Guido Pickert - VP, IR & Corporate Communication Bernd Schulte - President Charles Russell - CAO Felix Grawert - President

Uwe Schupp - Deutsche Bank Charlotte Friedrichs - Berenberg Janardan Menon - Liberum Capital Limited Andrew Gardiner - Barclays Bank Jürgen Wagner - MainFirst Bank Malte Schaumann - Warburg Research Veysel Taze - ODDO BHF

Ladies and gentlemen, welcome to AIXTRON's Q3 2018 Results Conference Call. Please note that today's call is being recorded. Let me now hand you over to Mr. Guido Pickert, VP of IR and Corporate Communications at AIXTRON, for opening remarks and introductions.

Thank you, Operator. Let me start by welcoming you all to AIXTRON's Q3 2018 Results Conference Call. I'd like to welcome our Executive Board represented by Dr. Felix Grawert and Dr. Bernd Schulte, as well as our VP of Finance and Administration, Charles Russell. As the operator indicated, this call is being recorded by AIXTRON and is considered copyright material. As such, it cannot be rerecorded or rebroadcast without express permission. Your participation in this call implies your consent to this third quarter recording. As with previous result conference calls, we trust that all participants in our results presentation slides, Page 2 of which contains the usual safe harbor statement. I will therefore, [indiscernible] or not, I would like to point out that it applies throughout this conference call. We now also wish to which to have a look at our latest IR market presentations, which includes additional information on AIXTRON's markets and its technologies and is also available on our website. This call is not being viewed used and presented via webcast or any another medium for error. We have placed an audio file of the recording or a transcript on our website at some point after the call. I would now like to hand it over to Dr. Bernd Schulte for opening remarks. Bernd?

Many thanks, Guido, and a warm welcome from my side as well. As usual, I will start giving you some insight into our core markets as well as an overview of the key developments in Q3, before handing over to Charles Russell, who will guide you through the financials, which will then be followed by Felix Grawert, who will give you more insights about our co-joint venue with IRUJA, and updates through the power electronics markets. I will then come back to wrap up. We had a solid third quarter, with continued strong order intake, and as a result, we can again upgrade our 2018 full year guidance. Last quarter, we increased our original order guidance range from between €230 million and €260 million to between €260 million and €290 million. We now see orders to be at the upper end of our guidance at around €290 million. The revenue guidance remains unchanged at around €260 million. Last call, we gave you a guidance for EBIT margin of around 10% of revenues, which compares to approximately €26 million. We also expect it to achieve a positive operating cash flow. This call, we see EBIT higher in the range of €35 million to €40 million, and consequently now with a positive total cash flow. With the signing of the joint venture agreements between IRUJA and AIXTRON, which Felix will explain in more detail, we have now completed the adoption of our group structure, which we had initiated in 2017. We have focused our core business into attractive and future-oriented growth markets and with that, we've used our R&D spending. Now we have shown that we were able to return to sustainable profitability. Before I make more specific comments on our future numbers, let me first talk about what's going on with our core optoelectronics markets on Felix' related comment on power electronics. Our strongest market this year is for optoelectronics solutions business, and in particular, the production equipment for the manufacture of so-called surface-emitting or edge-emitting lasers. These are key components of 3D sensor systems, on datacom and telecom. We see this as a multiyear growth trends, with multiple fast-growing end markets, from smartphones to robotics or to automobiles. However, 3D sensors are in the early stage of adoption and it's not clear which trends and concepts will have more share. That said, in the majority of the currently discussed technical concepts, the key components need to be in a fat circle of deposition equipments, and we are very well positioned in our best-in-class solutions. Our next biggest market this year are specialty LEDs, such as red-orange-yellow, or ROY LEDs, for use in this space. We assume strong interest from our customers for these solutions, but orders are rather lumpy with few Chinese LED manufacturers usually order in larger quantity at once. Let's now return to Q3. The good news is, that we have seen strong interest for our full range of products, in particular, solutions for the production of ROY LEDs, power electronics and lasers. This is reflected in a solid order intake in Q3 at €76 million, which leaves us with an order backlog of €152 million, which is 53% higher than the same period last year and gives us good visibility going forward. Q3 revenues were also solid at €63 million, up 2% from the same quarter last year and 15% up on the previous quarter. We also had a very strong quarter in terms of profitability, driven by a high gross margin of 44% and good control of operating expenses, which resulted in an EBIT of nearly €9 million and a net income of €12 million. This is a good point to hand you now over to Charles for a more detailed overview of the Q3 2018 financials. Charles?

