Hello, everyone, and welcome to the Wolfspeed First Quarter Fiscal 2024 Conference Call. My name is Nadia and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Tyler Gronbach, Vice President, External Affairs to begin. Tyler, please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Wolfspeed's first quarter fiscal 2024 conference call. Today Wolfspeed's CEO, Gregg Lowe; and Wolfspeed's, CFO, Neill Reynolds, will report on the results for the first quarter of fiscal year 2024. Please note that we will be presenting non-GAAP financial results during today's call, which we believe provides useful information to our investors. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered a supplement to and not a substitute for financial statements prepared in accordance with GAAP. A reconciliation to the most directly comparable GAAP measures is in our press release and posted in the Investor Relations section of our website, along with a historical summary of other key metrics. Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mentioned important factors that could cause actual results to differ materially. Lastly, I would also like to note that during the quarter, we announced our intent to sell our RF business to MACOM. The results of our RF business will now be classified as discontinuing operations and all discussions today will be on a continuing operations basis. During the Q&A, we would ask that you limit yourself to one question so that we can accommodate as many questions as possible during today's call. If you have any additional questions, please feel free to contact us after the call. And now, I'd like to turn the call over to Gregg.

Thanks, Tyler, and good afternoon, everyone. It is an exciting time at Wolfspeed. With the pending sale of the RF business, we are now the world's only pure-play vertically integrated silicon carbide company. We are uniquely positioned to drive the industry transition from silicon to silicon carbide from both a materials and a device perspective. As we continue to scale our operations, we have overcome our fair share of challenges along the way and I remain very confident around our long-term trajectory for three reasons. First, we've demonstrated the capability to consistently produce enough high-quality, high-yielding 200-millimeter wafers in Building 10, ahead of the needs of the Mohawk Valley fab. Second, we've assembled a team comprised of internal silicon carbide experts, including one of our co-founders and external advisors from our tool manufacturers to ensure that we will achieve 20% utilization at Mohawk Valley in the June quarter of 2024 and we've seen notable progress this quarter. And finally, customers continue to partner with Wolfspeed, as we secured our third highest quarterly total of device design-ins at $2.2 billion and we converted more than $1 billion of device design-wins this past quarter as well. In addition, we've also posted record revenue for our 150-millimeter substrates in the first quarter, which is an indication that demand remains robust for our high-quality substrates. Our first quarter results demonstrate the initial returns on our capacity expansion investments that will pave the way for the rest of the fiscal year and beyond. Revenue, non-GAAP gross margin and non-GAAP EPS all came in at the high-end of our guidance range. Turning to Mohawk Valley where we continue to ramp production. This quarter, we generated $4 million in revenue from the fab, which compares to $1 million that was delivered in the previous quarter. In the…

Thanks, Gregg, and good afternoon, everyone. During the first quarter, we achieved revenue, gross margin, and EPS results all at the high end of our guidance range. In addition, we expect continued revenue growth and gross margin expansion as we transition into 2Q'24. The outperformance in our financial results was underpinned by $4 million of revenue from Mohawk Valley during the quarter, up from $1 million in the prior quarter, and we expect to grow that to between $10 million to $15 million of revenue, as we transition into 2Q'24. While we expect some variability in the production ramp at Mohawk Valley, we remain on pace for the larger step-up in revenue as we transition into 3Q'24. With that, let me review the financial results in more detail. I'll start by providing an overview of the first quarter. Revenue from continuing operations for the quarter was $197 million compared to our updated guidance range of $185 million to $205 million and growth of 4.2% year-over-year. Power device revenue was impacted by slower industrial and energy demand, primarily in China and the broader Asian market, partially offset by the revenue ramp in Mohawk Valley. Materials 150-millimeter substrate revenue achieved a record quarter, above our expectations driven by continued strong demand and record manufacturing performance by our Durham materials operations team. As Gregg mentioned earlier, our historical design-in portfolio supported the first quarter revenue growth and we secured $2.2 billion of new design-ins for power devices. Our design-in to design-win conversion rate is ahead of our original expectations. And based on the design-ins we've already secured, we have the next few years of expected revenue covered by our existing book of business. Non-GAAP gross margin from continuing operations in the first quarter was 15.6%. Underutilization costs for the quarter were $34.4 million,…

