Cyient Limited analyst Q&A

Thank you. We will now begin the question -and-answer session. Anyone who wishes to ask a question, may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Stavan Thakkar with Kriis PMS. Please go ahead.

Hi. Thank you for the opportunity. Are we expecting anything on the Navitas side for NVIDIA, this year or the year after?

I think obviously, Navitas will be in a better position to comment for the NVIDIA side of the equation. But they're on the reference design for the NVIDIA board from a Navitas standpoint. We are working closely with Navitas to get GaN enabled in India, and the 7 products that we launched in India are primarily on the 650 volts of GaN.

Okay. And have you guys developed any GaN technologies for the 800-volt BUS architecture?

Yes. We are actively working not just on the GaN side of the equation for the 800 -volt architecture. We are working on the 800-volt to 50-volt power architecture, and GaN will be one of the components of that architecture.

Okay. Can you give us specifics , any sort of pipeline sort of orders that could be coming in, in the next year or so?

So, it is pretty early in the 800 -volt architecture. As I said, we're part of the open compute platform right now, the OCP, open compute project, where we are actually working on defining that architecture.

All right. Thank you.

The next question comes from the line of Chinmaya Bhargava with Badrinath Holdings.

I have a question on the Navitas partnership in India that you spoke about. Can you tell us if you have a distribution partner or how you aim to get these parts into either domestic data center build out or in other high-power application?

Yes. So, we just recently hired someone to head our sales in India as of last week. He hails both from Arrow as well as from Texas Instruments. The gentleman is actually evaluating distribution companies right now to work through the India ecosystem. So, we will have that solved in the next month or so from a distribution standpoint.

Yes. So, our ASIC and ASSP pipeline is usually targeting industrial and medical applications, that's where bulk of our pipeline is based out of.

Okay. Thank you.

The next question comes from the line of Pratik Kulkarni with Koch Wealth Management. Please go ahead.

So, in the beginning brief note, you said that there are 3 segments in the semiconductor company, design service, custom ASIC turnkey solutions and power applications semiconductor product. Could you just give me an expected mix from revenue contribution from each of the segments? And what margins you think ? What would be the strongest in segment among the three? And like, first, you would target the turnkey solutions and then move towards the design service and more towards power applications. So how is that dynamic?

So today, Power ASSP s including Kinetic is roughly 50% to 60% of our business. The rest of the business is split between services and ASIC turnkey. As we progress and we develop our own products which we are working on, we do believe that ASSP revenue share will increase in the next 3-4 years, because there is an R&D development cycle of almost 2 years to 3 years for the product to commercialize. From a gross margin standpoint, ASSP given it is product and IP driven will have the highest gross margin typically in the 50% to 60% range, depending on which customer segment you sell, followed by custom ASIC turnkey followed by services. Now in the near term, we do believe that custom ASIC turnkey will grow faster compared to the other segments. But in the longer term, ASSP will continue to remain a significant portion of our business.

Okay, Ramya. Second question would be in the custom ASIC turnkey solutions. Mostly will be which foundries would be using for providing manufacturing services for our customers?

So primarily today, our custom ASICs are using the TSMC foundry. We use the 180-nanometer Gen2 primarily for our custom ASICs, and some of them also have a dual chip on them. So, for the microcontroller, we might be in a 40 or 55 -nanometer also from TSMC, but we will be transitioning some of those opportunities with the Global Foundries as well moving forward.

Okay, sir. Thanks so much.

The next question comes from the line of Jimit with Emkay Global.

I just have a few questions. One is with respect to the Kinetic acquisition that we did. So, is it a complete fabless sort of solution that we have or do we have any sort of in-house manufacturing there? Second, in terms of the Semicon financing that we did so previously, we did Kinetic acquisition that was out of the consol balance sheet cash. So are we looking to fund any more Semicon initiatives with the DET as a balance sheet? Or are we just looking at external pathways as an option going forward?