Thanks, Bernd, and hello to everyone. Starting on Slide 5, we had a good third quarter with an order intake of €76 million, which was similar to the previous quarter and 10% ahead of the €69 million we had in the same quarter last year. On a 9-month basis, order intake was €230 million, which was 16% ahead of the same period last year. The end of the third quarter 2018, we had equipment backlog of €152 million, 10% ahead of Q2, and the highest backlog in 7 years. This gives us good visibility for the remainder of the year and into 2019. On a like-for-like basis, excluding the solar activities, revenues in the first 9 months of the year were 30% ahead of the same period in 2017. The included product and regional mix produced a gross margin of 43%, which was well ahead of last year's 30%. EBIT was €21 million and net income, €28 million in the first 9 months. Net income was higher than EBIT because of deferred tax assets, which was unrecognized in 2018. Moving onto the next slide, we'll be going into more depth on the income statement. Total revenues recorded during the first 9 months of 2018 were €181 million, up from €176 million in the previous year. On a corporate basis, Q3 revenues were €63 million compared with €62 million in Q3 last year and €55 million in Q2. Gross margin was 44% in the quarter, 43% in the 9-month period. The favorable product and region mix, together with the strengthening dollar, helped sustain this high level of profitability. Gross margins in the same period last year, when inventories were being cleared and the product mix was not so good at 30%. Operating expenses were €58 million in the first 9 months of 2018, 21% lower than the same period last year. But compared with last year's OpEx, [indiscernible] on a like-for-like basis in 2017 includes write-downs and the expenses of the activities before last November. On a quarterly comparison, operating cost was stable at €19 million compared with €20 million in Q2, €19 million in Q1. Selling expenses of €2 million and G&A expenses of €5 million in Q3 were in line with the previous two quarters. R&D costs in Q3 of €30 million, the same as the previous two quarters as well. Overall, EBIT for the first 9 months was €21 million and net income was €28 million, both [indiscernible] in the same period in 2017. Net income in Q3 was €12 million, it was recognizing [indiscernible] of the €7 million of deferred tax assets. Moving to Slide 7, which shows you our cash flow statement. Operating cash flow was €12 million for the first 9 months and €40 million from Q3. The operating cash inflow recorded by and large reflected the profitability. Net change in the working capital was funded largely by increased customer deposits. Cash at the end of September was €245 million compared with €246 million at the end of 2017. Turning to the balance sheet on the next slide. The main changes are an increase in pay inventories and the associated customer deposits, reflecting a strong order backlog for delivery over the next months and a reduction in receivables to 45 days outstanding. With that, let me hand you over to Felix.

