Cree, Inc. (CREE) Q4 2021 Earnings Call Transcript

Cree, Inc. (NASDAQ: CREE) Q4 2021 earnings call dated Aug. 17, 2021

Corporate Participants:

Tyler Gronbach — Vice President, Investor Relations

Gregg Lowe — President and Chief Executive Officer

Neill Reynolds — Chief Financial Officer

Analysts:

Jed Dorsheimer — Canaccord Genuity Inc. — Analyst

Edward Snyder — Charter Equity Research — Analyst

Joseph Moore — Morgan Stanley — Analyst

Pierre Ferragu — New Street Research — Analyst

Craig Irwin — ROTH Capital Partners — Analyst

Brian Lee — Goldman Sachs — Analyst

Samik Chatterjee — JPMorgan — Analyst

Karl Ackerman — Cowen and Co. — Analyst

Gary Mobley — Wells Fargo Securities — Analyst

Vivek Arya — Bank of America Securities — Analyst

Colin Rusch — Oppenheimer & Co. Inc. — Analyst

Ambrish Srivastava — BMO Capital Markets — Analyst

Harsh Kumar — Piper Sandler — Analyst

David O’Connor — Exane BNP Paribas — Analyst

Presentation:

Operator

Good day and thank you for standing by. Welcome to the Cree, Inc. Fourth Quarter Fiscal 2021 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Tyler Gronbach, Vice President of Investor Relations. Please go ahead.

Tyler Gronbach — Vice President, Investor Relations

Thank you and good afternoon everyone. Welcome to Cree’s fourth quarter fiscal 2021 conference call. Today, Cree’s CEO, Gregg Lowe; and Cree’s CFO, Neill Reynolds will report on the results for the fourth quarter and full year of fiscal year 2021.

Please note that we will be presenting non-GAAP financial results during today’s call, which is consistent with how management measures Cree’s results internally. 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 on 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 mention important factors that could cause actual results to differ materially, including risks related to the impact of the COVID-19 pandemic.

During the Q&A session, we would ask that you limit yourself to one question and one follow-up 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.

Gregg Lowe — President and Chief Executive Officer

Thanks, Tyler, and good afternoon everyone. Thanks for joining us today and I hope you and your families are in good health.

I’m pleased to report that during the fourth quarter, we continued to execute and drive our business, delivering strong revenue in line with our guidance and non-GAAP diluted earnings per share at the high-end of our guidance range. As we continue our transformational journey, we are excited to officially change the name of our Company to Wolfspeed in the coming months. This represents a pivotal step in our Company history, as we are now a pure play global semiconductor powerhouse, well positioned to lead the industry transition from silicon to silicon carbide.

During fiscal 2021, we made formidable progress. We completed the divestiture of our LED business to SMART Global Holdings. We went from moving Dirt to installing equipment in the clean room of the world’s largest silicon carbide fab in upstate New York, which will begin processing 200 millimeter wafers in the first half of calendar 2022. We also expanded our crystal growth and wafer production capacity on our North Carolina campus. And finally, we quickly adapted to the new operating environment because of the global pandemic, keeping our factories running, while at the same time, staying connected with customers to convert opportunities in our growing device pipeline. These are just a few of the many important developments that we achieved in the last 12 months, as we see an acceleration of the demand for silicon carbide-based solutions across a range of industries.

We are at the beginning of a multi-decade secular shift to silicon carbide and we now believe the demand curve is steeper for devices than we originally expected, further bolstering our confidence in our long-term outlook. The investments we are making today will position us well to capitalize on the tremendous opportunities ahead and firmly establish our industry leadership position.

I’ll now turn it over to Neill, who will provide an overview of our financial results and an outlook for the first quarter of fiscal 2022. Neill?

Neill Reynolds — Chief Financial Officer

Thank you, Gregg, and good afternoon everyone. We delivered solid results during the fourth quarter as we saw increased demand for devices and materials. Revenues for the fourth quarter of fiscal 2021 were $146 million, slightly above the midpoint of our guidance range, representing an increase of 6.2% sequentially and 34.5% year-over-year. Our non-GAAP net loss was $26.9 million or $0.23 per diluted share, just above the midpoint of our guidance range. Our fourth quarter non-GAAP earnings exclude $118 million of expense net of tax or $1.02 per diluted share for non-cash stock-based compensation, acquired intangibles amortization, accretion on our convertible notes, project transformation and transaction costs, factory optimization costs, changes in the value of our previously held ENNOSTAR investments, a restructuring expense related to a modification of our long-term plan regarding a portion of our Durham campus and other items outlined in today’s earnings release.

Moving onto our fourth quarter performance by product line. We delivered our fourth consecutive quarter of sequential growth for Wolfspeed. We continue to see strong demand in our power product line, but the strong demand was partially offset by supply constraints due to the temporary closure of the contract manufacturing facility we use in Malaysia, which was shut down for approximately seven days during the quarter due to the COVID-19 outbreak and has been operating at lower staffing levels due to pandemic-related restrictions imposed by the local government. Despite the challenges with the production in Malaysia, power device revenue grew 46% versus the prior year. In RF, revenue increased largely due to increased 5G activity as communications infrastructure providers continue to support the rollout by carriers. For materials, we saw a better order flow in the quarter, consistent with our expectations for the back half of fiscal 2021.

Fourth quarter non-GAAP gross margin was 32.3% compared to 35% last quarter. The sequential decline was primarily due to the growth in our device products and unfavorable margins due to higher Durham manufacturing cost in the short-term. In addition, we were negatively impacted by the production shutdown at our contract manufacturer in Malaysia, which resulted in gross margin being at the lower end of our guidance range. As previously discussed, we view the gross margin impact as short-term in nature due to the suboptimal device production footprint we have in North Carolina and expect it to modestly improve going forward as we work through factory transitions and eventually shift production to our new Mohawk Valley fab in calendar year 2022.

Non-GAAP operating expenses for Q4 were $82 million and our non-GAAP tax rate was 25%. As anticipated, the increase in our operating expenses was fueled by our investments in R&D, including development projects that are well underway at our Mohawk Valley pilot line, in order to support our 200-millimeter wafer launch, as well as an increased sales and marketing expense as we pursue new business opportunities. During the quarter, we also recorded a $74 million write-down for an unfinished facility that was built to support the LED business back in 2015, which is no longer viable to support our future growth plans.

For fiscal 2021, revenue was $526 million, representing a 12% increase when compared to fiscal 2020, due to growth in our device businesses, partially offset by lower materials revenue. Non-GAAP net loss from continuing operations was $104.7 million or $0.93 per diluted share. Non-GAAP loss excludes $237 million of adjustments net of tax or $2.11 per diluted share.