As we close out the first quarter, I want to reiterate that fiscal 2024 is a pivotal year for Wolfspeed. We remain confident in our long-term vision and are seeing promising results. While I gave some color early on, on design-ins, I think it's worth repeating that we had a record design wins for this past quarter as customers ramp their programs. Demand has certainly attracted new entrants and from our viewpoint and checks in the market, there is not a single player who can match our quality and our scale at 150-millimeter. And as I said earlier, no one is close to our position at 200-millimeter. This gap will only widen as we bring the JP online in the first half of fiscal 2025. Secondly, while there have been several new entrants to the materials market Chinese and others, the significant ramp required to create high-quality materials it's still in front of them. It's taken us 35 years to master this technology, which we know first-hand can be incredibly difficult to work with, let alone scale and produce at the highest quality possible. While I've always said, we are taking our competitors at their word regarding their stated capability to produce silicon carbide materials internally, it is highly unlikely that every competitor will be successful. And this will create an opportunity for those with additional materials capacity to secure long-term agreements with device producers or capture an even larger share of the device market. And we are well-positioned to do both. Demand remained strong across the business outside of the industrial and energy markets, particularly in China and Asia. Overall what we have said time and time again about the transition to the use of silicon carbide rings true. The EV transition remains the largest change in the history of the automobile. And with that comes winners and losers and potentially a bumpy path. However, there is no reverting to the internal combustion engine, that is the way the past silicon carbide has shown that EVs can be pushed further with extended range, faster charge times and competitive prices. Despite the current softness in China and Asia, demand remains high for our products and customers' needs are higher than our current output levels and this is why we are keenly focused on ramping Mohawk Valley to 20% utilization. To close, we are excited about this year. Fiscal 2023 was not without its challenges, but those challenges come with being the first pursue next-generation 200-millimeter technology in silicon carbide. However, the opportunity to be the leader of this transformative technology keeps us moving forward as quickly and purposely as possible to execute and generate value for our stakeholders. Thank you, operator. And we're now ready for Q&A.

Thank you. [Operator Instructions] Our first question goes to Samik Chatterjee of JPMorgan. Samik, please go ahead. Your line is open.

Hey. Thanks, guys. This is absolutely Joe Cardoso on for Samik. So for my one question, it sounds like qualifications in the Building 10 ramp are tracking well. So as we think about what is keeping you on the sidelines relative to Mohawk reaching 20% utilization earlier than the June quarter itself. Can you just walk us through what the key drivers are at this point in the ramp? Just curious to hear your thoughts on that front. Thanks for the question, guys.

Yes, thank you for -- thanks for the question. First off, you're right Building 10 is in great shape right now, we'll be producing material in this quarter that will be able to support 15% utilization, and obviously, we have two quarters after that to get to 20% utilization in Mohawk Valley. So that's in really great shape. We qualified a bunch of different MOSFETs already in that fab. All of those MOSFETs have qualified our first half success and we've actually qualified two modules as well that have come through on 200-millimeter, which I think is a really good sign for the quality of our backend operations. The fab itself is the world's first 200-millimeter fab and as such, a lot of the machines that are in the fab are seeing volume ramp up of 200-millimeter silicon carbide for the first time. And so, we're working very closely with our tool vendor to ensure we have better uptime where their machine -- one particular machine is seeing downtime more than we would -- than it should. We have a team that is completely focused on resolving that. As I mentioned, I was in the fab last week. I met with the engineers from our team as well as the engineering from the vendors team. They are also extremely confident that this is a normal process that's going through as you ramp and we will resolve this and we are on track to 20% utilization in the June quarter.

Thank you. And our next question comes from Harsh Kumar of Piper Sandler, Harsh, please go ahead. Your line is open.

Yeah, hey, guys. Had a quick timing question. So Mark Valley did $4 million of revenues in the March quarter. That implies that given the timing, the lead time difference, conversion, packaging et cetera. That means that Mohawk Valley wafer runs in the March/April timeframe were about that $4 million. So my question really is, could you give us a glimpse into what Mohawk Valley wafer runs are looking like on a dollar basis today? That would be the color that I'm looking forward. Thanks.