Today, Kinetic is a fully operational fabless semiconductor platform and with product execution and customer programs and capable ASSP infrastructure, as we talked about, it's about 250 products and 100 IP from a patent portfolio standpoint.

On the funding, Cyient remains committed, like I said, to the $100 million. We've already put in about $30 million. So, rest of the money is available. Depending on what opportunities are available, and what is the best use of capital, etc . we will definitely put in more funding if it comes to that. But we think that at this point, it is best that Cyient Semiconductor has its own capital structure, because if I may just draw a parallel to Cyient DLM the way semiconductor business works is more like a DLM kind of a structure where you do have a higher capital investment, you have design, which takes upfront capital or upfront money, etc. So, we think it's better that Cyient Semiconductor has its own independent capital structure with the kind of investors that want to participate in that capital structure, and we thought this was a good starting point. Therefore, we will take any decisions in that construct or keeping that in mind. But if required or not just as required, if it makes sense for Cyient, especially if there is something around design that Cyient would want to co -invest with Cyient Semiconductor. In that case, absolutely, we would be willing, able to support with the res t of that $70 or so million that's available.

Okay thank you for the answers. Just if I can squeeze in one follow -up question. So as far as I understand, the initial GaN portfolio that we have essentially targets around 650 -volt applications from that includes the AI DC power supplies that we have and even USB, Laptop Chargers, adapters and those kinds of other solutions. So, I checked that the Navitas is actually exiting the low -margin business, which is the consumer mobile end. So, what are we kind of looking at in terms of our portfolio buildup as we move ahead in the build-outs phase. If you can just share some broad thoughts on this?

Yes. Actually, it's a good question. If you look at some of the adapters that we have, a lot of the adapters are starting to migrate to GaN, especially on the laptop side as well of the segment. So that does use a lot of the 650-volt. So, I think over time, what we will see the migration to with the higher voltage and 800-volt class architectures as well as the higher density power supplies the infrastructure, power delivery, industrial and intelligent power solutions. So, it will be a higher-margin, differentiated power semiconductor solutions as we kind of partner or close deal with Navitas.

Okay, thank you for your answer on this. If I want to summarize, you are trying to focus more on the AI Power DC side but right now, the portfolio allocation also includes the adapters and chargers sort of variant. Is that right understanding?

The 650-volt GaN is actually applicable across multiple applications. So yes, today, I think if you look at it, our primary market for GaN has been the charges, but they are migrating to a lot of the other power supplies as well especially on the industrial power supply side.

Perfect, sir. And just one last question in terms of your growth prospects that we are looking at for semicon. So, we initially mentioned in the last earnings call that we are looking to break even by FY27 and FY28. So is that intact or given more of our i nvestments going forward, we are shifting our goalpost to that you mentioned earlier, just from light on that, please. Thank you.

Yes. They're still looking at a breakeven, but as we're speaking to the investors and as we see market opportunities, given the growth expectations and the momentum that we're building, we're looking to see what is the right way to generate or extract value. So, for now, we are still looking at a breakeven late FY27, early FY28. But based on the investor conversations, we'll come back.

And I'll just say that from a Board perspective and a Cyient investment perspective also. I think what we are seeing is the opportunity is very, very significant. Of course, we'll have to make the trade-off in the right sort of balance between growth and p rofitability. But at this point, I we won't let go of an opportunity or we won't not invest in an opportunity because I think the opportunity set that is available to us is very, very significant. So, I just want to say, I mean, our intent, of course, remains that we br eak even quickly. But I would just say maybe a quarter or two shift, we wouldn't worry too much or I wouldn't worry too much as an investor because just the opportunity set is also here and now, and we don't want to lose out because we don't have any investment dollars. And creating that investment dollars is also obviously one of the key reasons why we've gone down the fund-raising path.

Thank you, Mr. Jimit please rejoin the queue for more questions. The next question comes from the line of Moez Chandani with Ambit.

First, I just want to understand the destructuring for the fund raise and the debt that you've announced. Can I get a sense of how much is the debt raised at, what interest rate has been raised at?