We ended the fourth quarter with a strong and healthy balance sheet with approximately $1.2 billion in liquidity to support our growth strategy, zero withdrawn on our line of credit and convertible debt with a total face value of $1 billion. For fourth quarter, days sales outstanding was 52 days and inventory days on hand was 147 days. Cash generated from operations was negative $54 million and capital expenditures were $168 million, resulting in negative free cash flow of $222 million. As we expected, fiscal 2021 required a significant amount of investment in capex, totaling a net amount of $566 million. We expect this to represent the most significant period of investment between now and 2024, as we execute our capacity expansion plan, including the launch of our Mohawk Valley fab at 200-millimeter in the first half of 2022.

As Gregg mentioned earlier, we are experiencing a significantly steeper demand curve from our customers for silicon carbide devices than we had previously anticipated. This has resulted in supply constraints, where some customer orders will not be fulfilled in fiscal year 2022 and channel inventory levels will remain low until capacity comes online at our Mohawk Valley fab. In the meantime, we are working to accelerate capacity capex investments, improve output in our Durham facilities and manage through the COVID-related challenges with our contract manufacturer in Malaysia.

As we remain in the midst of a rapid capacity expansion for both materials and our wafer fabs, we anticipate capex, net of expected reimbursements from the state of New York to be approximately $475 million in fiscal 2022. We expect capex to be more heavily weighted to the first half of the fiscal year with Q1 representing the peak investment period, as we ensure our ramp of Mohawk Valley remains on track.

We are still on schedule to operationalize the world’s largest silicon carbide fab in the first half of calendar year 2022. Access to capacity in semiconductors is top of mind for many of our customers and we want to be ready to meet that demand, given the steeper ramps that we are now experiencing for devices.

Now, turning to our outlook. In the first quarter of fiscal 2022, we are targeting revenue in the range of $144 million to $154 million. We expect revenue to be driven by momentum in power, partially offset by the current supply constraints and some lower productivity as our Malaysian contract manufacturer continues to ramp activities following the recent COVID-19 outbreak. Our Q1 non-GAAP gross margin is expected to be in the range of 31.5% to 33.5%, which is flat to slightly up versus 4Q, as modest improvements in productivity in our Durham site are offset by higher costs in Malaysia as the team works through COVID-19-related challenges. As previously noted, lower yields and factory transitions in our Durham fabs will continue to present some short-term challenges on gross margin performance and will remain a headwind as we shift our production to our new Mohawk Valley fab. Starting this quarter, we plan to start reporting start-up costs related to the ramp at Mohawk Valley. We anticipate start-up costs for fiscal 2022 will be approximately $80 million, of which $60 million will be cash-related costs. We anticipate more than 50% of these costs will be incurred in the second half of fiscal year 2022, as we qualify and ramp the fab.

We’re targeting non-GAAP operating expenses of $85 million for the first quarter. The sequential increase in our operating expenses is due to R&D including planned growth at Mohawk Valley to support our 200-millimeter wafer launch. We target Q1 non-GAAP operating loss to be between $40 million to $34 million and non-operating net loss to be approximately $1 million. We expect our non-GAAP effective tax rate to be approximately 27%. We’re targeting Q1 non-GAAP net loss to be between $29 million to $25 million or a loss of $0.25 per diluted share to $0.21 per diluted share. Our non-GAAP EPS target excludes acquired intangibles amortization, non-cash stock-based compensation, accretion on our convertible notes, project transformation and LED transaction related costs, factory optimization restructuring costs and other items. Our Q1 targets are based on several factors that could vary greatly, including the situation with COVID-19, overall demand, product mix, factory productivity and the competitive environment.

With that, I will now turn the discussion back to Gregg.

Gregg Lowe — President and Chief Executive Officer

Thanks, Neill. As we look at our performance during fiscal fourth quarter and the full year, I’m very proud of what the team has accomplished. Demand in the automotive and RF markets continue to be very good, while at the same time, we are encouraged by growing interest across a variety of industrial and energy customers. And thanks to the hard work and unwavering commitment of our sales organization, our device opportunity pipeline is now about $15 billion and the team is continuing to uncover new opportunities at a very good pace. At the same time, the team is also doing a solid job of converting opportunities. During the fourth quarter, we secured our highest total to-date for design-ins, posting slightly more than $1 billion of design-ins. With this record-setting performance in Q4, the sales team posted approximately $2.9 billion of design-ins during fiscal 2021, which is an amazing accomplishment by a team and demonstrates that we are well positioned to compete and win in devices. The design-ins for the full year 2021 represents more than 1,100 customer projects.

Automotive represents roughly two-thirds of the design-ins, including a major awards from a leading global automotive manufacturer, while the rest is spread across a wide variety of applications, including an electric farm tractor, residential energy storage systems and an electrical vertical takeoff and landing aircraft for passenger and cargo transport. Our massive pipeline and record design-ins give us further confidence in our ability to achieve our target revenue for fiscal 2024 of $1.5 billion based on the steepening demand curve for silicon carbide devices through 2024 and beyond.

Looking towards the macro environment, we’re encouraged to see our strategy continues to be supported by several recent developments that indicate long-term growth. Last month, European Union countries gave their final approval to a law to make the bloc’s greenhouse gas emission targets legally binding. The Climate Law sets 2030 targets to reduce net EU emissions by 55% from the 1990 levels and to completely eliminate them by 2050. On July 14th, the European Commission released its new climate agenda, which effectively requires all new cars to be emission free by 2035, removing any flexibility for automakers to continue selling some gasoline or diesel vehicles including hybrids.

In addition, a few weeks ago, the White House issued an executive order setting a target for electric vehicles, hydrogen fuel cells and plug-in hybrids, to make up to 50% of US sales by 2030. This action comes at the same time as many US automakers have increased their commitments to ramp their electric vehicle production activities. For instance, earlier this summer, General Motors announced its plans to boost global spending on electric vehicles and autonomous vehicles to $35 billion through 2025, which is a 30% increase over its most recent forecast.

A key element to support the increased adoption of silicon carbide in the automotive sector and across several other industries is the expansion of manufacturing capacity. Our Mohawk Valley 200-millimeter fab is on-track to begin device qualification production runs in the first half of calendar 2022. The facility is shaping up nicely and has shown very well during recent customer visits to the fab. On our campus here in Durham, we expanded our materials operations to a second building on our Durham campus, which is part of the previously announced plan to increase materials capacity by 30 times.

On a related note, a few weeks ago, we announced the expansion of our operations’ leadership team to support our expected growth and the retirement of Rick McFarland who currently leads global operations. Rex Felton who is currently directing the Mohawk Valley build will now oversee the Company’s fab operations, planning functions and quality efforts reporting directly to me. And until he retires next summer, Rick will continue to lead the Company’s materials and back-end operations, along with facilities and procurement activities and will of course assist Rex with the transition. When Rick leaves us next summer, Rex will assume leadership responsibilities for all global operations. In addition, we continue to attract incredible leadership talent to the organization. Recently, Missy Stigall joined us to serve as the new Vice President of Fab Operations here in North Carolina. Missy was most recently with Texas Instruments, where she spent the last 20 years building extensive expertise in large scale manufacturing operations. Additionally, Laura Russell is now part of our team, serving as our VP for Finance for Global Operations. Laura joins us from NXP, where she was most recently VP of Finance for the Radio Power business unit. Laura has over 20 years of experience in the semiconductor industry.