Hey, Harsh. Thanks for the question. This is Neil. So first of all, let me just, first thinking about utilization of the fab and how that relates to wafer starts. That's really what we're talking about here. So utilization in the fab is really a function more of wafer start. So we've talked about getting to 15% out of Building 10, I think, we are running wafers out of North Carolina silicon carbide 200-millimeter substrate out of North Carolina that could potentially support the fab at 15% utilization even by the end of this year. As you look out to the end of the year, we're still on target to get the 20% utilization. So what that means is we're seeing solid performance from a substrate perspective to meet that goal. After that, what that means is, it's -- again it starts utilization. So what that means is, you have to put the wafers in the fab. You've got to run those through the fab, you got that cycle time, you got to send it to the back end to be either sold at devices or as package parts that may have the packages with the various cycle times on that as well. So once we get to the 20% utilization, there'll be a bit of lag, work through those cycle times, other than you see the revenue that corresponds to that. In this case, once we get to 20% in that June timeframe we anticipate that being from a revenue - translating from a revenue perspective to about $100 million in revenue at the end of December quarter next year.

I would just maybe add one comment to it. As material goes through these tools in the factory, we're seeing great results as they go through the tool. What we're seeing though is that the downtime or the maintenance required is higher than it should be right now. And again, I was in the fab last week. I met with the engineers on both the tool side as well as our side. And there is a very good line of sight for what we need to do to get to tool uptime where it needs to be. And as soon as that happens, our ability to transition from relatively low utilization to towards this 20% should be a very, very good snap as we fix that. As I mentioned, I was in the fab last week. I will be in the fab two more times in November, including on Thanksgiving Day to continue the focus of Mohawk Valley brand to 20% utilization.

Thank you. And our next question go to George Gianarikas of Canaccord Genuity. George, please go ahead, your line is open.

Good afternoon and thank you for taking my question. I just wanted to get your thoughts on some of the turbulence, to say the least, in recent discussions around EV plans at some of the big three European OEMs. What are your thoughts there? And I know you talked about your backlog being so robust that it didn't kind of matter for the next couple of few quarters, but what are you seeing in your own business that may or may not reflect what we're hearing in the marketplace? Thank you.

Well, obviously, we would like our Mohawk Valley fab to remarket faster and so would our customers. And as such, I've been on pretty much weekly calls with CEOs and executives from major OEMs and Tier 1s. And basically, their consistent message back to me was we need more and need it soon. So the demand that we're seeing both near term and long term is very, very solid. I'll remind folks that many of the cars that are being sold today were just not the electric cars that are being sold today were designed five, six, seven years ago and are with silicon-based MOSFETs or IGBTs. And what silicon carbide does is three important things. One is it extends the range of the car. Two, it allows the car to be charged faster from a -- and then three at the vehicle level, using silicon carbide allows the vehicle to be less expensive because there are lots -- you use less battery, with express cooling and different things. In fact, there was a report a few years ago that said for every incremental dollar of silicon -- that to be spend on silicon carbide over silicon, you get $3.5 to $7 back. So basically, silicon carbide is enabling longer range, it's enabling faster charging, and it's enabling lower system costs. And that's kind of trifecta for EVs. So any of the noise that you see today, it certainly has no impact on our demand, both near term and long term. And by the way, there's OEMs and Tier 1s in the US, in China and in Europe.

Thank you. And the next question go to Brian Lee of Goldman Sachs. Brian, please go ahead, your line is open.

Thank you. Hey, guys. Good afternoon. Thanks for taking the question. I guess you mentioned I think Neill during your prepared remarks that you're kind of implying a stronger step up in Mohawk in 3Q, does that imply that the total downtime issue that you guys have been referencing here is sort of done by that point? And then if I just look at the numbers, 2Q midpoint for Mohawk is up like three times sequentially in revenue terms. So is 3Q expected to be up at that level or above? Or are you talking more in absolute dollars when you're talking about this bigger step-up? Thanks, guys.

Well, I think -- thanks, Brian, for the question. So I think as Gregg mentioned, there's obviously a lot of attention now that we're seeing 200-millimeter substrates, supporting the fab, the fab ramp and a very way at this point. So a lot of the attention is on the fab itself. We're working very closely with the fab team with external vendor teams and whatnot to try and solve. But we think are very soluble challenges in the fab right now, to try and get more throughput and through the system, through the up times and cycle times and start getting material on the path. So our anticipation is that we would see an uptick in revenues as we kind of get to the back half of the year. If you take a step back and look at the pieces, maybe just unpack those a bit. Normally, when we think about revenue guidance, we've got about $100 million a quarter out of Durham. $90 million, $95 million -- sorry, $100 million a quarter out of Durham for power devices, $90 million or $95 million of material capacity that we've got. So the step-up in the back half would be from revenue from Mohawk Valley. We have $10 million to $15 million this quarter, you could see us doubling that again next quarter as well as into Q3. So it really will just depend on not how things play out from a uptime perspective and a throughput perspective in the fab, but we feel that we've got good confidence right now based on when the teams are working through the fab and throughput ramp.

Thank you. Our next question go to Joshua Buchalter of Cowen. Joshua, please go ahead, your line is open.

Hey, guys. Thanks for taking my question, and congrats on the progress. I wanted to ask about the timeline of the JP actually. So you mentioned it's on schedule ramping in the fiscal first half of 2025. What should we -- how should we expect the cadence of that ramp to look compared to Building 10? And the reason I ask is, it sounds like there is roughly a two-quarter lag between when you get utilization in Building 10 to when you generate revenue. And is that sort of indicative of what we should expect at the JP when that starts up and any initial indications of how much that can contribute in fiscal 2025? Thank you.

Well, I would say -- let me maybe kick it off and Neill if you might add a little bit of color to it. The JP is a substantially larger facility than Building 10 and as such as we turn it on, it will turn on pretty decent capability kind of right from the start. It's on schedule at this point. And obviously, we want to keep it on schedule. So that's all looking pretty good, but basically, I would anticipate that as we ramp up the JP as I think the amount of capability that will be coming online will actually be quite substantial. And Neill, if you want to talk about the timing.

Yeah. So on the timing, we said kind of back half of calendar next year '24 in terms of crystal growth out of the JP, which I think is in good shape. Right now the timeline on our expansions are all on track from a timeline and budget perspective. So we feel good about right there. However, I'd also add to that, we're looking for ways to expand our current capacity beyond 20%, just above that over that time frame. We've invested in some satellite sites to help with back-end wafering operations that impacts the operations to help with that. In addition, there's going to be opportunity, I think, in time. We've seen really good performance out of our operations manufacturing team. So yield opportunity, operations productivity improvements and throughput capabilities that could bring us on that 20% or so capability out of Durham. So we're working through all those things now, putting in extra capacity where we can, looking for yield optimization and other opportunities from a productivity perspective to bring more capacity online in that period. So we're trying to take it from a number of angels and we'll give an update on that as we make more progress as we get into the next year.

So just to reiterate JP is currently on schedule. We're working with our existing facilities in Durham to increase productivity to give us more than 20% utilization out of the Mohawk Valley fab. And we're also utilizing satellite sites for backend operations to support the JP as well. So we're trying to create a little bit of belt and suspenders on JP.

Thank you. And our next question go to Jed Dorsheimer of William Blair. Jed, please go ahead, your line is open.

Hi. Thanks for taking my question. I guess two part or really two questions. I'll break the rules yet. I guess first is your -- it sounds like things are going better at Mohawk Valley, and your underutilization costs of $37 million were actually better than what you guided for or $34 million better than what you guided in terms of $37 million. So I was wondering if you can maybe just talk about the revenue implications in terms of is it a direct one for one? Or is there a lag effect in terms of is Mohawk scales? And then I have a follow-up too.

Maybe I'll kick it off and then Neill can come talk a little bit about that. It's -- without a doubt we wanted to be ramping Mohawk Valley faster than we currently are and our customers wanted that as well. So we're not satisfied with the situation. We're intensely trying to work and so forth. I think we've made a lot of really good progress, obviously, Building 10 has been very, very successful. We are also prudently confident that we'll be able to get these tools with operating the way that they are supposed to and we'll be able to ramp that fab to 20% utilization in the June quarter.

Yeah. And then just from a numbers perspective, Jed, yes, we did see some benefit on the margins just because of the lower utilization level. Although, I did mentioned, we're going to be -- based on what we're seeing from the substrate performance on 200-millimeter, we're going to move as quickly as we can create -- put more capacity online. Maybe even faster than we thought initially within the fab and then I think material satellite sites I mentioned earlier. So you could see that underutilization number tick up throughout the year as you start to see it come down back in fiscal 2025. And it's just really related to adding more capacity given the outlook we're seeing from a substrate performance perspective, just to give us as many opportunities to supply our customers moving we look out at times, as Gregg said, very heavy demand particularly in the automotive side right now, very intense discussions with customers. So we're looking for all the ways we can to satisfy their demand with bringing in more capacity as we look out in time there.

Great. And then just as my follow-up, if I look at the last quarter you saw a bump up in inventory and raw material saw I think the greatest increase quarter-over-quarter. This quarter you saw a slight increase, I think a $13 million in inventory. I don't know the composition because the Q hasn't been filed. I'm assuming that most of that is work in process, could you just give us some color on that? And where I'm going with this is just trying to back into the build-up of inventory from a wafer perspective. Thanks.

Yeah, thanks, Jed. And let me give kind of a high level on that. And then Neill, can work through the details on this. We began working with our raw material suppliers in May of 2019. Getting ready for what is this big and transformative ramp in silicon carbide. We know that we were going to need to have them investing in their capacity to support this ramp and obviously, I think we've done a really good job of doing that. So some of this is all just thought getting material in place and capacity in place so that we're not bottleneck kind of upstream, if you will.

Yeah, and then from a numbers standpoint, Jed, that's right. I don't think there's any big pickup in finished goods, primarily related to raw materials and WIP. So raw about ensuring we have enough raw material capacity to support the substrate ramp, as Gregg indicated. In addition, we're supplying a lot of wafers out of the Durham, Building 10 from a 200-millimeter substrate capacity and set those up to Mohawk Valley that's the other kind of tick-up in inventory as well. From a finished goods perspective, no, we're not seeing much growth there, we're still continuing to ship to customers really in the automotive side basically.

Thank you. And our next question go to Colin Rusch of Oppenheimer. Colin, please go ahead, your line is open.

Thanks so much. Gregg, you mentioned potential for folks to end up exiting the market. Can you talk a little bit about how discerning the customers are at this point around assessing that risk? And how impactful that is in terms of your design-wins and design-ins? Thank you.

Cash I ask you to repeat that, it was really hard to hear you.

Okay, no problem. You talked about some folks exiting the market are failing in the market. And then, I'm curious about your customers' ability to assess the risk of folks not being able to deliver on some of their commitments? And I'm wondering how impactful that is around your design in and design-win performance?

Yeah, well, I would say that we are clearly the leader in silicon carbide technology, supply substrates to nearly all the device some folks out there and obviously feed those to ourselves. So having that strength really underpins their belief in our ability to ramp this technology. Like I said, I've been -- I'm on weekly calls with executives and CEOs from our Tier 1 partners, our OEM customers et cetera and their consistent messages, they need more than they need it faster. And then they see that we're ramping Mohawk Valley, they like us to ramp Mohawk Valley faster. But the one thing they see is that we have something called Mohawk Valley. We have the world's largest 200-millimeter wafer fab, they've seen that. We've been able to solve the crystal growth challenge for 200-millimeter and get Building 10 operating. That's probably -- that's not probably that is the hardest thing to do and getting a silicon carbide MOSFET is getting the wafer and the substrate right. So I think it's a matter of time for us demonstrating the 20% utilization out of Mohawk Valley. I think we're pretty close on that. As Neill said, the Building 10 is feeding Mohawk Valley, now obviously at a higher rate than we're utilizing out of Mohawk Valley. We've got plenty of inventory staged up there. So as we knock out these last couple of bottlenecks, I think we're going to see a pretty nice pickup in Mohawk Valley. And then finally, I think it's worth mentioning again the fact that we've had first past qualification on these MOSFETs coming out of new wafer fab and new wafer diameter and so forth. Really points to the fundamental capability of this fab. It is not normal that you would have a 100% first pass success rate on all the MOSFETs product type, including a couple of modules. And I think that really – again you tend to see that fundamental capability.