So, the deal is a combination of debt and equity, debt at 200 crores, equity at 100 crores. It's a competitive rate. We can't disclose the rate because we're still not close to deal.

All right. Understood. And then just on the related terms, we completed the Kinetic acquisition on April 8. So, can I just get a sense of how the deal is structured? Is there any equity, is there any cash payout that you're doing? How are you raising funds for the cash? Is it equity from Cyient Semiconductors' balance sheet? Is it further debt that you expect to make for the payment? Or are you expecting infusions from the parent company into Cyient Semiconductor?

Sorry, you're asking how did we fund Kinetic?

Yes.

We funded Kinetic through debt raised at Singapore entity because we got pretty good rates and we felt like that's a good use of our capital.

Understood. So, the acquisition was funded entirely by debt raised by the Singapore entity, is my understanding correct?

That's right.

I mean in the lighter vein and say we'll get to EBIT profitability first, and PAT profitability because our focus right now is business growth, building the right product segment and aiding the growth. That's where a lot of our focus is right now at.

Thank you. Mr. Chandani please rejoin the queue for more questions. The next question comes from the line of Sandeep Shah with Equirus Securities. Please go ahead.

Yes, thanks for the opportunity I do agree where size is small, opportunity is big. But the issue in the ASIC and custom design, sometimes the end product also has a lot of innovation in terms of new chips coming in the market at a gap of 6 to 9 months which we are seeing from NVIDIA because what they launched 6 months before may not be relevant 6 months after. So how will we make sure on a longer -term basis the scale will keep happening without leaking buckets in terms of revenue growth?

I'll take that question. So having been in the semiconductor industry for the last 30 years, I think that's true of any chip development. There's always progress being made every day. What I can tell you is based on my experience, you have to be tightly coupled with the customers that you're working with. And today, on the ASSP business, the customer relationships are very strong. So, if you're defining an ASSP, which is an application-specific standard product, then the customers help you with their definition and they, by default, are the teaching customers. So, they have a good view of what's going to happen in the 9 to 11 months out from when the chip comes out. So, we believe we are in tight partnerships with our customers, both on the high voltage and on the low voltage Kinetic side. So, we have a good understanding of what the market needs are. And that's also the reason why Krishna highlighted the need for R&D. If you look at an average semiconductor company, they continue to buy, burn R&D for new product development.

Yes, thanks. And just a question in terms of Kinetic energy debt. That will also flow through the Semiconductor balance sheet, not the parent. So, the earlier debt which we have taken is closer to $90-$95 million to fund the candidate. And over and above that, there will be additional $20 million through the transaction we just announced?

That's right, 80 plus 20, 100 in total on semiconductor balance sheet.

Okay. And this totally would be foreign currency debt?

No, the 80 will be foreign, the 20 is India.

Thank you, ladies and gentlemen, due to time constraints, we have reached the end of question- and-answer session. I now hand the conference over to Krishna Bodanapu for closing comments.

Thank you very much, and thanks, everyone, for joining, especially in the middle of a trading day. As I said, this is a very exciting opportunity for us and one that we're very keen to capitalize on. We are in a very interesting convergence of opportunitie s, both the India story, the use of semiconductors in various industries. Of course, the geopolitics with diversification from certain geographies. But I'll say, most importantly, Cyient's capabilities. I think over the last couple of years, we've built some fantastic capabilities, both in digital and more importantly, in mixed - signal digital and analog and I think it's time to leverage on those capabilities. I think we've built a fantastic team. Obviously, two members of the team are here, but more importantly or equally importantly , t here's a whole technology team that supports the new product design and who are focused on creating these new ASSPs and intellectual properties that can support growth. So, we are very excited about where things stand. And I think the opportunity will play out in a very meaningful manner, very quickly, and I don't think this is something that we'll have to wait for a very long time. It will play out very quickly. So, thank you very much for being here and listening to our story, and thank you very much for the support.

Thank you. On behalf of Cyient Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy.