS completed the buyout of a joint venture with Halo Microelectronics. The resulting application-specific silicon controllers allow optimized design, efficiency, and integration with GaN and SiC power components. NVTS paid $20 million in stock. See report here. Formally launched at APEC 2023 in March, more than a million units with this technology have already been shipped.
On 20 March 2023, NVTS announced passing the milestone of shipping 75 million GaN power ICs. GeneSiC had shipped 9 million SiC devices.
Manufacturing capacity expansions are underway; 3x in GaN and 5x in SiC. This expansion reflects SiC demand in excess of supply in 2022, and allows for adequate manufacturing capacity in 2023 and later years.
Financial Status
NVTS had a net operating loss and negative cash flow in 2022, and expect this to continue in 2023. As of year end 2022, NVTS had no debt and $110 million in cash and equivalents.
From the Q3 call, Ron Shelton, CFO commented:
I think from a cash standpoint and a liquidity standpoint, we have no need to raise additional capital to fund the business. We have plenty of capital on hand to grow the business. So, we feel really good about our position with cash and certainly not having to approach the markets in this environment.
Risks
The 2022 10-K lists about two dozen risk factors, most of these are standard boilerplate. I previously highlighted three issues as major risks - competition from a major firm, geopolitical issues, and limited visibility for non-public competitors.
Perhaps the potentially most consequential and most difficult to mitigate is the geopolitical risk associated with China. However, NVTS had made very significant progress here.
The Q3 earnings call noted improved geographic diversification of revenue:
Revenues continue to diversify geographically as we ramp new business in Europe, the U.S., Taiwan and Korea, which are expected to create a balanced regional mix of revenues this year and into next.
Indeed, the geographic concentration of sales was significantly diversified, shifting from 74, 0, 18, 8, 0 percent revenue distribution for China, Europe, US, Asia exChina, all other regions in 2021, to 38, 32, 24, 5, 1 percent in 2022.
It's worth noting that GeneSiC SiC products are manufactured by X-Fab in Lubbock TX. In addition to risks reduction, this offers an additional advantage in meeting potential US content requirements.
Investor Takeaway
NVTS made significant progress in 2022. The fundamental driver - the technical advantages of GaN and SiC - is intact. My subjective impression is that management is capable, energetic, and effective in commercializing this advantage.
The acquisition of GeneSiC in August 2022 appears successful, and has significantly expanded the potential market, accelerated growth, and improved diversification by market segment and region.
Revenue increased by 60% in 2022, and 2023 revenue is expected to be 2x 2022.
Financially, NVTS has no debt, $110 million in cash, and a reasonable expectation that funding will be adequate to reach positive cash flow by ~ the end of 2024.
Personally, I tripled my position in December 2022 when a long standing limit order executed at $3.50. I view a 5+ year investment time horizon as appropriate.
I would rate NVTS as a Buy at the current price, but a patient and/or cautious investor might well consider a limit order at a lower price. The two charts below show the absolute and relative (vs. two competitors) price variation over the past year; the price signal is quite noisy.
For further details see:
Navitas Semiconductor: Impressive Progress