Thank you. Our next question go to Vivek Arya of Bank of America. Vivek, please go ahead, your line is open.

Thanks for taking my question. Gregg, I just wanted to get your perspective on the next one to two years, there is just a lot of concern about more capacity coming online. I understand, maybe it's not exactly the same quality as yours and maybe might not even have the same cost structure. But the fact of the matter is, there is a significant amount of whether it's 150 or 200-millimeter capacity. So how do you look at that? Are you assuming that the market stays under-supplied for the next one or two years? Is it just rightly supplied? What are your assumptions about industry capacity for the next one to two years?

I think from my viewpoint, there is going to be a supply-demand mismatch, there will be more demand than there will be supply certainly over the next couple of years and probably longer than that. I would repeat something that I said in our prepared remarks, this past quarter we recorded a record materials revenue. So there's a lot of noise about different folks coming online, but the demand for our materials is very, very strong. And we're -- obviously constant communication with our materials customers any of them are looking for extension and expansion and things like that and then obviously, we just reported, the largest capacity reservation deposit in the history of semiconductors with our deal with Renesas. The feedback we're getting from folks is that China is doing a lot of investing in silicon carbide. They're doing that from silicon as well. But the feedback, we're also getting is that they're not automotive-ready at 150, let alone 200. So I really don't anticipate a demand being below supply for any time in the future, really the next couple of years for sure and probably the next half a decade.

Thank you. Our next question goes to Christopher Rolland of Susquehanna. Christopher, please go ahead, your line is open.

Thanks for the question. I guess today a competitor talked about a fairly large downtick in [indiscernible] for them. I guess my question for you is and you might have just addressed it Gregg, but is your backlog covering all through 2024 and into 2025? Do you have any problems with customers that are looking for pushouts et cetera? And would those pushouts if you experienced them would they be fungible or transferable to someone else?

Yeah. Let me start with an answer and then I'll kick it over to Neill for a little bit more detail. The only area of softness that we see is industrial and energy basic that primarily has China and Asia. Everything else is pretty strong. In fact, when we wanted to just kind of give some of the numbers.

Yes. So if you look at the revenue outlook as you go into the second half of the year, in fact from an auto perspective as Gregg said very, very heavy demand and I think that's across the US, that's in Europe, that's in Asia. So we're seeing they're ahead of demand there, that's really a function of how fast we ramp along that and ramp capacity. We are seeing some softness in industrial and energy areas, particularly in China and Asia, bring out China represents about 20% of our total revenue, again primarily in industrial and energy space. But in conversations with customers that's really just kind of I mean inventory timing. We're still seeing growth there, still very heavy demand from automotive customers, from China as well. So we're really just working through the revenue, sorry, the inventory timing, if you look out into the industrial side. And the third piece to that is our material side, as Gregg mentioned, we're still seeing very strong demand for 150-millimeter wafers as well. So we're seeing I think demand heading in automotive devices, demand is heading in 150-millimeter substrates. Little bit of softness in industrial and energy perspective, but we're just looking to match up supply and demand there right now. So there are pockets where we can take that supply, match it up to where the demand is, it still remains strong, in industrial and energy, and that's really what we're looking at it right now in terms of the outlook.

Thank you. The next question go to Natalia Winkler of Jefferies. Natalia, please go ahead, your line is open.

Hi, thank you. I wanted to ask about the new design-wins this quarter that you guys have seen. Could you possibly kind of help us figure out where most of them are? Is there a way to think about maybe kind of an increase in industrial activity or automotive? And just broadly any additional color would be really helpful.

Okay. So just from a clarification perspective, we call our design-ins and that's when a customer awards us the business. And then we say design-win and that's when a customer transitions into production. Specifically, they have to get those purchase orders for 20% of the first year as anticipated volume that they declare during the design-in phase. So we had $1 billion worth of design-wins, which means customers were transitioning from -- they awarded us the program to they're beginning to ramp into production. That's an incredible number by the way, it's happening faster than we anticipated. I believe that was 230 different projects. Many of those were automotive projects and the other sprinkle around industrial opportunities, but I would say the majority of those were automotive.