These recent additions further demonstrate our ability to attract and retain top talent in the semiconductor space and folks who are keenly interested in helping drive that paradigm shift in power electronics in the marketplace. I’d like to thank Rick for his commitment and continued contributions to the organization and wish Rex, Missy and Laura continued success in their new roles.

In summary, we are successfully capitalizing on opportunities in front of us today, while continuing to make investments to deliver this next generation technology to customers. We are growing our device opportunity pipeline and winning our fair share as evidenced by the recent quarter with $1 billion of design-ins. Our balance sheet remains healthy to support our operations. We are excited about the future prospects as we expand our leadership position and make the necessary investments to address what we now believe to be a steeper than originally expected demand curve for silicon carbide devices. In late fall, we plan to hold an Investor Day in New York to further discuss the strong progress we’ve made on our transformation strategy and share more detail about the exciting long-term outlook.

With that, I’ll turn it over to the Operator and we can begin Q&A.

Operator

[Operator Instructions]

Gregg Lowe — President and Chief Executive Officer

Thanks, Tracey. As you collect the questions, I did want to comment on the announcement we made at the close of the market today with STMicro. We’re pleased to have reached an agreement that expands our multi-year long-term 150-millimeter silicon carbide materials contract with ST. The amended agreement, which is now worth more than $800 million calls for us to supply 150-millimeter silicon carbide bare and epi wafers to ST into the second half of the decade. Our long-term 150-millimeter wafer supply agreements with all device manufacturers now total more than $1.3 billion and help support our efforts to drive the industry transition from silicon to silicon carbide. This latest extension demonstrates how the industry at large is shifting towards silicon carbide and that we will continue to be an important partner for many of our current customers over the next several years. I want to thank John Mark and the team at ST for their continued partnership and we look forward to continuing to work with them.

And with that, Tracey, I’ll turn it back to you, so we can begin the Q&A.

Questions and Answers:

Operator

Thank you. Our first question comes from the line of Jed Dorsheimer from Canaccord Genuity. Your line is now open.

Jed Dorsheimer — Canaccord Genuity Inc. — Analyst

Hi, thanks guys. Gregg, thanks for pointing that out with STMicro. Kind of along those lines, I think that probably sums up your position on the material side of the business pretty well. And I guess my first question is a bit more granular, in terms of the $1 billion of design-ins. If we think about the device side of your business and the design-ins and then, in particular, automotive, can you give us some more clarity in terms of the ’23 model year and how many models or platforms we should expect to see the Wolfspeed MOSFET in either directly or with your partners? And then I have a follow-up.

Gregg Lowe — President and Chief Executive Officer

Okay, Jed. So, just to remind everybody on the call, the $1 billion of design-ins are all device design-ins and the $15 billion opportunity pipeline that we talked about is all device opportunity pipeline. So we don’t mix that with the materials. I know you know that Jed, but I just wanted to remind everybody on that, to be clear. Basically, the $1 billion that we posted this recent quarter, I think about two-thirds of it was automotive and the typical timeline for going from, when you get a design-in to when it goes into production is typically four years, maybe five years, sometimes. For electric vehicles, it’s turning out to be a little bit shorter than that and obviously that’s why we’re seeing kind of a steepening ramp. So I can’t give you the exact number of models, I don’t have that data right handy here, Jed. But what I can tell you is that we’ve got a number of different customers that are going to be ramping, that are ramping right now and are ramping in ’23 and then obviously supporting the $1.5 billion in ’24 and that’s what we’re referring to as being steeper right now. There is just a — a demand from the customer that’s steeper than we are originally anticipating and that’s what we’re trying to catch-up with.

Jed Dorsheimer — Canaccord Genuity Inc. — Analyst

Got it. That’s helpful. And maybe is just a segue to my follow-up, and this might be better for Neill. I’m assuming that you’re keeping your long-term targets, the 50% plus or minus in terms of gross margin and a lot of clients are asking us whether or not this 30% where you’ve been at for a while is sort of the new normal and I was wondering if you might be able to help us bridge that understanding of what gives you the confidence in keeping that 50% out there, maybe that also touches on I guess what I was asking in terms of Gregg, for the shift from materials to devices a bit too. Thanks.

Neill Reynolds — Chief Financial Officer

Yeah. Thanks, Jed, for the question. I think as you look at the current margins, we’re impacted by about a point in 4Q and 1Q from the Malaysia situation. So I think in both quarters, if you think about that driving us down about a point from where we would have been kind of normally. And I think as you look at the rest of the year, the margin will be a function of how things play out in Malaysia. If you step back and think about achieving kind of mid 30%s I think plus or minus as you get to the back half of the fiscal year, will be just improved execution out of the North Carolina factory. I think some of the management changes we discussed should bring in, I would think of as more high quality expertise and experience to kind of drive to those levels in the back half of the year.

Now if you shift from kind of mid-term to long-term, as you mentioned, so it’s kind of want to hit on a long-term target model for that 50% plus gross margin by 2024. And as we’ve stated previously, the key to that transition from kind of the low-30%s from where we’re at today to 50% plus, kind of lies heavily on the kind of fab cost footprint transition from North Carolina to the Mohawk Valley. And as we transition kind of that new footprint and qualify the factory in 2022 and you think about fiscal 2023, kind of at the beginning of that and beyond, we’ll see some very big and significant differences between what we’re running today in North Carolina and what we’ll be running in Mohawk Valley.

Let me just kind of spell that out a little bit in further detail. I think if you think of the differences between North Carolina and Mohawk Valley, wafer cost for instance in Mohawk Valley will be more than 50% lower than what we currently have in Durham and that’s not completely including the full benefit of moving from 150-millimeter to 200-millimeter on a diameter change. Cycle times in Mohawk Valley will be 50% greater or better than what we have, so 50% better than what we have at Durham. And then lastly, the yield at Mohawk Valley will be 20 points to 30 points higher than what we have currently in Durham. So all of those benefits can be really derived as a function of moving from, as you know as a very manual, and I think a small footprint in North Carolina, to kind of highly automated state-of-the-art facility that would be running up in New York. And then we’re already seeing good evidence of that from our Mohawk Valley pilot line to support some of these insertions and we anticipate a heavy margin transition as we move from North Carolina into the new fab in Mohawk Valley.

Operator

Thank you. Our next question comes from the line of Edward Snyder from Charter Equity. Your line is now open.

Edward Snyder — Charter Equity Research — Analyst

Thanks. Gregg, you said you added the second building for materials. Materials has been growing very nicely. I know you’re kind of throttled on devices given now in Malaysia about your footprint in Durham and execution, is it safe to assume that the materials continues to grow as a percentage of your total revenue and I expect that would be the case until New York comes on or is there something else going on maybe we can give it maybe just bucket it if you can [Speech Overlap]

Gregg Lowe — President and Chief Executive Officer

Thanks, Ed. So we are expanding into a different building here on campus. In fact, I just went through the facility today. And so that is happening here on campus and that will be for our materials factory. And what I would say is, we’re also expanding obviously the wafer fab here in North Carolina for our devices as we move the LED business out of that as well. I would anticipate Ed that when we look at our plans for 2024 at $1.5 billion, we were projecting that roughly $600 million of that was going to be devices and about $900 million of that was going — excuse me, $600 million was going to be materials and $900 million was going to be devices. So we actually are anticipating that our device business will be growing faster than the materials business through that timeframe of 2024 and it will most likely accelerate as a percentage of the business beyond ’24 if we start seeing customers ramp with the $1 billion of device wins that we just posted this previous quarter.

Does that make sense Ed?

Edward Snyder — Charter Equity Research — Analyst

Yeah, it makes sense. Once New York comes on, device is going to grow much faster. It’s kind of a chicken and the egg issue. I mean you’ve got a lot of demand out there and there’s obviously or a lot of potential demand out there [Indecipherable] industrial and RF are doing quite well, too. But it seems like based on, especially on the STMicro agreement here and what we’ve been hearing from the food chain is that it’s really a materials limited business to some degree, increased to the largest. I know there’s been a lot of talk and we’ve got a lot of calls from folks who are kind of concerned about some of the press releases coming out of CDON’s internal efforts, STMicro made announcement of the 200-millimeter, you got GEEP out there talking about shipping stuff. The reality though it seems to be quite a bit different on the ground. You’ve got about $1.3 million in — or $1.3 billion in long-term supply agreements, has the competitive dynamic in materials both crystal wafers, bare wafers and have these changed much and if it has, is it safe to say it’s favoring the incumbents, maybe [Indecipherable] or are we seeing more people come on-board because the demand is so strong?

Gregg Lowe — President and Chief Executive Officer

No. I think, Ed, what I would say is, certainly from our perspective, there is a huge growth in the opportunity for silicon carbide and so you see a lot of folks attempting to get into this business, but it has a lot of pretty tough barriers to entry and meet their technical barriers that you can’t just kind of solve with money. So some of this is very, very difficult stuff to work with. And I think the fact that we’ve got $1.3 billion worth of long-term supply agreements, pretty solid with pretty much the who’s who in the market, really kind of shines a light on our fundamental capability. And as we talk to customers in this area, this is a really important thing for them to know that we’ve got a very, very strong materials business, so.

And then finally, what I would say is, we are absolutely not resting on our laurels, in terms of our materials capability, we drive it every single quarter, whether that’s the transition to 200-millimeter, reductions in cost, improvements in yield, all of that kind of stuff is a very, very intense activity for us. And so basically it’s just creating at an even more difficult environment to try to jump into, because learning and scale is really important for silicon carbide. We’ve got 30 years of learning and the largest scale and we’re growing that scale pretty rapidly now as well. So I think it’s just going to create — it’s going to continue to have kind of really tough barriers for entry in this market. But again we don’t rest on that at all. We are driving this like crazy every day of the week.

Operator

Thank you. Our next question comes from the line of Joe Moore from Morgan Stanley. Your line is now open.

Joseph Moore — Morgan Stanley — Analyst

Great, thank you. I wonder if you could talk about the start-up costs that you mentioned in the second half of fiscal ’22, $60 million? How do you see that rolling through just in general, obviously a lot higher margin out of the new fab. But what happens to your overall cost of sales, do you sort of maintain both fabs and do you have to grow into a revenue level to sort of support some of these incremental costs coming in?

Neill Reynolds — Chief Financial Officer

Hey Joe, thanks for the question. This is Neill. So first of all, yeah, so Mohawk Valley start-up costs, we anticipate being about $80 million, that was for the year and $60 million of that, it was roughly in cash costs and you can think about more than 50% of that being kind of at the back half of the year. So as you move into fiscal year 2023, that will start to fall off pretty significantly as we start to ramp the fab and you’ll start to see that fall away. So I don’t think it’s about — I think it’s very much in line with our long-term plan, I don’t think there’s any real change to it. I think this is what we kind of anticipated as you bring up a new factory. So I think this is right in line with the trajectory. We need to hit the $1.5 billion in revenue and I think it’s on track to where we need to get to.

And again, as you said, as you look at the cost numbers, the cycle time differences and the yield differences between what we’re currently seeing today and what we anticipate seeing in Mohawk Valley, all of that will then underpin pretty significant transitions to margin as you start to bring up the fab as you get out into the more significantly into fiscal year ’23, to start to bring that revenue on.

Joseph Moore — Morgan Stanley — Analyst

Great. Thank you very much.

Operator

Thank you. Our next question comes from the line of Pierre Ferragu from New Street Research. Your line is now open.

Pierre Ferragu — New Street Research — Analyst

Hi guys, thanks for taking my question. So I’ve been following this earning season and I was actually very impressed to see how you people are thinking about silicon carbide and how positive comments are and I had in mind STMicro reiterating that they want to increase their front-end, I mean, the front-end capacity by 10 times between 2017-2024. I think Infineon was not that specific, but [Indecipherable] talked about spending a $1 billion in capex on silicon carbide [Indecipherable]. Rome is talking about growing capacity 5 times between 2020 and 2025. And so my first question to you Gregg, was, I guess you guys are following that very closely as well and how does that stack up when you add up all the capacity shortage [Phonetic] that are being made by your potential competitors? And when you compare that to what you see in terms of end demand and what you see in terms of potential market and what you guys are planning for and winning, do you feel like the whole thing is stacking up to a healthy market in which you’d be one of the top three players and you see these other players taking their fair share as well or do you feel there is a level of dilution in the market and some of them might be too optimistic and maybe and appreciating the difficulty of getting into silicon carbide and scaling out?

Gregg Lowe — President and Chief Executive Officer

Yeah. I guess, I’d answer that from a couple of different vectors. First off, the demand is definitely there and the appetite for silicon carbide just continues to grow. Neill and I were just in Europe a month ago or so, for a couple of weeks visiting with OEMs and with Tier ones and so forth and all of the indications we got from pretty much all the customers we saw is what they thought was going to be demand, it’s now higher than what they originally thought and faster than they originally thought across multiple different end-equipment and certainly automotive being a pretty key part of that. So I think the demand is definitely rapidly expanding and that’s obviously a good thing.

In terms of the market itself, I think from a materials perspective, we’re obviously growing our capability pretty strong in that area and the $1.3 billion of materials long-term agreements that we have, I think it’s just an indication that this stuff is pretty hard to do and everyone — we have a lot of people that are trying to do internal efforts, but I think with $1.3 billion worth of long-term agreements, it’s kind of an indication that maybe it’s a little bit more challenging than most people originally think. So I would say, I think having the experience and having this capability is one thing that I talked to customers quite a lot about. When they look at making this transition to silicon carbide, the company that’s been in it for the longest amount of time that has the most experience and it is us. And so I think it does kind of shine a light on us, as someone that has a lot of capability and obviously there are other folks that are entering the market as well. But it feels to me like the demand is — it’s way past any kind of tipping point right now and the automotive market certainly has said goodbye to the internal combustion engine. I mean the number of companies that just are no longer developing any plans for internal combustion engine cars by 2030, 2035 and so forth, has grown. And now we’re seeing industrial customers, we talked about vertical takeoff and landing, cargo, transport, electric tractors, motor drives, compressors, we were just seeing a lot of industrial customers jumping on the silicon carbide bandwagon. And when you see the benefit of 10 times the electron mobility or 10 times the performance for electron mobility perspective, the lower energy costs and so forth for operating these equipments, the transition is pretty solid.

Operator

Thank you. Our next question comes from the line of Craig Irwin from ROTH Capital Partners. Your line is now open.

Craig Irwin — ROTH Capital Partners — Analyst

Hi, good evening. Thanks for taking my questions and congratulations on that design-in momentum, impressive. Gregg, I wanted to ask a little bit about the industrial market, since this is something we haven’t talked a whole lot about on the last couple of calls. I don’t remember if it was your prior Analyst Day or the one before that, where you had the gentlemen from ABB, who discussed the potential in some of their utility equipment and there was a conversation about high-power MOSFETs, I think 3500 volt, 5000 volt MOSFETs. Can you maybe frame out for us the importance of these future devices to your 2024, 2025 outlook? Is this in the guidance that you gave us and how would you rank this as a priority for the industrial markets and the development that’s available there.

Gregg Lowe — President and Chief Executive Officer

Great question, Craig. And what I would tell you, the industrial market, I obviously have a ton of experience with my time at TI. The one thing about it that’s really very different is that it’s very, very fragmented. You have thousands of customers, all the individual different sockets that you’re trying to win are relatively small individually, but collectively, it’s very, very large. And so the real key there is having an ability to engage with those customers and since we have a relatively small footprint, this is where the partnership we have with Arrow has really played very, very well for us. They’ve gotten engagements with thousands of different customers with their massive sales channel that they have. We’ve got a great relationship with them. In fact, Neill and I and some of our other execs were out there month and a half ago I think, in meeting with them and the subject line of the meeting was, how do we take this to the next level. It’s already going great. How do we continue building that relationship and capitalizing on each others’ progress. So it’s a very important market for us and the good news is, we’ve got a great partner in helping us reach that and that’s going very, very well. I think as it relates to 2024, it’s kind of baked into the plan, but obviously the steepening demand that we’re seeing into ’24 and then beyond, it gives us a lot of comfort for what the growth trajectory looks like beyond that, Craig.

Operator

Thank you. Our next question comes from the line of Brian Lee from Goldman Sachs. Your line is now open.

Brian Lee — Goldman Sachs — Analyst

Hey guys, good afternoon. Thanks for taking the questions. One thing I just wanted to clarify, Neill, you mentioned the $80 million of start-up costs in fiscal 2022 with more than half of that in the back half due to the Mohawk Valley ramp, is that all flowing through — I’m assuming it’s all flowing through COGS and when we look at your non-GAAP gross margin guidance of 31.5% to 33.5% for Q1 here, does that reflect inclusion of those start-up costs, are you stripping those out? Just wanted to clarify that and then I had a follow-up.

Neill Reynolds — Chief Financial Officer

Good question, Brian. Now, just to be clear, we’re going to exclude those costs from our non-GAAP results going forward. And you know, those are just going to represent things like, we’ve got depreciation and labor and facilities and other things. Now we’re at a point where the base build is just about complete with the fab or into the cleanroom. So there’ll be a lot of costs that really won’t be related to our current revenues. So we’ll pro forma those out going forward just to kind of give a better view of what the margins look like in the business. As we progress through the year, which you’ll see is more of a kind of term based kind of margin model as you get through fiscal year ’22, as you think about ramping the fab and qualifying it in the first half in next year calendar year and then as we move forward from there, we’ll start bleeding that in a kind of an apples-to-apples basis, once we start getting back to kind of ramp up phase.

Operator

Thank you. Our next question comes from the line of Samik Chatterjee from JPMorgan. Your line is now open.

Samik Chatterjee — JPMorgan — Analyst

Hi, good afternoon. Thanks for taking my questions. So I have a couple. The first one, I wanted to see if you can give me a bit more visibility about fiscal ’22 revenues and how material the Mohawk ramp will be to it and particularly if we compare to the second half versus first half, what are you seeing this year in fiscal ’21 of about like 70% increase half-on-half, like how different or how similar does it look to this year and how material is Mohawk impact? And I have a follow-up as well. Thank you.

Neill Reynolds — Chief Financial Officer

Yeah. Thanks for the question. And let me just [Indecipherable] on Mohawk Valley. So at Mohawk Valley, we’re going to be ramping the fab in the first half of calendar year, as you get into calendar 2022. And what that means, in the first part of that, we kind of think about that kind of March quarter, sort of internal qualification and that is moved into the June period, you start to thinking about doing customer qualifications and then transitioning to revenue out beyond that. So if you think about 2022, there’s kind of de minimis impact on revenue for Mohawk Valley. But I think, just kind of getting down to a few things I think we should clarify a little bit on the revenue. Let me just unpack how this kind of plays out. You kind of mentioned a few pieces there. So first of all, if you look at just 4Q just looking back, the revenue in the quarter came in just above the mid point of the guidance range. And while demand continues to accelerate in some of these businesses particularly in power, we were slowed by the COVID-19 outbreak in Malaysia and there was roughly $3 million to $5 million of revenue that was left unfulfilled in the quarter, okay. So we would have done $3 million to $5 million more had it not been for the COVID-19 outbreak at our contract manufacturer in Malaysia. And despite that, we thought, we saw pretty good growth.

As you look into looking forward into 1Q, the demand continues to be strong, particularly in devices and power, which will continue to fuel, I think strong quarter-over-quarter and year-over-year growth. But however, at the midpoint of what we’ve baked in another kind of $5 million to $7 million of revenue impact from Malaysia. So it’s just another way, we probably could have committed to more revenue in Q1 period, had it not been for the Malaysia situation. So we’re also widening our revenue range for that as well. And again, even with that, we do expect to see some good revenue growth.

Now with that, I also think it’s important that we kind of step back and just kind of look at the macro level here. Gregg kind of talked a little bit earlier. As we discussed in the prepared remarks, the slope of the demand curve for silicon carbide solutions, particularly on devices, has dramatically increased and is ahead of what we previously thought. We thought the inflection point, as we talked about in Investor Day and since then, was kind of ’23 kind of ’24 time-frame and right now, we’re seeing that pulling all the way into fiscal 2022. And to give you an idea, this year alone, we’ll see more than $100 million of customer demand on a revenue line, unfulfilled in this year. And the demand levels we’re seeing in ’23 and ’24 plus have steepened as well. I’ll say it, you heard a couple of questions on industrial and automotive, this demand I’d say is relatively broad based. For instance, while automotive devices continues to be relatively small, the revenue for that in Q4 alone grew more than 100% versus last year.

So I think this device situation has really shifted to a supply side type of challenge. So we just need to drive more capacity out of our current footprint in North Carolina just to keep up with the demand inflection that’s really pulled all the way into this year and until we get Mohawk Valley kind of up and running. So I think the revenue markers that we’re seeing now as evidenced by the pipeline, the design-ins, is really pulling in pretty heavily right into the current period.

Operator

Thank you. Our next question comes from the line of Karl Ackerman from Cowen. Your line is now open.

Karl Ackerman — Cowen and Co. — Analyst

Yes, good afternoon gentlemen. I have two questions please. My first question, I was curious — it’s more of a clarification, but how much do you have remaining of the $1.3 billion in long-term materials contracts or I guess are we saying that the $1.3 billion is future orders?

And then secondarily on materials, is the absence of material contracts on 200-millimeter today, just driven by maybe more mature yields on 150-millimeter than 200-millimeter? Just help me think about — us to think about the opportunity of 200-millimeter materials contracts as well.

Neill Reynolds — Chief Financial Officer

I’ll take that. So first off, in terms of the $1.3 billion, I don’t have an exact answer for you, but I would say most of it is future is my guess. So I think that’s pretty — I think that’s pretty solid. So we’ve gone through some of it obviously, but we still have a probably a substantial portion of the $1.3 billion is revenue to come, is — I don’t have the exact number, but I’m pretty sure that’s pretty close. And then basically that $1.3 billion is really all on 150-millimeter. So that’s been the focus of that and then in terms of 200-millimeter, we’re really just concentrating right now on ramping our own facility on that at this point.

Karl Ackerman — Cowen and Co. — Analyst

Understood. Appreciate that. If I may for my follow-up, you did record over a $70 million expense driven by the modifications to your long-term plans for Durham, I was hoping you could discuss that? I guess are you seeing less wafer capacity demand on 150-millimeter than previously expected or is it driven by the need to fill Mohawk or the desire to fill Mohawk sooner? Thank you.

Neill Reynolds — Chief Financial Officer

Yeah. Thanks for the question. First of all, there is really no demand related to this, the demand is very, very strong. So the write-down of the building and first, let me say, we’ve actually found a different solution in that building that we currently have on campus and we’re currently expanding materials capacities for 200-millimeter in that new building as we speak. So there’s a significant amount of investment going in. As I said, in Q4, we determined that we just no longer needed a shell, lot of people are familiar with that. We had a shell on campus and that partially completed building was built to support the LED business back in 2015. So we look for a lot of different ways to use the facility, either for wafer fab or materials perspective, but we have found a more optimal kind of expansion plan for materials in Durham on the Durham site and then with addition of the assurance of supply being top of mind for our customers, we’ll think about additional potential materials capacity down the line outside of [Indecipherable].

Operator

Thank you. As a reminder, you may ask a follow-up question if needed. Our next question comes from the line of Gary Mobley from Wells Fargo. Your line is now open.

Gary Mobley — Wells Fargo Securities — Analyst

Hey guys, thanks for taking my question. I know you haven’t filed your 10-K yet, but in terms of trying to think about the materiality of STMicro as a customer, thinking about the $500 million in silicon carbide material supply agreement signed back in 2019, has all of that $500 million been shipped in the last 18 to 24 months and thus the need for an incremental $300 million to augment that relationship?

And then in terms of thinking about some of the capacity constraints that are limiting your power business, should we think about that as being perishable demand given that perhaps others can fill it or is it just going to continue in your backlog until you can solve those capacity constraints? Thank you.

Gregg Lowe — President and Chief Executive Officer

Thanks for the questions, Gary and I’ll take them. So first off, I don’t want to get into a lot of detail on our contracts with any of our materials customers. I think I can just go back to the comment that I made earlier, is if you take a look at the total pipeline or the total materials contracts, long-term agreements of $1.3 billion, the vast majority of that is still to be fulfilled and I’ll probably just leave it that way. I don’t want to get into any one specific customer, but I think you can kind of directionally understand that.

And then in terms of the opportunity, of course, Neill mentioned there is a $100 million worth of opportunity that will go unfulfilled this year and of course our customers would prefer to see that fulfilled. I’ve spent a lot of time talking to customers and the thing that I think resonates with them the most is that in five months, we will be processing material in the world’s largest silicon carbide fab, we will be processing material that will be going through then qualifications and then they will be getting material to qualify, etc. Just recall a lot of our really — the demand really takes off in ’23 and ’24. So they see that we are expanding capacity that we made a decision two years ago to expand capacity and that capacity is coming online, really just in five months now, when you think about it, first part of calendar 2022. We’ve had customers recently visit the New York factory and the feedback we’ve gotten is super positive on that. They see the pilot line that we’ve got running up there and they like that because it’s sort of getting the production lines kind of ready to go with the pilot line and then kind of transitioning that to the factory as it begins to open.

So I think the customers see that we’ve got this pretty substantial amount of investment we’re doing, they appreciate it and they’re really sticking with us on that. And you know to kind of put things in perspective, we had a field of mud in March of 2020 and in the first quarter of ’22, we will be producing product and qualifying product, that’s pretty quick. And this is in a time where the semiconductor industry in general has a ton of capacity issues and if you decided today to start with a field of mud and build a factory, I think there is zero possibility you’d be up and running in two years. I would say it’s at least a year in addition to that, and maybe even longer. So I think the bottom line is that, they see that we’re making the investments and that these investments are a big light at the end of the tunnel for them.

Operator

Thank you. Our next question comes from the line of Vivek Arya from Bank of America Securities. Your line is now open.

Vivek Arya — Bank of America Securities — Analyst

Thanks for taking my questions. I have two as well. For the first one, I’m curious that you’re seeing very strong demand signals, but how is that translating into the pricing environment, right versus what you thought 90 days ago or asked differently, what is the level of confidence in achieving your long-term gross margin outlook, right and as the customers come in toward the facilities and they look at what you’ll be producing there, how are you doing the trade-off between the pricing versus having the certainty of these long-term contracts?

Gregg Lowe — President and Chief Executive Officer

Yeah. I think in terms of pricing what I would say is, the vast majority of what we do are long-term deals and that’s both materials as well as on devices. And so the pricing is kind of set. So we have a pretty good view as to what’s going to happen there. We obviously know what’s happening with our cost models as well. And as Neil mentioned, there is pretty dramatic cost reductions coming online, as we move in the Mohawk Valley. We don’t really price our business as a kind of a spot market kind of thing. So we don’t really get into that kind of thing. And so we’d much rather have long-term agreements with folks and they can count on us for putting the capacity in place and having an understood pricing curve and then we can count on them for having the demand coming our way. So it’s more like that, I would say.

Vivek Arya — Bank of America Securities — Analyst

And for my follow-up, maybe for Neill. I believe you said you’re looking at a higher capex level for fiscal ’22. I was hoping you could give some more color around that? What is driving that higher capex and then importantly, when does that translate into upside to your longer-term model, like what is the benefit of this additional spending that you’re planning to do next year?