Thank you, Charles. Let me briefly discuss the current prospect in the market for power electronics and give you some flavor on the IRUJA venture announced last week. We are currently seeing growing interest for our MOCVD equipment for power electronics in this quarter, during [indiscernible] announced orders for this application. For the first time, we have more orders on conduction capacity extensions rather than just for development and for product qualification. In particular, for radio frequencies, our data transmission, you see the market in a state of production expansion, with more room of growth, driven by the balanced mix of next-generation mobile network, which is, formed [indiscernible] of 5G networks, which is addressed by either gallium nitride on silicon carbide, or gallium nitride on silicon solutions. Also, in the markets for, again, on silicon power switches, we see several customers moving from qualification to production phase. In both these markets, our equipment charged the customer need for high productivity in combination with high [indiscernible] quality. In the markets for silicon carbide cover, in the wake of production, we have observed major capacity expansions in 2018 and orders reaching well into 2019, the majority of which currently is being placed at our competitor. However, our project for a fully automated planetary reactor for silicon carbide is moving ahead, on schedule and as planned, as we receive very positive customer feedback on the time of specification. This is a good confidence that we will be able to gain market share as soon as this [indiscernible] in qualified ex-customer. Last week, we announced a joint venture agreement with the South Korean OLED supplier, IRUJA Co. Ltd under the agreement, IRUJA will contribute automation-attending technology, as well as some cash to our OLED business APEVA, with the goal of obtaining up to 20% of that business into the next few years. A large part of the automation and handling team of IRUJA, as well as their current CTO, is transitioning to APEVA Korea. Along they are bringing IRUJA's well proven Automation & Handling technology in the form of software, CMV volume and [indiscernible] experience. Handling of glass substrate with highest reliability, removing downtime and minimum glass breakage is a critical part in the display industry. Imagine in a [indiscernible] system, a sheet of glass for display is more than 5 square meters in size but less than 1 millimeter thick, and is moving through the over production line, hundreds of meters in length. Our partner IRUJA is a market leader in sputtering technology for OLED and well-known for its high reliability solution that increases the capabilities to handle such requirements. At closing the joint venture, IRUJA will become a complete deposition system provider for the organic material layer within the OLED stack. Its product offering will span the complete set of key modules for innovative organic evaporation sources, deposition process technology as well as substrate handling systems and the required vacuum technology. With part of the IRUJA automation handling team moving to APEVA, with [indiscernible], our colleague organization, which is essential for localizing production in [indiscernible] and in Korea, and also from getting an in-depth understanding of customer requirement going forward. Furthermore, IRUJA will be the manufacturing partner for a significant portion of APEVA's segmented position system. We are very glad to have found a real partner for manufacturing who is much more eager to reach deadlines and quality targets than just a local contract manufacturer that we wouldn't have had to work with otherwise. Our partner IRUJA is well-connected collected in the Korean display value chain. We see the signing of the JV also as a proof of trust by IRUJA, but they also see the high potential of APEVA's brilliant technology. Overall, we're very excited about the joint venture. It will be really, it will make APEVA a complete deposition solution provider for organic material layer. Currently, we are installing our Gen2 OLED production solution for testing as a major OLED display manufacturer. We are very hopeful to sign a production and book order next year for a prototype card system, scaled up to full production size as the next step on our journey toward mass production. With that, let me hand back to Bernd for a summary and closing remarks.

Thank you, Felix. Let me summarize the major points discussed today before we move to your questions. Firstly, we are seeing strong interest in our diversified range of products from a growing set of customers, which gives us confidence in the quarters and years ahead. Secondly, we are firmly focused on investing market solutions to produce compounds and conductors from which we see a multiyear growth trend. And thirdly, we are in a strong financial position, with our strongest order backlog since 2011, with healthy margins being generated. We see orders at around €290 million and revenues at around €260 million, which both are at the upper end of the guided ranges. We also expect gross margins to be around 40%, with EBIT between €35 million and €40 million. Furthermore, we now expect to generate positive total cash flow. With that, I thank you for your attention, and I will pass it back to Guido before we take your questions.

Thank you, Bernd, Felix and Charles. Operator, we'll now take your questions, please.

[Operator Instructions]. And the first questioner is Uwe Schupp from Deutsche Bank.

Two questions, please, actually. First, Felix, on OLED and just a few more maybe clarification details, rather. First of all, can you give an indication about the absolute amount of the cash contribution? Just indication-wise? Secondly, how do you account for the cash at APEVA or AIXTRON? So if it's dedicated in the APEVA subsidiary or basically where will you show it? And then really, how confident are you for first production system -- or preproduction system next year? And then maybe lastly on OLED. Do you expect this pull more on the smartphone side or on the TV side, because historically, my understanding is the Asian display customer has been shifting a bit back and forth between the 2 applications. Then secondly, Bernd, at Q2, you highlighted that we should be prepared for weaker gross margins in the second half. You played product mix back then. Given higher [indiscernible], I guess that's probably what you meant. Today, you report obviously very strong gross margin after 9 months. I think you stay at now, you are at 43%. So I guess the simple question would be, if we should model a substantially weaker Q4 gross margin based on product mix? Or are you simply very cautious here again?

So thank you very much for that question. So let me take your questions on the OLED first, yes? So we've decided not to reveal the exact amount invested, and however, the investment is expected to cover the cash end of APEVA. Actually, going to the case in point, according to the current business plan. So the amount is getting invested directly into APEVA, and together with a smaller investment side from the AIXTRON side. And together, there is a plan to bring this [indiscernible]. Another step to make APEVA now fully independent on [indiscernible] APEVA once the cash injection that is needed and until the business can float it. And then, of course, that is subject to the orders from the customers coming [indiscernible]. And let me, to the first question, and how confident we are that we will get an order in 2019 for the mixed [indiscernible]. Once again, as we mentioned, we are executing our development program which comes later in later, in fact. Currently we are now installing our Gen2 [indiscernible] of the customer. The customer will then test this system, and that has to live up to the value proposition that we are expecting, and if this value proposition is verified, then of course, we can expect to get an order. If instead [indiscernible], then we will not get the order. Then that is the [indiscernible] which is still there in the space that we had already mentioned, yes. To your question about the target market, smartphone or television. Once again, it depends largely on the decision of our customer, and understand it's going to be likely at different sizes, a television system would be a larger size than a smartphone system. And once again, I would not want to anticipate here the decision of the customer before it is being made, because we understand that our customers, a number of things really depend on the verification of the technology and on their internal movement discussion, yes. We will follow our customer's wish here. And with that said, I will hand over to Bernd.

Yes and Schupp, thank you for your question. Certainly, you hear in the world that we announced that the product is in the second half, in terms of gross margin will be less than in the first half [indiscernible] how you see it. It's not exactly the case. And that has to do, in Q3, particular this degree of the stronger dollar, but also we'd see, via certain cost-reduction measures in terms of the anti-cost activities taking some benefits, which will [indiscernible] to anticipate, sort of, not exactly what we will get them into execution. And regarding Q4, certainly, Q4 will be at a lower gross margin than in Q3. This is quite logical going forward, but we are -- and when you look in our EBIT guidance and the range we've given, we're also anticipating certainly a continued stronger dollar than 1 20. That is our usual anticipation of -- for the near. So this is ranged basically, is covering the potential distance in dollars, but we will see definitely some reduction in gross margin in Q4 compared to the other points, but not dramatically.

Yes. I was going to say that the dollar continues to be a tailwind, presumably given the extra at 1 20 bottled rate, and that we have spotted at 1 40, 1 15. Plus, I guess, the design to cost measures are probably also here to stay, right? Or is there any reason to assume why they should be get a rating, rather sooner than later?

Not that [indiscernible]

Next up is Charlotte Friedrichs from Berenberg.

I have a few questions. So I was wondering on the order intake, can you give us a bit of an idea of what the split was in 9 months or Q3? And looking at your guidance for the full year, that implies a slowdown in Q4. Is there a particular reason or driver for this? Then second question would be around opto, and if you've taken any new sale on to your clients? From that around, it says the new announcement, any fulfillment, et cetera? And then finally, the third question's around the cost structure. If you are now, roundabout, at what you would call a run rate? And if you can maybe give us a bit of color on your R&D spending going forward, specially also now that you have made progress with the JV?

Okay. And coming to the order intake with -- in Q3, I think we mentioned that during our speech, we had a pretty even split between our many applications, which are systems for lasers, systems for LED and there are a majority of use for red-orange-yellow LEDs and power electronics. And this is noticeable because it doesn't show an increase in orders for the power electronics side. For your questions regarding optoelectronics, whether we see a significant change in the markets in the sense of customers trying to postpone shipments, [indiscernible] taking now, we do not see that. And about new customers, and I think I mentioned already, I think in the last call, I believe, that we're seeing new entries of customers, in particular coming from Asia, and they are in particular, from China. And Charles, you mentioned about the...

Yes. Back on the -- the question about the run rate of the expenses. I think, we are at a more or less stable level for run rate. And then I would expect that the R&D spend in Q4 would be slightly less, because some of the expenses associated with some of the lumpy projects will be less in Q4. And going forward into 2019, as Felix said, we will be building up the organization called APEVA in Korea a little bit, so with the effect if we get an order for a larger system in Korea in 2019, the overall effect on the result will be less from APEVA against the a huge reduction in expenses.

The next questioner is Janardan Menon from Liberum.

I guess, wondering about your outlook. I know, you're not going to comment on 2019, but your sales are spiking quite a bit into Q4. You're going from around €65 million to about €80 million of sales from Q3 to Q4. Based on your backlog, which gives you quite a bit of visibility into the early part of next year, would you expect that run rate to sort of drop back in Q1 to the 65-ish kind of level? Or can you -- do you think it will continue at a -- at a slightly higher level, closer to Q4 level, based on your current visibility? And I have couple of follow-ups.

Yes, thank you Janardan. I mean, you're quite right. The sales will increase in Q4, but [indiscernible] and in terms of run rate going forward, I mean, it gives you a lot of guidance for the full year order intake, which gives you certain suggestions from being around, from €273 million, around €290 million. Honestly, for the run rate, Q1 is a little bit early in terms of order intake to speak. And so please excuse [indiscernible] can speak about it.

And on the silicon carbide, the new higher productive platform, I presume your current order intake does not include any order for that system as yet, since it's still in qualification. I was just wondering, once that system gets qualified and goes and given the kind of demand profile that silicon carbide has in the market for the next many years, what kind of orders do you think is reasonable? What about €10 million a quarter on that range being reasonable, and which would come on top of your underlying orders of your existing businesses? Or would that be too optimistic?

Well, I think that really depends on the market share and copy to your second question, by the way, that really depends on the market share we can gain with the system side. So you're right. New orders from the system yet to be -- to be qualified first. This is for sure. Yes. And then, relating to the [indiscernible] volume potential, I think it can outgrow the 10 million you mentioned, and if it's dominating a large market share very much, yes. However, that still needs to be proven. And in [indiscernible] position, yes, as we mentioned, the market today is quite a competitor and, of course, we are very ambitious. But that remains to be proven, how much we actually will get, yes, and be aggressive.

Got it. And my last question is on the LED side of your business, where the revenue run rate seems to have fallen quite a bit in 2018 compared to 2017, where you were so -- averaging €15 million to €20 million a quarter across the 4 quarters. I was just wondering, and I understand that it's lumpy, and that some of it is coming from big Chinese orders, et cetera, but is there any specific reason why we will be sustainably at a lower run rate on that business? Or can we go back to the kind of run rate that we saw in 2017 on the specialty LED side?

Janardan, as I mentioned, the LED business and the order intake has been [indiscernible] has a certain [indiscernible]. And don't forget, in 2017, we have the sign-off of the -- of 6 inventory, which also reported under the LED product segment. And in a sense, we continue to -- orders in this year, which basically now, getting in the second half shipped in terms of [indiscernible] generating revenue in the second half of this year and even go into the first half of next year. All is timing. It's pure timing, and basically [indiscernible]

The next questioner is Andrew Gardiner from Barclays.

Another one on OpEx. [indiscernible] the financial guidance more broadly for the fourth quarter and implied by the 2018 profit guidance. I can see, sort of based on what you've been describing, revenue and gross margin-wise, how you get to the lower end of that €35 million to €40 million range. But if, unless -- if gross margins even remains sort of flattish or slightly down based on what you've described and you hit the revenue guidance, to get towards the higher end of that range, to the €40 million for the year, it implies a more material drop in OpEx. So as per Charles, to your point, just how lumpy were things in the third quarter that could lead to a bit more the GaN taken in fourth quarter? What -- put another way, what is it that can get you towards the high end of that €40 million range?

Thanks for the question. I think that the guidance is gross margin around 40%. So I would think, to summarize between where we are now and 40%, the OpEx, I think will be down a little bit by maybe a couple of million or so. But what we get is to the higher end of that, or towards the higher end of that, which is what happens to the exchange rate, because we typically ship quite a lot in November and December, and it depends on the Chinese exchange rate, towards that time [indiscernible] could get it close to the higher end. But the guidance is €35 million to €40 million, not €40 million.

Okay, that's understood. And then, just as I think into 2019, if I recall what you said at 2Q that P&L cost for APEVA was around €25 million this year, and you thought at the time, it would decline into 2019. I take it from, obviously, the progress you've made designing in the JV, and what you described in infrastructure, that is no longer the case. And the natural fact, will, it is going to be sort of flattish at that €25 million level? Or is there more moving parts around that?

No. It's clearly planned for the OpEx for the OLED, for the APEVA is expected to decline, as previously announced. What exactly that number will be, will also depend largely on the size and the timing of the customer contract or customer order, yes? So what would you [indiscernible] on that bet, but play with the message that is [indiscernible].

And now we come to the next questioner, it is Jurgen Wagner from MainFirst Bank. Jürgen Wagner: You mentioned that you uncovered a new platform. When will you see qualification next year? And second question, on your -- or you mentioned new customers for [indiscernible] etching, meaning for laser equipment out of China. How do you expect the installed base for your equipment to develop going forward, especially into 2019?

Yes. So let me take your question on silicon carbide first. For the qualification, is beginning very smooth. The first 2 is the installed at a customer with a week from now. And the qualification, we'll land and expand throughout the first half of 2019, given eventually how fast it had finished the length going with [indiscernible] but clearly, we expect the qualification to be concluded and finished at the customer -- at a customer premise during 2019. Jürgen Wagner: And maybe follow-up to this. And so that will be, then early enough to generate some revenues next year for your new platform?

Yes. To your question, the development of the VCSEL markets, in general, we have seen, over the last 18 months, particularly the market to develop something in 3 phases. First phase, we are the tier 1 players, which are dominantly supplying the current end customer for straight forms. So basically the lead customers have managed their capacity about 12 to 18 months ago, given the orders. And they all have invested in significant increases of factories, which are now getting into the phase of being finished. Then it needs to be [indiscernible] when they continue their investments into the next level. Second phase that we have follow on from Asia, maybe Taiwan, and that the -- that we are seeing [indiscernible] in some of the some say, the first place, we saw new entries from China and basically companies, they have [indiscernible] much before. [indiscernible] to develop a certain entry in this market in particular, to get a third share in the local Chinese markets for 3D sensing application and basically, when we look in the future, I see the question is when are Tier 1 players, who have started to [indiscernible] 18 months ago, when are they going into the next phase of their production then? And that is depending on many manufacturers, of course, when are, what end products will they get equipped with, can you get in -- to be thanking solution [indiscernible] for that. And we also, we don't know more than you, in terms of what [indiscernible] makers will bring up there and what products. But in principle, I think, it's just a matter of timing. It's not a matter of general discussion, yes? Because all the customers, that I mentioned, they [indiscernible] investing in new factories.

The next question comes from Malte Schaumann from Warburg Research.

A question based on the silicon carbide business. How many customers are in force regarding the present qualification tool? And then secondly, is the timing, the availability then from you to -- sufficient to meet the customers' demand to ramp capacity in power electronics?

We are currently talking to all market participants relating the specification and the tool. And we see very positive feedback, as mentioned, very broad across the market, across all continents. We have multiple modern training customers with qualification tools. And to your question whether we would able to reach a, to interpret your question, a sudden demand spike, it's an interest and really come? We would note -- we would not see any reason we can't, of course, address that remark.

And that, I think related to last question and did you see with, did we, from a time perspective, from the market demand, customers are can wait for your tools, and are not forced to make investments that might come too early for you.

We've seen in the market a continuing large investment weight, yes? That is ongoing. That large investments have made in 2018, even larger investment probably made in 2019, but we see a continuous investment in growth further growing in 2020. So you see this marked SA as we call it, the onetime waste, which has been to made, to catch the weight, yes, but rather we do see because it's a very broad market, with market participants from Europe, from North America, entering now from China, but also, if you all know from Japan, the automotive industry there, a very broad market and continued, gradually going expansion.

The next questioner is Veysel Taze from ODDO BHF.

The first one would be basically on your... on the VCSEL business. You mentioned the different technologies in the market, and it's not clear which technology will be -- will become the main screen technology. Does it matter for you if; it's time-of-flight or structure-like or other solutions from an equipment supplier perspective?

Yes, thank you for that, Taze. This was, I wanted to drive to the point to make. [indiscernible] too much [indiscernible], because we [indiscernible] later device is a, basically, life force for a [indiscernible] solution. And with that, I think, in the energy [indiscernible] for the local device.

But the quality requirements between these 3 technologies, what we have is the 1 which favoring rather you versus your competitors? Or doesn't really matter that much?