Thank you. The next question go to Matthew Prisco of Evercore. Matthew, please go ahead, your line is open.

Thanks for taking the question, guys. How should we be thinking about the gross margin path from here? Particularly given the commentary on underutilization potentially taking higher, is low to mid 20% still the right range. Exiting the year and kind of what would be the primary risk drivers that figure at this point, either upside or downside. Thanks.

Thanks, Matt. Let me just -- Maybe I should have had the gross margin a little bit as you look here. So obviously in 1Q, we had a good quarter from a gross margin perspective at the high end of the guidance range. This is really driven by strong performance from a materials operations team and just very, very good cost-yield and outperformance both on 150-millimeter and 200-millimeter substrates. So that was solid. And if you go back to 4Q'24 we reported gross margin of approximately 29% and when we divested RF, we picked up about 200 basis points of improvement. Excluding the RF business. So the baseline back in 4Q was about 31% and we just saw about 200 basis points of improvement in gross margin quarter-over-quarter when you exclude that underutilization. So I'd say overall good quarter from a gross margin perspective. And with that a little bit of a lower impact from underutilization. Although as I said earlier, you might see that tick-up a bit more towards the end here as we bring on more capacity. So with that, if you look out beyond that, we will see an uptick in gross margin as you kind of get into 2Q, we'll see continued solid performance offset a little bit by some of the auto mix that we'll see come into this business to continue to support that demand. We've talked about underutilization being $35 million at the midpoint, might tick up again as we get out to the end of the year. But as we get out towards the end of the year, 20% or so gross margin target for the end year still makes sense. I think even with that in there, which really going to see apart from how much volume we can drive through Mohawk Valley. We said many times although it need to beat the Mohawk Valley and I think from a market perspective, that's the case as well. So I still think that's a good target to think about as we move into the back half of the year.

Thank you. The next question go to Edward Snyder of Charter Equity Research. Edward, please go ahead, your line is open.

Thanks a lot. Maybe first a housekeeping just to check, Neill. The quarter, if you back out -- obviously, you've gotten pro forma out the RF business and giving you unutilization charges. I'm getting around 30% gross margin if you get all that out of it. And then it looks like the RF business last quarter, give you -- I'm sorry, last year because your pro forma that was running around 24% gross margin. Just want to check on that. And then I had a question about the materials.

Yeah. And so in [4Q'24] (ph), we recorded 29% gross margin. The RF business was about a 200 basis point drag. So you can think about the ex-RF number remaining about 31%. So it's about 200 basis points pickup there. If you exclude the underutilization, we saw about 200 basis points pickup for 4Q like a 1Q. So we reported 15.6% with that 17.4% of underutilization in the quarter. As you move into Q3 and beyond, we'll see a little bit of an uptick in the underutilization that's related to some of that capacity that will come.

Great. And then in kind of the detailed survey we did of all the new competitors in China and talking to folks on the ground there. It seemed -- and the feedback we got from the conference in Italy. The feedback seems to be pretty consistent that on a dye basis, Wolfspeed is still the preferred vendor even some of your competitors thought that too. And module, you -- there's work that needs to be done because you're kind of early in the modules to begin with. But the vast majority of everything you're going to be shipping by the way Mohawk Valley is going to be dye anywhere, right? So as that ramps up, some of these deals, Gregg, this one is for you, some of these deals where some of your vendors are cutting deals to get any kind of dye they can get now because the demand is far exceeds supply, could revert back to higher demand once they see that Mohawk is up and has the capacity to supply. Isn't that a fair assessment?

I think the ramp of Mohawk Valley will largely be a dye story for the near term. We've won some good module business as well. But many of our customers are basically building their own inverters and their own modules. So that certainly is going to be a ramp mostly on the dye side of things, I would say, for the near term.

Great. Thanks.

Thank you, Ed.

Thank you. That's all the questions that we have time for today. I'll now hand back the call -- hand the call back over to Gregg Lowe, CEO for any closing comments.

Just few thoughts before we end the call. One, demand remains very strong for silicon carbide. And two, I am personally laser-focused on the Mohawk Valley ramp to 20% utilization in the June quarter. Thanks a lot for joining us today and look forward to updating you in our next quarter's results.

Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.