X-FAB: The Only Company With Positive Silicon Carbide (SiC) Growth In Q1 2024

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X-FAB is a leading European semiconductor foundry specializing in high-voltage chips for automotive, industrial, and medical markets.SiC revenues increased by 100% year-on-year in Q1 2024, reaching ...

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MACRO PHOTOX-FAB (OTCPK:XFABF) is a leading semiconductor foundry based in Europe, specializing in the production of high-voltage chips tailored to meet the unique requirements of its clients. With over 30 years of experience providing proprietary manufacturing processes and advanced design, the company has strategically moved away towards serving the automotive, industrial, and medical markets. The company operates six wafer manufacturing sites, including Germany (Erfurt, Dresden, and Itzehoe), France (Corbeil-Essonnes), Malaysia (Kuching), and the U.S. (Lubbock, TX), with aggregate production capacity of approximately 100,000 200 mm equivalent wafer starts per month. X-FAB's Lubbock, Texas facility is one of its oldest foundries, originally acquired from Texas Instruments in 1999. X-FAB is increasing production capacity for SiC devices at the Lubbock plant. Through a partnership with Soitec, the use of the SmartSiC substrate enables X-FAB’s customers to design smaller devices, resulting in efficiency improvements through an increased number of dies per wafer. Currently, X-FAB is transitioning the Lubbock facility to handle 200mm wafer production, further enhancing its capacity and capabilities in the SiC domain. Accoording to X-FAB CEO Rudi De Winter, and quoted in eeNews: “Today we run 3,000 SiC wafers a month and we are ramping up every month to double the output by end of next year and double again by the end of 2024 – that’s the kind of expansion we are planning.\" That equates to over 6,000 wafers for 2023 and 12,000 a month in 2024. SiC Revenues As shown in Table 1, for the first quarter ended March 31, 2024, the company reported sales were $216.15 million compared to $208.11 million a year ago. Net income was $23.06 million compared to $42.72 million a year ago. Basic earnings per share from continuing operations was $0.18 compared to $0.33 a year ago. Importantly, as it is the focus of this article, in Q1 2024, SiC revenues reached $26.3 million, marking a notable 100% year-on-year increase. In Q3 2021, SiC represented 5.9% of total company revenues. In Q1 2024, SiC revenues increased to 12.0% of total revenues. X-FABAlso shown above in Table 1 are quarterly revenue for CMOS and Microsystems. In the first quarter, X-FAB's 200mm CMOS lines and MEMS/microsystems fabs operated at full capacity, necessitating allocation of additional capacity. Conversely, the 150mm CMOS technology sites in Erfurt, Germany, and Lubbock, Texas, saw reduced utilization rates due to decreased demand. These fabs are currently focused on the transition to their respective new areas of business: Erfurt is transitioning to MEMS/microsystems, while Lubbock is moving towards SiC production. SiC Growth Compared with Competitors X- FAB’s SiC revenues were just $26.3 million in Q1 2023, which represents just a 3.3% share of the global SiC device market. That share will increase for reasons I discuss below. But on a QoQ SiC revenue change, X- FAB has shown comparable performance against market leaders onsemi (ON), Rohm (OTCPK:ROHCF), STMicroelectronics (STM), Wolfspeed (WOLF), and Infineon (OTCQX:IFNNY), according to The Information Network’s report entitled Power Semiconductors: Markets, Materials and Technologies. Shown in Chart 1 is quarterly revenue growth between Q4 2021 and Q1 2024. X-Fab (red line) gained market share in each of the past four quarters. The Information NetworkChart 1 The Information NetworkChart 2 Chart 3 shows the drop in quarterly SiC revenues, which impacted all competitors except X-FAB. The Information NetworkChart 3 CEO Rudi De Winter reported in the company’s earnings press release: “Our silicon carbide business was impacted by the general weakness in the SiC market, reflected by a decline in SiC order intake. Supported by our SiC customers' confidence in their future business development, we see this is as a temporary dip. With more capacity coming online and the recovery of the SiC business, we expect strong growth in the second half of the year versus the first half.” This comment is in agreement with my January 10, 2024 Seeking Alpha article entitled “Tracking A 2024 Slowdown In Silicon Carbide For EVs With Eyes On ON Semiconductor And Wolfspeed.” Investor Takeaway According to X-FAB’s earnings call press release: “The lower revenue guidance for the second quarter reflects the anticipated decline in demand for X-FAB's 150mm CMOS technologies, primarily from industrial customers, as well as a decline in SiC revenues following the reduction of SiC bookings in the first quarter.” The company noted that customer actions to reduce high inventory levels resulted in low quarterly SiC bookings with a book-to-bill of 0.38 in the first quarter. What that means is that for every dollar billed to customers in Q1, only $0.38 dollars were booked for future revenue. One of the metrics for the thesis in my January 10 Seeking Alpha article cited above, is the drop in BEV (battery electric vehicle) sales growth over the past three years. Chart 2 shows that YoY sales dropped from 113% in 2021 to 59% in 2022 to 30%. BEVs represent about 35% of SiC demand according to The Information Network’s above-mentioned report. Around 50% of X-FABs manufacturing volumes go into car electronics, representing an 11% market share for analog automotive ICs. The remainder includes applications such as Telecom, Consumer, Industrial Control, EV charging, and Computing. Thus, BEV demand is a strong indicator of SiC demand. EV VolumesWhile the growth rate is dropping, EV production continues to increase, as shown in Chart 4. According to The Information Network’s report Global and China EV Batteries and Materials: Technology, Trends and Market Forecasts, EV shipments will nearly double from 10 million to 18.6 million in 2025. The Information NetworkChart 4 In the past quarter, X-FAB provided lower revenue guidance for the second quarter, which reflects the anticipated decline in demand for X-FAB's 150mm CMOS technologies, primarily from industrial customers, as well as a decline in SiC revenues following the reduction of SiC bookings in the first quarter. X-FAB is confined to some older, 150mm fabs, because all were initially acquired through a combination of purchases and mergers over time:  Erfurt, Germany: One of X-FAB's original locations, and is also primarily dedicated to 150mm CMOS technologies and is transitioning towards MEMS/microsystems production. Dresden, Germany: The Dresden facility, acquired in 2007 from ZMDI, also transitioned to 200mm technology as part of X-FAB's continuous modernization efforts following the acquisition. Corbeil-Essonnes, France: After its acquisition in 1999 from Philips Semiconductor, the facility was gradually upgraded to 200mm production capabilities in the early 2000s and is currently being expanded. Kuching, Malaysia: Acquired from 1st Silicon in 2006, this fab was already set up for 200mm wafer production at the time of acquisition and is currently being expanded. Lubbock, Texas, USA: Acquired from Texas Instruments in 1999 is focused on 150mm CMOS technologies and is in the process expanding its capacity for 200mm CMOS technology and silicon carbide (SiC) semiconductors.  X-FAB is taking steps to upgrade facilities, which will enhance customer demand. Otherwise according to the earnings call press release referenced above: “The first quarter was characterized by continued strong demand for X-FAB's 200mm CMOS technologies, in particular the 180nm process, and microsystems technologies, resulting in record quarterly bookings of USD 271.5 million, up 20% year-on-year. This is also reflected in the backlog, which amounted to USD 520.9 million, up from USD 475.8 million at the end of the previous quarter.” I view Q1 2024 results and Q2 guidance as temporary setbacks, and rate X-FAB a Buy.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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