I don't think that's a big difference to meet, unique in all cases, very high performance in terms of [indiscernible] and light optipower. So we think that in general, we -- specifications in one or the others are quite similar.

Okay. And on the power business, I mean, you commented a lot about silicon carbide. But looking at the gallium nitride part of the business, it looks like you are surprised by the strong order entry in Q3 or you were not maybe anticipating that. Do you think this is a bit older application, speaking up in communication and that [indiscernible] network equipment? Do you think this recovery or this strong momentum in Q3 to have -- to accelerate or to continue in 2019, particularly in first half?

We interpret it now, or what we believe and what we see in discussions with our customers, the market for gallium nitride has a tipping point, yes? We do see there's a market for radio frequency for the data transmission, it's in a continuous expansion phase, not expanding phase, continues, similar what we mentioned with silicon carbide, in that it's slightly [indiscernible]. And what I mentioned in my speech, we do see now that the market also for gallium nitride power supply, our customers have been buying systems for R&D, for qualification, a system here, a system there. But essentially the [indiscernible] is our customer. And now we see, step-by-step orders coming really from the production team, and we know that on our [indiscernible], volume production is running and we expect, again, to start from a small base, but we expect that starting point of small base continuing, this will grow in a real production volume, yes. And we see what we interpret the current order momentum and a change of further market value.

Okay. And then final one, on your cash position. I mean, if I strip out what you need for your operating business, then spare cash is something around €180 million-something. And have you planes with the cash position? I mean, smaller acquisition maybe, where you think you have newer technology, some blackbox, which you need to fill or any kind of, yes, giving some cash back to the investors, as you are now turning the business around, its decent profitability and free cash flow and visibility?

Yes, I think we should keep in mind, and I mentioned this also in [indiscernible] when you're basically now at the point where we have really completed the new adoption of the green structure. We are coming out of [indiscernible] patiently running and strong fit into, it's a profitable business. This [indiscernible] in different products, which are our key technology. I think that's completely [indiscernible] how to think about how we will [indiscernible]. This is a process [indiscernible] and now beginning, and so far, we cannot give comment and details in we are going to with the cash. I was thinking in mind that we have [indiscernible] manufacturer, [indiscernible] strategic in the cash [indiscernible] and our billing project is always in a situation, on the complexity, that we do [indiscernible] don't have to happen solid, with a strong cash position.

And we have a follow-up question from Uwe Schupp, Deutsche Bank.

Yes, just a follow-up on the 5G question from Veysel, just a minute ago. Have you ever tried to size the market for 5G? As of now, I -- could it be -- will it be a VCSEL slice of a market? Or will it be, for whatever reason, much smaller or much bigger? And then, probably can't mention customer names, but I mean, who would be the IQE, so to of speak, of that particular market. Maybe regionally, you can nail it down somewhat. That would be very helpful.

Yes, from the [indiscernible] market, yes, of course, we do have the sizing of the market. The market for us is essentially 2 top markets. The 1 being in the base [indiscernible] equipment, such as, say in, storage, on the silicon tower, now let me put it this way. The other market will grow into higher future use of the 5G bench, pointing to 6 gigahertz, which is in the cellphone, yes, and that would double the market size. And on future, we've shown yes, and the decisions of the telecom operators and of the, of a mobile phone maker. And when this part of the market is coming, yes, so I would not want to give you a sizing of the market, but we clearly see that the whole discussions about Internet of things, autonomous driving and so on, I mean, those parts are clearly a merged topic for 2019, yes, but further down the road. And if it materialized, the higher frequency band will be the root. And if the frequency band is released, that market will need gallium nitride power amplifier in the phone, yes. And we see this as a long-term trend.

Could you indicate a [indiscernible] customer namers, or maybe you can nail it on regionally, where we are seeing that demand coming from right now?

As you know we have a very high tight market share. In the [indiscernible] power, [indiscernible] we know who the players in the market are, taking that as our customer.

So thank you all. This concludes today's Q3 results conference call. Our next results will be announced in February, 26, 2019, for the full year 2018 results. In the meantime, I hope to see one of -- some of you on either the upcoming investment conferences or meetings in Europe or U.S. Until then, see you later, have a good day. Thank you.

The conference is no longer being recorded.