Neill Reynolds — Chief Financial Officer

Yeah. First of all, as we said — thanks for the question. First of all, as we said, the demand as we kind of look at the slope of the demand curve, not just this year, but into ’23 and ’24 has certainly steepened. And I think our revenue trajectory as we get out of those time frame is going to be a function of how much capex we can bring online and how fast we can translate that into revenue. So I do think, as you look out at the time, that’s exactly what we’re trying to do, is kind of get out into and above where we’re at today. Now that could be a function of how well we can to execute that and bring it online. So I’m not necessarily saying we can change those numbers today. But I think we’re anticipating and seeing the steeper demand curve.

So if you look at 2021 fiscal, we spent over $566 million of capex, which is our peak year. We’ll bring that down to $475 million this year, but we also see a significant amount of reimbursements from the state of New York. And as the year moves on, given that steepening demand curve, we’ll start to see some benefits from that hopefully, as we get out into year from now. And what type of cost that is, I mean, probably, if you go back to January in the capex plan that we laid out when we launched 200-millimeter, this is largely the same plan. What we’re trying to do is capture the capacity and the revenue in such a way by pulling in that same plan anywhere we can to drive more capacity. So some of that was going over ’23 and ’24, some of that was materials expansion for facilities and things like that. So you can think about it as being, it may be pulling in roughly $100 million maybe versus what we anticipated before, but with the expectation that as you get on to ’23 and ’24, we can meet a higher revenue level than we had anticipated previously in the $1.5 billion plan.

Vivek Arya — Bank of America Securities — Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Colin Rusch from Oppenheimer. Your line is now open.

Colin Rusch — Oppenheimer & Co. Inc. — Analyst

Thanks so much guys. Can you just give us an update on the preparedness of the supply chain and their suppliers to support your ramp as you get into it here in the back half of the next fiscal year?

Gregg Lowe — President and Chief Executive Officer

Yeah, so I can probably hit that. Neill is very actively engaged in this as well. Basically from the beginning of the pandemic, we’ve had a weekly supply chain update in terms of where things are and what crunch points are happening and so forth. Our team has done a fantastic job on this and we’ve stayed close with all of our suppliers in the supply chain obviously throughout the pandemic. The feedback we’re getting from these folks is very positive, in terms of how we’ve handled the situation both from day one when everything went into lockdown and there was no business kind of going on and how we were very even-handed, in terms of dealing with them. And then as things have kind of roared back, they’ve been very, very supportive of us in this transition.

Neill, I don’t know if you want to add any additional color from your point.

Neill Reynolds — Chief Financial Officer

Yeah. So I think in terms of the supply base, one thing I think that we’ve been fortunate enough to have affected was going up very early, knowing that the capacity expansion and the revenue requirements we would need to go out there early. So I think we placed orders in our equipment or other things out in the long term to get those types of things in place. As Gregg mentioned earlier, I think that would be a more difficult expansion if you were starting that today. So as you look at working with the suppliers, I think, again, I think we’ve partnered with the supply suppliers very, very well. And I also think that we’ve gotten ahead I think in many cases of maybe longer lead times that are out there right now and so we don’t really see an impact on it in terms of the scheduling of the capacity expansion, has been working on. In fact, as I mentioned earlier, we’re actually pulling things in and any area we can and we are seeing the capability to do that.

Colin Rusch — Oppenheimer & Co. Inc. — Analyst

Excellent. And then just following up on in terms of the design-ins and the rate at which they are now, can you just talk about the duration of working through in those design-ins and that process and are they accelerating any spot rate versus where we are at, call it six months or a year ago?

Gregg Lowe — President and Chief Executive Officer

It seems like — well, first off every opportunity kind of has a life of its own and so you’ll see obviously last quarter we were super pleased with having $1 billion of design-in, but it’s not one of these things where it’s kind of always up into the right. Sometimes, a lot of decisions are made in a quarter and sometimes decisions get delayed for whatever reason. Last quarter, obviously was a super positive quarter for us. The last year was phenomenal at $2.9 billion. So we feel pretty good about that. So if they kind of take a life of their own, what I would say though is, we’re certainly seeing the design-ins that we have, the expectation from the customers in terms of ramp is what’s been pulled in and is steeper than we originally anticipated. So it’s obviously a good problem to have and it’s one we’re working on pretty hard right now.

Operator

Thank you. Our next question comes from the line of Edward Snyder from Charter Equity. Your line is now open.

Edward Snyder — Charter Equity Research — Analyst

Great, thanks for the follow-up. Gregg, I was little confused by your answer on the question about perishable demand for materials. You’ve got a lot of large customers in the material business, like ST, Infineon, which are also competitors in device. I know you must have had conversations about how they feel about you building the largest most automated sick device fab that’s not going to be competitive to them. Can you maybe characterize the tenor of those and help explain how they’re going to benefit from the materials business because that’s your Durham side of the business. You’re not going to grow materials in New York and that could ramp independent of your device business, the device fab in New York. So, A, what’s preventing the materials business from ramping faster if that’s a limit to your customers and B, how they feel about this monster fab you’re building?

Gregg Lowe — President and Chief Executive Officer

Ed, just a couple of things, First off, on the perishable demand. I would have thought I was answering that relative to devices and as Neill kind of mentioned it with the device business that has the $100 million worth of unfulfilled demand for next year. So that’s really from a device perspective and so I think when those device manufacturers see what we’re doing with New York or when those device customers see what we’re doing in New York, there are pretty pleased with the amount of activity that we’ve got going on there and the development and so forth.

In terms of materials, as I mentioned Ed, we anticipate by 2024 that our materials business will be somewhere in the order of $600 million to device business $900 million. And so we know that a lot of folks are trying to build materials on their own. But I think the $1.3 billion and the couple of expansions and extensions that we’ve seen are kind of turning into, I think it’s — I think people are just realizing this is more difficult than they originally anticipated.

And again, our attitude is, we’ve got great relationships with these folks. I have ongoing conversations with them. We treat them as real customers, there is not sort of a Bin 1 for what we do and a Bin 2 for everybody else. We try to give them the best materials we can. And that’s primarily because we’re trying to convert the power market from silicon to silicon carbide and as a big supplier of materials, having a good relationship with folks that are going to help us do that is a really important thing.

So I think the way I would characterize it, Ed, is I think people — the materials customers see that their opportunity as a device supplier is growing very, very rapidly, because the entire market is growing rapidly. And there is really no sign of it at some toting out anytime in the coming decade really. So I think it’s mostly just a realization that the stuff is harder to do than they probably anticipate and the fact that we treat them well as a customer.

Edward Snyder — Charter Equity Research — Analyst

And maybe Neill, If I could ask, did you say that the $475 million in capex is gross or net of New York State payments?

Neill Reynolds — Chief Financial Officer

That’s a net of New York State payments.

Edward Snyder — Charter Equity Research — Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Ambrish Srivastava from BMO. Your line is now open.

Ambrish Srivastava — BMO Capital Markets — Analyst

Hi, thank you. Thank you for letting me get on the call. I had a question, Neill, on the start-up costs, and both you and Gregg are from the semi industry. It’s kind of unusual to see start-up costs being pro forma out especially since $60 million out of the $80 million is cash charge. Can you just help us understand the thinking behind that?

And then my kind of related follow-up question is, since your pro forma in that cost out, does that imply then the gross margin bottoms out in the second quarter of the current fiscal year? Thank you.

Neill Reynolds — Chief Financial Officer

Thanks, Ambrish. And of course before we took that decision, we did some benchmarking on that. I think if you study that, we’ve seen other companies do that as well. I think the second thing really is in the start-up cost is, given the size of the Company we are today versus what we’re going to be out in the future, weighing down the margins and then trying to explain them to all of you, with that start-up cost being and that was not really generating revenue in such a significant piece, kind of just be easier to kind of report on it every quarter. Will let you know what we’re doing, will be very transparent about it. And then be able to kind of look and see where we go from there.

And sorry, Ambrish, what was that second question?

Ambrish Srivastava — BMO Capital Markets — Analyst

Yeah. The second question was, should we think that gross margin then bottoms out in the second quarter of the current fiscal year?

Neill Reynolds — Chief Financial Officer

Look, I think that we’re going to see some improvement. I mean a lot of this is going to be dependent upon what happens with the Malaysia contract manufacturer. As I said earlier about one point of impact happened in 4Q, we’ll see another point of impact in the 1Q quarter, just related to that. And we are making improvements in our Durham factory. So I think if you think about what’s going on in Durham and its steepening, demand that’s happening right now, a lot of that supply disconnect. If you think about a revenue standpoint, what we’re saying here is, if we can get more capacity online, we can do more revenue. So our revenue forecast for the year hasn’t changed, it’s just we’ve got higher demand and we want to get more output out of Durham in the meantime.

So I think what will happen here and if you take a step back, in Durham alone, we put in over 100 tools in the last year to support higher demand. And we just need to get that — improve that factory output and kind of support that kind of demand curve. And as Gregg mentioned earlier, we’ve got a new leadership to get better focus on that and really improve the North Carolina footprint. For example, Missy Stigall, who you heard the prepared remarks is someone we recently hired. She was running [Indecipherable] that produced a significantly more amount of wafers than our Durham fab does. So given the most of the capacity improvements and you think about bottom out on the margin, that we’ve got to drive to fulfill that incremental demand will come through yield and cycle time performance in the footprint. As we drive the higher revenue, we anticipate that the margins will come along with it. So that kind of augur together. So fulfilling this additional demand, driving those things, it feels like we’ve kind of hit bottom, we should see some improvement as we get into 2Q and then if you get the back half of the year, kind of hit that mid 30%s kind of plus or minus, that is excluding those start-up costs as I mentioned earlier.

Ambrish Srivastava — BMO Capital Markets — Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Harsh Kumar from Piper Sandler. Your line is now open.

Harsh Kumar — Piper Sandler — Analyst

Yeah. Hey guys, congratulations on that strong design-in pipeline. Gregg, I had a quick question, I’ve seen a lot of companies define things differently. I was hoping that you could explain to us how you guys categorize design-in, are these orders that are on the books that are just basically fully committed at this point or is there something else to it? And yeah, I’ll go with that and then come back for a second.

Gregg Lowe — President and Chief Executive Officer

Yeah. Typically it’s — well, the way it works is, it’s something flipped over to design-in when a customer has awarded us the business. Many times that’s in the form of an award letter or something like that, but it’s an official document that comes from the customer that says we have evaluated all of our different suppliers and you’ve won this particular project. And so it’s a customer design award, if you will. And then they talk about the ramping of it, when they need an initial qualification parts and all of that. To go from that award letter to production, depending on the end equipment, can be several years. In automotive, it’s typically four years, and during that time you’re shipping initial samples to them, they’re putting them in their builds, whatever challenges they have, you’re working with them on it from an engineering perspective and so forth. That is pretty typical for what semiconductor companies define as design-in, it’s very familiar to me in terms of the other companies that I’ve worked at and I think most people kind of consider it the same way.

Harsh Kumar — Piper Sandler — Analyst

So I just wanted to follow-up on that, but then the opportunity pipeline, do you know the number going in when you are going to design line, how big that order is going to be or is that something you kind of estimate?

Gregg Lowe — President and Chief Executive Officer

No, if the customer tells us it’s going to be x millions of units and then we multiply it by the price that we did. And so we know how much it turns into. And obviously all of that is subject to the accuracy with which the customer thinks their product is going to ramp and that can have some variability, but that’s super normal, Harsh, in this environment. So I think what we’re doing in terms of design-in is pretty much straight down the fairway with the way other people would describe it as well.

Harsh Kumar — Piper Sandler — Analyst

Understood, very helpful. Thank you, Gregg.

Gregg Lowe — President and Chief Executive Officer

Thanks, Harsh.

Operator

Thank you. Our next question comes from the line of David O’Connor from Exane BNP. Your line is now open.

David O’Connor — Exane BNP Paribas — Analyst

Great. Thanks for taking my question. Maybe Gregg, if I can go back to the Wafer Supply Agreement. Given the transition that we’re seeing in the industry from the 150-millimeter to the 200-millimeter, I’m just wondering why 200-millimeters were not part of this expanded Wafer Supply Agreement, given that it’s going to stretch into the back part of the decade? And so just in addition to that, the $1.3 billion in agreements, is still the five-year timeframe still the right way to think about that? Thanks.

Gregg Lowe — President and Chief Executive Officer

Yeah. So on the second question, yes, kind of half a decade is about the right zip code, if you will. Some of them are obviously a little bit longer and the one we just announced and gets into the second part of this decade here with ST. And just in terms of — just to remind everybody, all the deals that we’ve done are 150-millimeter and we’re really focused on just ramping our internal capability at this point on 200-millimeter. So it’s more of a decision just to stay focused on that.

David O’Connor — Exane BNP Paribas — Analyst

Got it. And maybe just one quick follow-up for Neill on the OpEx, how we should model that into the next fiscal year, anything that to call out there? Thank you.

Neill Reynolds — Chief Financial Officer

Yes. Thanks, David. As you get into the OpEx, I think similarly, you could think about that accreting at a couple of million dollars a quarter and the investment areas remain the same. It’s primarily in R&D as it relates to bringing new products to market, in addition to the 200-millimeter development work that’s going on. And in sales and marketing, we’re investing in to help us bring home more of these, grow the pipeline and grow design-in levels as we continue to do. And those are the areas that we’re investing in. So you can think about maybe a couple of million a quarter as you get out to the end of the year.

David O’Connor — Exane BNP Paribas — Analyst

Got it. Thanks so much.

Operator

Thank you. At this time, I’m showing no further questions. I would like to turn the call back over to Gregg Lowe for closing remarks.

Gregg Lowe — President and Chief Executive Officer

Well, thanks everybody for your engagement and questions and participation in the call today and we look forward to talking to you over the next quarter. Thank you.

Operator

[Operator Closing Remarks]